2:1 Split Soon: At Low PE, Strong ROE 37%, Tata's Auto Stock To BUY For Target Rs 1,100: JP Is Overweight

Tata Motors, the automobile giant of Tata Group, is buzzing as global brokerage JP Morgan becomes the latest to like the heavyweight auto stock. JP Morgan has maintained 'Overweight' on Tata Motors with a positive outlook. The target price is set at Rs 1,100. There is a potential upside of 16% in Tata Motors ahead.

As per JP Morgan, the monthly sales tracker for Tata Motors-backed luxury car brand Jaguar Land Rover (JLR), indicates a 21% YoY surge in return sales for May 2024. Also, cumulative sales from April to May, increased by 16% year-on-year, which is better compared to 13% year-on-year growth in the March 2024 quarter.

JP Morgan also took note of JLR's performance in the key markets of the US, European Union and China, which surpassed other luxury car manufacturers. Also, the brokerage highlighted that inventories in China have plunged sequentially, while incentives in the US have moderated, however, investors have skyrocketed from multi-year lows.

The brokerage believes that the Tata Group-backed auto giant has the potential of re-rating over the medium term, owing to the strengthening of its balance sheets and the decline in the volatility of earnings per share (EPS).

On BSE, Tata Motors' share price stood at Rs 951.75 apiece, down marginally on June 26 with a market cap of Rs 3,16,359.69 crore. The stock's 52-week high and low is at Rs 1,065.60 and Rs 568.85 apiece respectively.

YTD, Tata Motors share price surged by 20.40% on BSE.

Tata Motors Fundamentals:

As per Trendlyne data, Tata Motors stock soared by 70.08% and underperformed its sector by 8.01% in the past year. While the Price to Earning Ratio is 10.08, lower than its sector PE ratio of 37.73. Further, the Return on Equity(ROE) for the last financial year was 36.97%, more than 20% in the last financial year, indicating an efficient use of shareholder's capital to generate profit.

However, the data also showed that Debt to Equity Ratio of 1.16 is higher than 1. This implies that company assets are financed through debt. Mutual Fund Holding decreased by 0.87% in the last quarter to 9.5. Also, Promoter Share Holding decreased by 0.01% in the most recent quarter to 46.36%.

Tata Motors Split:

The auto player is set to split in the ratio of 1:2. The company is planning the demerger of Tata Motors 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.

Tata Motors Dividend:

Last week, Tata Motors turned ex-dividend on June 11. The auto company has announced a final dividend of ₹6.00 per Ordinary Share of the face value of ₹2 each (i.e.,@ 300%) (comprising of ₹3.00 normal dividend and ₹3.00 special dividend) and ₹6.20 per 'A' Ordinary Share of the face value ₹2 each (i.e.,@ 310%) (comprising of ₹3.10 normal dividend and ₹3.10 special dividend) for the financial year ended March 31, 2024. The payment of this will be done on or before June 28, 2024.

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