MOFSL sees 17% upside in Tata Motors; semiconductor shortages critical bottleneck for JLR

Shares of Tata Motors surged over 4 percent and hit an intraday high of Rs 443.20 on September 20 (Tuesday), as Motilal Oswal Financial Services (MOFSL) sees a potential upside of 17 percent from today’s high.

Motilal Oswal has maintained its ‘buy’ rating on the carmaker’s stock with a target price of Rs 520. At 3:12 pm, the scrip was trading at Rs 433.7, up 1.9 percent on the BSE. The stock rose today after falling for four consecutive sessions.

The domestic brokerage firm believes that Tata Motors will gradually recover as supply-side issues ease for Jaguar Land Rover (JLR) and commodity headwinds stabilise for the India business.

A recovery in macroeconomic condition, company-specific volume, margin drivers and a sharp improvement in free cash flow and leverage in both JLR and India business will benefit the auto major.

The company said demand is not a concern in the premium segment. Macro headwinds are yet to impact demand, the order book is still growing, and cancellation rates are still very low. The company’s order book is now equal to three-quarters of production, which is why any impact on demand will reflect only after four quarters, the brokerage firm noted in its report dated September 20.

However, “For JLR, the biggest issue remains semiconductor supplies,” Motilal Oswal cautioned in its brokerage report.

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“JLR is the most impacted player given the higher usage of semiconductors in its products, smaller scale, and product launches starting with the Defender,” it added. The Defender, RR, and RR Sport comprise 60 percent of its order book and is growing.

Semiconductor shortages still remain the critical bottleneck for JLR, which is in turn impacting profitability and cash flows, said Motilal Oswal.

Motilal Oswal noted that JLR’s focus is on prioritising available semiconductors for high-margin products. Visibility for its entire chain is currently at two-to-three weeks but needs to rise to two-to-three months, the report added.

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