Tata Motors hits Jan 2018 high; soars 39% in a month on strong outlook

Shares of Tata Motors hit an over three-year high of Rs 415.30 as they rallied 8.5 per cent on the BSE in Monday’s intra-day trade, continuing their journey northward on the back of a strong growth outlook. The stock of the Tata Group commercial vehicles maker was trading at its highest level since January 2018. In the past one month, the market price of Tata Motors has soared 39 per cent, as compared to a 3.5 per cent rise in the S&P BSE Sensex.

At 10:52 am, Tata Motors was trading 7.7 per cent higher at Rs 412.50, against a 0.42 per cent gain in the benchmark index. The trading volumes on the counter jumped over two-fold, with a combined 66.11 million equity shares having changed hands on the NSE and BSE so far.

Tata Motors is in the advanced stages to raise $1 billion through the stock sale of its electric vehicle unit, the Times of India reported on Friday. The planned fund-raise will value Tata Motors’ electric vehicle (EV) unit at $8 billion, said the report. It has attracted multiple private equity funds from the US, Middle East and Southeast Asia. TPG, California Public Employees’ Retirement System, Temasek, among others, have also held discussions to lead or co-lead the financing exercise, the newspaper reported citing unnamed sources.

On Friday, while announcing Jaguar Land Rover (JLR) September month retail sales numbers, JLR said that despite the impact of the semiconductor shortage on production and sales, the company continues to see strong demand for its products with global retail orders at record levels in excess of 125,000 vehicles. JLR is a luxury car brand, which includes two prominent names i.e. Jaguar (models like I-pace, etc.) & Land Rover (models like Defender, Evoque, etc)

Despite the continuing semiconductor supply constraints, JLR expects to report a free cash outflow of under £0.7 billion for the quarter, significantly better than the £1 billion outflow initially anticipated.

Meanwhile, most of the brokerage houses have upgraded Tata Motors stock with a price target between Rs 400 and Rs 450.

“We revise upwards our target multiples for India business amid continued outperformance at Tata Motors India and is in line with its peers. We expect a healthy 20.9 per cent revenue CAGR over FY21-23E backed by 17 per cent volume CAGR; margins seen at 14.9 per cent in FY23E along with RoCE of ~15 per cent. Cost control, efficiency improvement-led FCF generation targets for ongoing deleveraging push (FY21 net automotive debt at ~Rs 41,000 crore),” analysts at ICICI Securities said. The brokerage has a ‘buy’ rating on the stock with a target price of Rs 450 per share.

“Tata Motors is seen more as a 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,” Morgan Stanley said.

The brokerage firm believes Tata Motors will see the highest operating and financial leverage gains. Besides, market share gains in the Indian passenger vehicle (PV) and commercial vehicle (CV) businesses could also alter it 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,” the brokerage added.

Meanwhile, Motilal Oswal Securities too maintained a ‘buy’ rating on Tata Motors with a 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 said.