Tata Motors shares tank 5%, but analysts remain bullish; auto stock may be gearing for 26% rally
Rakesh Jhunjhunwala portfolio stock Tata Motors tanked over 5 per cent on Thursday after the company in its Annual Report said that the recent lockdowns in parts of China owing to the spread of COVID-19 are adversely impacting the its supply chains as its suppliers are unable to produce or deliver products to them. Tata Motors said that it is also witnessing a temporary decrease in demand. The auto company also said the ongoing conflict between Russia and Ukraine could have an impact on its business and the results of operations. Tata Motors shares have plummeted 21 per cent. However, analysts remain bullish on the stock and see up to 26 per cent potential rally going forward.
International brokerage JP Morgan has ‘Overweight’ rating on the stock and has a target price of Rs 525. The brokerage is bullish on the counter on the back of Tata Motor’s deleveraging journey as the management has guided for zero net debt by FY24. “The company is deleveraging through free-cash-flow recovery in India and Jaguar-Land Rover (JLR),” it added. “Our March 2023 price target of Rs 525 is derived on a sum-of-the-parts (SOTP) basis: We value the India business at Rs 321/share (14x/12x EV/EBITDA for the CV/PV business respectively) and JLR at Rs 206/share (8x P/E),” said JP Morgan in its report.
Downside risks to their rating and price target include — continued chip shortages could lead to slower volume growth for JLR and delay the balance sheet deleveraging; slower-than-expected recovery in Indian CV segment; a reversal of market-share gains in India passenger vehicle segment due to failure of new models; and higher-than-expected capex requirement to meet electrification targets at JLR and in the India PV business.
IIFL Securities said in its report, JLR’s FY22 Annual Report highlights the company’s strategic focus on two targets: becoming one of the most profitable luxury manufacturers (possibly, with lower volume ambitions); and driving sustainability through rapid electrification. JLR has brought down break-even level by ~50%; this augurs well for profitability as volumes normalise. Although management’s target of double-digit Ebit margin by FY26 (vs. -0.4% in FY22) looks ambitious, it cannot be ruled out, the brokerage said.
“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. Mgmt. reiterated its target of reaching near-zero net debt by FY24 (vs. GBP3.2bn at FY22-end). We believe this is achievable if production level normalises quickly,” said IIFL Securities in its note.
Tata Motors is one of the favourite and most invested stocks of investor Rakesh Jhunjhunwala. He holds 39,250,000 equity shares, which comes to a 1.18 per cent stake in auto major, according to the latest shareholding pattern of the company. Other global brokerage firm are also bullish on the stock. Morgan Stanley maintains an ‘Overweight’ stance on Tata Motors stock with a target price of Rs 530 per share, which translates to a 28 per cent upside, while Nomura gave a ‘Buy’ rating on Tata Motors with a target of Rs 471 per share, implying 13 per cent upside to the stock price.
(The stock recommendations in this story are by the respective research analysts and brokerage firms. FinancialExpress.com does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)