Auto major Tata Motors has given multi-bagger returns to its investors, surging 785 percent from its COVID low. From ₹63.5, hit in March 2020, the stock has skyrocketed to currently trade around ₹560.
Meanwhile, in the last 5 years as well, the stock has doubled investor wealth.
It has advanced over 28 percent in the last one year and 45 percent in 2023 YTD, giving positive returns in 5 of the 6 months in the current calendar year.
The recent rally has been on the back of a strong growth outlook, better performance of JLR (Jaguar Land Rover), margin improvement, and new innovations.
Brokerage house Motilal Oswal has picked the stock as the top investment idea this month. The brokerage has a ‘buy’ call on the stock with a target of ₹650, indicating an upside of 15 percent.
"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 (commercial vehicle) upcycle and stable growth in PVs (passenger vehicles), b) company-specific volume/margin drivers, and c) a sharp improvement in free cash flow (FCF), as well as a reduction in net debt in both JLR and the India business," it explained.
The brokerage analysed the stock after its investor meet where the company laid out its future plans with a path to improving profitability and lowering net automotive debt.
In the report, the brokerage informed that Tata Motors expects a single-digit growth rate for the CV industry in FY24 as it is yet to see any benefits from the implementation of the voluntary scrappage policy from April 2023.
The management also noted that usually, CV demand is good in a pre-general election year due to election spending, and it moderates after the elections.
"The company’s focus on discount moderation is paying off, and it wants to cut discounts to below 10 percent. It has not increased ex-showroom prices since Sep’22; however, a reduction in discounts helped improve realizations," MOSL further said.
It also pointed out that the firm is driving electrification in CVs to lead the EV (electric vehicle) transition by delivering comprehensive EV solutions customized to address intended application requirements. For each of its EV products, it has an anchor customer in place. It has entered into a JV with Cummins for all future zero-emission technologies, including BEV (battery electric vehicle), Hydrogen ICE (internal combustible engine), and Hydrogen Fuel Cell, highlighted the brokerage.
For electric PVs, the brokerage informed that Tata plans to launch six new products on Gen-2 and Gen-3 platforms by FY26, taking its total EV model range to 10 products, adding that these new products will address additional customer segments, with the next four products expected to address 38 percent of industry volumes.
As per the brokerage, for the CV business, Tata Motors has targeted a) a strong double-digit EBITDA margin, b) annual capex of INR25b, and c) strong FCF generation. For the ICE PV business, it expects a) a double-digit EBITDA margin, b) annual capex of ₹3,000 crore, and b) positive FCF generation. For EVs, it aims to achieve a) a positive EBITDA margin, b) cumulative capex of $2 billion until FY27 for product development and architectures, and c) breakeven FCF.
Meanwhile, another brokerage, Phillip Capital, also retained its ‘buy’ call after Tata Motors' investors meet with a target of ₹654, indicating an over 16 percent upside.
"CV demand is expected to remain strong due to favourable macros (freight rates, utilizations, govt push on infra, aging fleet, scrappage policy) and improving profitability in PVs are all aligning for the company. Given the exciting product lineup and new future launches for JLR and the domestic PV business, we expect the order book to remain healthy. Focus on turning EBITDA positive in EVs while continuing product development and developing an ecosystem, augurs well," it explained.
In the March quarter, the company reported a strong performance with a net profit of ₹5,408 crore compared to a net loss of ₹1,032.84 crore in the same period of last year. Sequentially, the net profit rose by 83 percent.
The company also achieved its highest-ever revenue of ₹1,05,932 crore in Q4FY23, up 35 percent YoY and 19.7 percent QoQ. In the quarter under review, JLR also reported a robust YoY volume growth of 24 percent.
Overall in the financial year FY23, the company posted a consolidated net profit of ₹2,414 crore, marking a significant turnaround after four consecutive years of losses that began in FY2019. In FY22, the company registered a net loss of ₹11,441 crore. The Tata Group firm also recorded an all-time high revenue of ₹3,45,967 crore in FY23.