Tata Motors turns profitable: Street bets on JLR’s ambitious targets, debt reduction

Tata Motors Q4: Broking house Motilal Oswal reiterates Buy with a Target Price of Rs 590.

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Tata Motors share price touched 52-week high of Rs 537.15, rising 4 percent in the early trade on May 15 as the company turned profitable in the quarter ended March 2023.

Tata Motors on May 12 swung to a consolidated net profit for the quarter ended March at Rs 5,407.79 crore, against a net loss of Rs 1,032.84 crore in the same quarter last year.

Revenue from operations came in at Rs 1,05,932.35 crore, up 35.05 percent from Rs 78,439.06 crore in the corresponding quarter last year.

The Board of Directors at the Tata Group automaker recommended a final dividend of Rs 2 per ordinary share and Rs. 2.1 per share for DVR shareholders, subject to approval by the shareholders at the AGM.

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Here is what brokerages have to say about stock and the company post its March quarter earnings:

Motilal Oswal

Tata Motors should witness a healthy recovery as supply-side issues ease (for JLR) and commodity headwinds stabilize (for the India business).

It will benefit from: a) the CV upcycle and stable growth in PVs, b) company-specific volume/margin drivers, and c) a sharp improvement in FCF as well as a reduction in net debt in both JLR and the India businesses.

The stock trades at 17.3x/15.0x FY24E/FY25E consolidate P/E and 4.4x/3.8x EV/EBITDA.

Reiterate Buy with a Mar’25 SOTP-based Target Price of Rs 590.

Jefferies

The broking house kept a “Buy” rating and raised the target price to Rs 665 per share.

In the fourth quarter, the company reported a 47 percent year-on-year increase in EBITDA, reaching a new high. The EBITDA per vehicle rose across Jaguar Land Rover (JLR) and India’s commercial vehicle (CV) and passenger vehicle (PV) segments. However, net automotive debt decreased.

JLR is optimistic on FY24, as it expects further improvement in chip supply. JLR has a strong orderbook and aims to deliver over £2 billion in free cash flow in FY24.

However, the demand commentary was soft, with a single-digit growth outlook for commercial vehicles (CVs) and passenger vehicles (PVs) in FY24.

Overall, Jefferies maintains a “Buy” rating on Tata Motors’ stock and has raised the target price to Rs 665 per share.

JPMorgan

The research house assigned a “Neutral” rating and raised the target price for Tata Motors to Rs 455 per share.

The Jaguar Land Rover (JLR) and India commercial vehicle (CV) EBITDA was marginally lower but the India passenger vehicle (PV) segment was beat.

The consolidated automotive free cash flow (FCF) improved, while net debt declined.

The most important driver of the stock will be investors’ confidence in JLR’s FY24 free cash flow guidance.

JPMorgan has increased FY24-25 EBITDA estimates by 10-11% to account for better outcomes at JLR.

Kotak Institutional Equities

Kotak Institutional Equities assigned an “Add” rating to the stock and set a target price of Rs 530 per share.

It was a steady quarter with Jaguar Land Rover (JLR) and domestic commercial vehicle (CV) business EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) was in line.

However, the domestic passenger vehicle (PV) business segment’s EBITDA margin was 50 basis points (bps) below estimates due to higher marketing spends.

The auto business free cash flow (FCF) generation remained strong in Q4FY23.

The gradual recovery in JLR’s volumes led by an improving availability of chips, and steady demand trends.

Goldman Sachs

Goldman Sachs kept a “Buy” rating and raised target price to Rs 600 per share from Rs 550 per share.

The favorable Jaguar Land Rover (JLR) outlook and domestic electric vehicle (EV) catalysts setup a strong FY24.

Q4 was a beat with EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) and PAT (Profit After Tax) exceeding consensus.

The JLR margin surprised to upside led by a favorable mix and progress on lean initiatives.

The company expects over 25 percent year-on-year growth in JLR volumes and 5-7 percent growth in domestic commercial vehicle (CV) and passenger vehicle (PV) volumes in FY24.

Furthermore, JLR expects to generate over 6 percent EBIT margin in FY24.

Nomura

Brokerage firm Nomura has maintained a ‘buy’ rating and raised target price to Rs 610 per share from Rs 508 per share.

The fourth quarter results were broadly in line. The margins are expected to trend up across segments. Furthermore, debt reduction is a key catalyst.

Jaguar Land Rover (JLR) has set targets for FY24, aiming for wholesale volumes of 4 lakh units and an EBIT (Earnings Before Interest and Taxes) margin of over 6 percent.

Tata Motors is trading at 4.3 times its FY24 EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization).

Rising JLR production and debt reduction would be important catalysts.

At 09:38 hrs Tata Motors was quoting at Rs 530.60, up Rs 14.95, or 2.90 percent on the BSE.

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