1:2 Split, 300-310% Dividend: Tata's Auto Stock Dips 9% Post-Q4; Motilal Neutral, Rs 1100-1200/TP By 2 Brokers

Tata Group-backed automobile giant, Tata Motors stock witnessed sharp selling pressure on Monday after its Q4 results. The stock which was the top Nifty 50 gainer in 2023, and traded above Rs 1,000 levels as of last week, was pulled into a bearish tone due to its mixed performance with EBITDA below estimates. This is despite that Tata Motors India's business is now debt-free. Brokerages have given mixed recommendations on Tata Motors.

Motilal Oswal has recommended a Neutral stance with a downgrade in the target price of Tata Motors. Although Kotak Institutional Equities is cautious about Tata Motors, it has set a new all-time high target of Rs 1,100. On the other hand, JM Financial suggested BUY on this auto stock for a target of Rs 1,200.

At the time of writing, Tata Motors' share price traded at Rs 955.35 apiece, down by 9.20% with a market cap of Rs 3,15,954.63 crore.

Overall, in the latest trading session, the stock nosedived by at least 9.44% to hit an intraday low of Rs 948 apiece. So far, on Monday, the market value of Tata Motors dropped by Rs 32,846 crore taking it to as low as Rs 3,15,099.55 crore.

In the previous session, Tata Motors' market cap stood at Rs 34,7945.62 crore.

In Q4FY24, the Tata Group-backed top auto player bagged a consolidated net profit of Rs 17,407.18 crore, rising by 107.4% YoY. Also, Tata Motors' consolidated revenue jumped by 13.51% YoY to Rs 119,213.35 crore.

For FY24, Tata Motors reported record revenues of Rs 437.9K Cr, an all-time high EBITDA at Rs 62.8K Cr, the highest ever PBT (bei) of Rs 28.9K Cr (+Rs 27.1K Cr over the previous year) and net profit of Rs 31.8K Cr (+Rs 29.1K Cr over the previous year). The strong performance has also helped to recognize a Deferred Tax Asset of Rs 8.3K Cr at JLR and TML.

While JLR continued its strong financial performance trend in the financial year, with another record-breaking quarter in Q4 FY24. Revenue for the quarter was £7.9 billion, up 11% versus Q4 FY23 and up 6% versus Q3 FY24. Revenues for FY24 were £29.0 billion - JLR's highest-ever full-year revenue and up 27% compared to the prior year.

The company announced a final dividend of 300% amounting to Rs 6 per share to investors holding its ordinary shares. The face value is Rs 2 each. The final dividend includes a Rs 3 per share normal dividend and a special dividend of Rs 3 each.

Apart from dividends on ordinary shares, Tata Motors also announced a normal dividend of Rs 3.10 per share and a special dividend of Rs 3 per share for DVR investors. In total, the final dividend payout is 310% worth Rs 6.10 per share having a face value of Rs 2 each, higher than the dividend that ordinary shareholders will get.

Tata Motors Share 2024 Target Price:

Motilal Oswal Neutral On Tata Motors:

Motilal expects JLR margins to remain stable over FY24-26, given: 1) rising cost pressure as it invests in demand generation, 2) normalizing mix, and 3) EV ramp-up, which is likely to be margin dilutive. Even in India business, both CV and PV businesses are seeing a moderation in demand. The brokerage has factored in flat margins for India's business over its forecast period.

Further, the brokerage has recently downgraded TTMT to Neutral (from BUY earlier) and our key arguments at that time were: 1) JLR margins are unlikely to improve from here given anticipated rising cost pressures and normalizing mix, and 2) a weak outlook for India business. These factors are now playing out in line with its expectations.

It said, "While there is no doubt that TTMT has delivered an extremely robust performance across its key segments in FY24, there are clear headwinds ahead that could hurt its performance. We have lowered our EPS estimates by 3%/5% over FY25/FY26. The stock trades at 18x/15.6x FY25E/FY26E consolidated EPS and 6.2x/5.3x EV/EBITDA. Reiterate Neutral with our FY26E SOTP-based TP of INR955 (from INR970 earlier)."

Kotak Institutional Equities Cautious On Tata Motors:

In its research note, Kotak said, "We have fine-tuned our FY2025-26E consolidated EBITDA estimates. FY2024 had many positives for the company-(1) FCF generation of Rs269 bn (Rs78 bn in FY2023), (2) the domestic business turned net cash and JLR's net cash declined to GBP0.7 bn (GBP3 bn in FY2023), (3) record EBIT margin of 8.3% and (4) consolidated RoCE improved to 18.7% in FY2024 from 6.5% in FY2023."

Overall, the brokerage added, "We expect the FY2024-26E performance to remain healthy, led by (1) improvement in JLR's business performance, driven by steady demand trends, (2) market share gain in the PV and CV segments and (3) net cash balance sheet by FY2025E. Retain ADD, with revised FV of Rs1,100 (Rs950 earlier). We value the JLR business at 6.5X June 2026E EV/EBIT, domestic CV business at 11X June FY2026E EV/EBIT and domestic PV business based on DCF methodology (16X FY2026E EV/EBITDA implied)."

Moreover, Kotak said, the increase in FV is driven by (1) roll-over to June 2026E from March 2026E, (2) higher net cash assumption and (3) benefit of PLI incentives for the domestic PV and LCV portfolio over the next 4-5 years.

JM Financial BUY On Tata Motors:

According to JM, while the US market continues to be strong, the demand environment in the EU has turned sluggish. Management indicated higher marketing spending going forward to drive JLR's order book. FY25 EBIT margin is expected to be flat. Strong FCF generation is expected to support investments towards electrification at JLR and the company is on track to turn net cash by FY25 (£0.7bn currently).

Further, JM added, "In the domestic PV segment, new launches/ramp-up of capacity is expected to drive growth. Domestic CV demand is also expected to pick up from 2Q. Improving margins for both domestic CV and PV segments augurs well and the net cash position in India's auto business provides comfort. Maintain BUY
with Mar'25 SOTP of INR 1,200 (standalone / JLR valued at 12x / 3.0x EV/EBIDTA). The slowdown in key global markets remains monitorable."

Tata Motors' share is set to split into two. Tata Motors board has approved the demerger of the company into two separate listed companies housing A) the Commercial Vehicles business and its related investments in one entity and B) the Passenger Vehicles businesses including PV, EV, JLR, and its related investments in another entity.

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author or Greynium Information Technologies. The author, the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.