Nomura on Tata Motors: The Japanese brokerage Nomura has raised its rating on the carmaker Tata Motors from "Neutral" to "Buy," with a target price hike to Rs 1,294 from Rs 1,141, or a 25.6% gain. Tata Motors shares were trading at a fever pitch on the bourses after many brokerages increased their target prices. The share price of the stock increased by as much as 3.82%, setting a new record high of Rs 1,067.
"We raise our target multiple for commercial vehicles (CVs) to 11x enterprise value/earnings before interest taxes, depreciation and amortization (EV/Ebitda), from 10x," stated research analysts Kapil Singh and Siddhartha Bera of Nomura. “We believe that a combination might result in improved value discovery. With investments at Rs 144 per share and typical FY26–27F revenues of 1.5x EV/sales, we retain PV value at that level. At now, the stock is trading at 5.4 times FY26F EV-Ebitda. The net debt of TTMT in FY24 was Rs 16,000 crore, or around Rs 44 per share. By FY26/27F, net cash might be Rs 57, or Rs 140 per share,” they further added.
Why did analysts raise their ratings and target price?
JLR's Shift to Luxury
Analysts pointed out that Jaguar Land Rover will benefit from the shift from premium to luxury. Additionally, analysts believe the plan is effective since Land Rover's incentives have remained relatively stable in spite of a rising tendency for the other OEMs.
Although Average Selling Prices (ASPs) and margins are expected to expand, analysts predict earnings growth can be better despite the modest volume growth (Nomura estimates volumes of 402/405/435k for FY25–27F).
"We project that JLR's ASP will increase to GBP 77,000 by FY27F, up from GBP 72,000 in FY24. Nomura stated in a note that earnings before interest and taxes (Ebit) margins might increase by 8.5% in FY25F (7.8% earlier) and 10.1% by FY27F, with additional potential to increase to 11%–12% by FY30F,” Monura cited.
The demise of Jaguar Internal Combustion Engines (ICE), the popularity of new Jaguar electric vehicles (JEA platform), and the release of more expensive Range Rover models are seen to corroborate this. Take note that the long-term projection is about 15% Ebit margins, they stated. So, according to Nomura analysts, this will rely on how well-received Jaguar EVs are.
The demand for MHCVs is Still Strong
Analysts predict that the demand for medium and heavy commercial vehicles (MHCV) in India will continue to be robust, growing at a pace of 5% volume compound annual growth rate (CAGR) between FY25 and FY27. Additionally, they predict that Ebitda margins would remain stable at 11.5 percent due to strong demand signs.
Demand for EVs, PV Stabilizes
Analysts saw a decline in demand for electric vehicles (EVs) and passenger vehicles (PVs). In spite of this, it is anticipated that future releases like the Curvv (which premieres on August 7) and the Harrier EV in FY25 would increase total numbers.
Research analysts Kapil Singh and Siddhartha Bera at Nomura stated, “We account for a constant 14% market share (with a projection of 18–20% by FY30F). We slightly lower EBITDA margins to 7.3 percent-8 percent and volume growth to 6 percent/5 percent/5 percent over FY25F-27F."
Q1FY25F Forecasts
Analysts predict that Tata Motors would generate Rs 1.09 lakh crore in revenue for Q1FY25, a 7% rise from the previous year. Anticipated Ebitda margin is around 13.8%, indicating a marginal 40 basis point decrease on a quarterly basis because of seasonal variables.
Revenue for JLR is expected to reach GBP 7.3 billion, indicating a 6% annual rise. It is projected that JLR's Ebitda margin will drop by 25 basis points on a quarter-over-quarter basis to 16.1%.
Negative Risks
Analysts feel that a significant drop in demand from China and the EU, together with more performance-related incentives, are the main negative concerns.
