Tata Motors up 10%, at 3-yr high on strong biz outlook, brokerage upgrade

Shares of Tata Motors rallied 10 per cent, hitting a fresh three-year high at Rs 368.25 on the BSE in Thursday’s intra-day trade on expectation of strong business outlook. The stock of Tata Group, a commercial vehicle company, was trading at its highest level since April 2018. It surpassed its previous high of Rs 360.65 touched on June 15, 2021.

The brokerage firm Morgan Stanley has upgraded Tata Motors with an overweight rating from equal-weight and raised target price to Rs 448 from Rs 298 earlier.

Tata Motors is seen more as a Jaguar Land Rover (JLR)/global luxury play, but we believe the incremental upside surprise will come from its Indian business. We expect 2022/23 to be strong for Indian autos and Tata's Indian business, and with its lean cost structure, refreshed model portfolio and high leverage, the foreign brokerage firm said.

As India's auto cycle emerges from multi-year lows, we believe Tata Motors will see the highest operating and financial leverage gains. Market-share wins in India's passenger vehicle (PV) and commercial vehicle (CV) businesses could also re-rate the name from a global luxury play to a global and India play. In our bull case, Tata Motors reaches zero net debt by 2024, while India PV and CV multiples go close to peers, driving ~84 per cent upside in the name. Our base case assumes Rs 158 billion net debt by FY24, it added.

Motilal Oswal Securities too maintains ‘buy’ rating on Tata Motors with target price of Rs 400 per share. “Recovery is underway in all the three businesses of Tata Motors. While the India CV business would see cyclical recovery, the India PV business would witness structural recovery,” the brokerage firm said in its stock report.

JLR is witnessing cyclical recovery, supported by a favorable product mix. However, supply-side issues would defer the recovery process. While there would be no near-term catalysts from the JLR business, the India business (around 50 per cent of SoTP) would post continued recovery, the brokerage firm said.

Meanwhile, Tata Motors Differential Voting Rights (DVR) shares also surged 9 per cent to Rs 195.70 on the BSE. The stock was trading at its highest level since May 2018. DVR shares are shares that are permitted to be issued with differential voting and differential dividend rights.

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