Given the easing of the commodity cycle, robust core sector growth to benefit the commercial vehicle (CV) business, market share gains in the passenger vehicle (PV) segment, and first mover advantage in the domestic electric vehicle (EV) portfolio, the Indian auto market continues to outperform its international counterpart. This trend is anticipated to continue, believes brokerage Ventura Securities Ltd.
The brokerage is very optimistic about the possibilities brought about by the new scrappage policy, and this could be a significant catalyst for sustained growth over the medium term throughout the entire automotive industry.
Since 2018, the brokerage claims, the management of Tata Motors Ltd has implemented a number of restructuring measures that are intended to increase operational effectiveness, reduce capital expenditure, and accelerate Jaguar Land Rovers (JLR's) free cash flow (FCF) generation. Additionally, JLR has taken a number of steps to realign its portfolio for an electric future, guaranteeing the sustainability and viability of its business strategy.
A new development cycle is anticipated to unfold for JLR as a result of the easing of chip availability, China's opening up, favourable tailwinds from the US's Inflation Reduction Act (IRA), and competing EU subsidies revealed at the same time as the interest rate cycle's peak.
"We initiate coverage on Tata Motors at the current market price (CMP) of ₹416 per share with a target price of ₹715 per, representing an upside of 72% in 30 months," said the brokerage.
The brokerage anticipates consolidated revenues to increase at a compound annual growth rate (CAGR) of 16.5% to ₹5,13,579 crore by FY26E, driven by a 12.5% CAGR growth in JLR revenue to ₹3,00,703 crore by FY26E, a 20.6% CAGR growth in CV revenue to Rs. 99,979 crore by FY26E, a 28.5% CAGR growth in PV revenue to ₹88,866 crore by FY26E, and 17.4% CAGR growth in auto finance income to ₹7,312 crore by FY26E and 24.0% CAGR growth in the revenues of other subsidiaries and associates to ₹16,719 crore by FY26E.
"With all business verticals firing, we expect earnings before interest, taxes, depreciation, and amortisation (EBITDA) to grow at a CAGR of 32.7% to INR 72,453 crore and blended EBITDA margins to improve by 572 basis points to 14.1% by FY26E, net earnings are expected to scale to INR 22,327 crore and net margins to reach 4.3% by FY26E," said the brokerage.