Tata Motors hits over 6-year high; up 40% thus far in 2023 on solid outlook

Shares of Tata Motors hit an over six-year high of Rs 542.20, up 1 per cent on the BSE in Monday's intra-day trade, after the Tata group signed an outline deal with the Gujarat government last Friday (June 2) to build a lithium-ion cell factory with an investment of about Rs 13,000 crore. The move comes as India is looking to create its own electric vehicle (EV) supply chain.

Tata Motors already has a plant operational at Sanand, and has also acquired the adjoining Ford Motors' plant. The process of integration of the two plants has begun and may take up to one year to complete, Reuters reported.

The stock of the automobiles major surpassed its previous high of Rs 537.15, touched on May 15, 2023. It was quoting at its highest level since February 2017.

Meanwhile, Tata Motors had reported that its commercial vehicles (CV) sales volume in May 2023 stood at 28,989 units, up 28.9 per cent month-on-month but down 12 per cent on year-on-year basis (YoY). The company, on Thursday, reported 1.62 per cent decline in total sales at 74,973 units in May as compared to a total sales of 76,210 units in May 2022.
CV space reported numbers on expected lines tracking large amount of pre-buying during month of March 2023 (before BS6-Phase 2 transition). However, sequential growth at Tata Motors surprised positively, said ICICI Securities in a note.

The brokerage firm expects this segment to witness healthy demand traction amid robust infra spending by government and capex revival underway.

Thus far in the calendar year 2023, shares of Tata Motors have rallied 40 per cent, as compared to 2.5 per cent rise in the S&P BSE Sensex. The strong rally in the stock price of the company has been seen as Tata Motors is assumed to register improvement in all three of its key segments (domestic PV, CV, and JLR) on improvement in semiconductor chip supplies.

Recently, Moody's Investors Service said it has upgraded its rating outlook on Tata Motors to positive from stable.

"The rating affirmation and outlook change to positive reflect our expectation that the substantial improvement in Tata Motor's credit profile over the past few quarters will sustain over the next 12-18 months," Moody's Senior Vice President Kaustubh Chaubal said in a statement.

Steadily growing volumes and profitability will support the company's earnings and free cash flow expansion, enabling debt reduction even as its capital expenditure stays elevated, he added.

Analysts at Prabhudas Lilladher, too, have a positive stance on Tata Motors given JLR's volume ramp-up resulting in strong revenue, profitability and FCF (aided by high order book), CV segment (on domestic side) benefitting from ongoing upcycle, operating leverage and tailwinds from lower commodity costs & lower discounting and strong market share in PV segment (13.5 per cent vs 8 per cent in FY21) led by revamped portfolio, rising SUV share and rising EV penetration. The brokerage firm has a target price of Rs 605 per share.