Tata Motors gains 3% on Sebi nod to Tata Tech IPO; CLSA raises target price
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Shares of Tata Motors hit a fresh multi-year high of Rs 589.15, up 3 per cent on Wednesday's intra-day, after Tata Technologies received market regulator Securities and Exchange Board of India's (Sebi's) approval to raise funds through initial public offering (IPO).
The stock of the Tata group automobile company was trading at its highest level since September 2016. It hit a record high level of Rs 606 on February 3, 2015. Thus far in the calendar year 2023, it has rallied 52 per cent as compared to a 4.4 per cent rise in the S&P BSE Sensex.
Tata Technologies, a subsidiary of the Tata Motors, had filed a draft red herring prospectus for its IPO with Sebi on March 9, 2023. The company intends to raise funds by way of an offer for sale (OFS) of up to 95.7 million equity shares for cash, representing approximately 23.60 per cent of its paid-up share capital.
The IPO comprises an OFS up to 81.1 million equity shares by Tata Motors, up to 9.72 million equity shares by Alpha TC Holdings Pte. Ltd, and up to 4.86 million equity shares by Tata Capital Growth Fund I, each representing up to 20 per cent, 2.40 per cent and 1.20 per cent, respectively, of Tata Technologies’ paid-up share capital.
"If we are unable to divest our non-core investments and unlock value, it could have an impact on our deleveraging plans and increase the interest costs, thereby affecting our profitability," Tata Motors said in its financial year 2022-23 (FY23) annual report.
Tata Technologies is an engineering, research and development (E&RD) firm working on new technologies like Advanced Driver Assistance Systems (ADAS).
According to ICICI Securities, this is sentimentally positive and is a value unlocking event for Tata Motors. The brokerage firm ascribes a fair value of around Rs 20,000 crore for Tata Technologies. Resultant value accruing to Tata Motors will be around Rs 15,000 crore for 75 per cent stake and an addition of Rs 40/share to their target price calculation.
The proceeds from OFS i.e. Rs 4,000 crore will also help the company reduce debt on its balance sheet and gels well under the broader vision of going net automotive debt free by FY25E, it added.
Analysts at ICICI Securities maintains 'BUY' on the stock with a target price of Rs 700 per share, tracking profitability at the helm in domestic CV & PV business (including EVs), Jaguar Land Rover’s (JLR's) progressive volume recovery on the anvil, reiterated commitment towards EVs & healthy FCF generation.
Meanwhile, brokerage firm CLSA has raised Tata Motors' earnings forecast for financial year 2024 and 2025 by 11 per cent and 18 per cent, respectively, led mainly by higher margin estimates for its UK-unit JLR and its Commercial Vehicles business, reports suggest.
The brokerage has also raised its price target on the stock to Rs 690 from Rs 624 earlier. For financial year 2024, CLSA expects JLR's Ebitda margin to be at 6.1 per cent. Overall, 76 per cent of JLR’s order book comprises higher-margin models such as Defender, Range Rover, and Range Rover Sport, the news channel reported.
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