The auto space has been under pressure for the last few years and at present, it is witnessing strong headwinds presently in terms of rate hikes, slowing economies, soaring inflation and faltering demand.
However, there are opportunities in the sector as cheap valuation and prospects of growth have made some players attractive. Tata Motors, as per brokerage firms, is one such stock which looks poised for growth.
Shares of Tata Motors (TTMT) are down 23 percent from their 52-week high of ₹536.50 that they hit on November 17, 2021.
Now, many brokerage firms believe the company's strategy for growth may augur well for the stock and eventually for the investors.
Global brokerage firm JPMorgan has an 'overweight' view on Tata Motors with a target price of ₹525, which is a 27 percent upside from the stock's June 15 closing of ₹413.85 on BSE.
The brokerage firm values the stock at ₹321 per share for India and ₹206 per share for JLR.
JPMorgan said its positive view of TTMT’s equity story is driven by its deleveraging journey as the management of the company has guided for zero net debt by FY24 against ₹48,700 crore (US$6.5bn) currently which would be achieved through a combination of 'self-help' strategies which should strengthen both its businesses – JLR and India.
The global brokerage firm highlighted the 'self-help' strategy of TTMT will be the key to its growth in the near future.
"For self-help JLR, it will be a mix improvement through model launches in Land Rover and right-sizing of costs
and investments. For self-help India, the company will pursue market-share gains in PVs and the strengthening of leadership in Cvs. The self-help electrification strategy is likely to focus on the EV segment. TTMT dominates (85 percent share) the nascent EV segment within Indian PVs and has raised US$1bn from TPG. JLR’s electrification should improve over the next three years," said JPMorgan.
Brokerage firm IIFL Securities has a 'buy' call on Tata Motors with a target price of ₹515 as it highlighted JLR’s FY22 annual report which said the company’s strategic focus on two targets: (i) becoming one of the most profitable luxury manufacturers (possibly, with lower volume ambitions), and (ii) driving sustainability through rapid electrification. JLR has brought down break-even level by nearly 50 percent; this augurs well for profitability as volumes normalise.
"Although management’s target of double-digit Ebit margin by FY26 (against -0.4 percent in FY22) looks ambitious, it cannot be ruled out. JLR has seen build-up of strong order-book with good response to recent launches (Defender, Range Rover) and high expectations from the upcoming RR Sport. This should translate into higher volumes/earnings in FY23/FY24, as production ramps up. The management reiterated its target of reaching near-zero net debt by FY24. We believe this is achievable if production level normalises quickly," said IIFL Securities.
Another domestic brokerage firm JM Financial has a buy call on the stock with a target price of ₹585.
The brokerage firm has a positive view on the stock as it said the company expects chip shortage to continue with gradual improvement through CY22.
Management has guided for a positive EBIT and FCF for FY23 at JLR driven by continued recovery in production, ‘Refocus’ programme and continued efforts towards cost efficiency.
JM Financial highlighted that the global retail demand remains strong with record high orders and low inventory. Favourable mix, sales recovery and cost-saving initiatives are expected to support margins going ahead while focus on debt reduction (target of debt free by FY24) will aid balance sheet strength. In addition, Tata Motors’ EV portfolio is leading the domestic EV space and by securing strategic investors, it is well poised to build on its initial success.
Disclaimer: This article is based on reports by brokerage firms that are available on public platforms. The views and recommendations made above are those of the broking firms and not of MintGenie.
