3 Tata Stocks Recommended As Buy After Q2 Earnings, 28% Potential Upside Seen; Do You Own Any?

Three major Tata companies dominating the field of auto, steel and jewellery are recommended as buying after their Q2 results which were announced between November 1st to 3rd. These are Tata Motors, Tata Steel, and Titan Company by brokerages like Motilal Oswal, JM Financial and Prabhudas Lilladher. These Tata stocks have the potential to rise as high as 28% going ahead.

In Q2FY24, where Tata Motors saw robust earnings and Titan Company held a steady performance, Tata Steel, however, was grapped in losses. Yet, these brokerages find these three Tata stocks attractive.

Tata Motors:

During Q2FY24, the Tata Group-backed steel flagship company recorded a consolidated net profit of Rs 3,783 crore, against a net loss of Rs 1,004 crore in the same period a year ago. Consolidated revenue stood at Rs 105,128 crore, rising by 32.1% YoY, while EBITDA margin expanded by 400 bps to 13.7%. EBITDA was up by 86.4% YoY to Rs 14,400 crore. All auto verticals continued their profitable growth trajectory in the quarter.

Tata Motors earnings were driven by a healthy quarter of Jaguar Land Rover (JLR). In the quarter, JLR revenues improved 30.4% to £6.9b. Strong wholesales and improved mix resulted in EBIT margins of 7.3% (+630bps). CV revenues improved by 22.3% and EBIT improved to 7.9% (+560bps) benefiting from higher realisations, richer mix and favourable commodity prices. PV revenues were marginally down 3.0% impacted by the transition to the new launches while EBIT margins improved by 140 bps to 1.8% due to savings in commodity costs.

Prabhudas Lilladher in its report after Q2 results on Tata Motors said, "We maintain our positive stance on TTMT given (1) JLR's volume ramp-up resulting in strong revenue, profitability and FCF, 2) Domestic CV benefitting from underlying economic strength, operating leverage, benign input costs and lower discounts and (3) focus on market share in PV segment (13.4% in 1HFY24 vs 8% in FY21) led by model launches and rising EV penetration. Retain 'BUY' with SoTP-based TP of Rs 785 (earlier Rs 760)."

Meanwhile, Motilal Oswal said that Tata Motors should witness a healthy recovery as supply-side issues ease (for JLR) and commodity headwinds stabilize (for the India business). It will benefit from: a) the CV uptrend and stable growth in PVs, b) company-specific volume/margin drivers, and c) a sharp improvement in FCF as well as a reduction in net debt in both JLR and India businesses. The brokerage reiterated its Buy on Tata Motors with a target price of Rs 750 per share.

On BSE, Tata Motors shares ended at Rs 647.80 apiece, up by 1.73% on Friday last week. From the current price level, the auto stock has the potential to gain by 21.2% on BSE.

Tata Steel:

Tata Group's steelmaker's bottomline front turned in the red which led to a steep fall in share price. Tata Steel posted a consolidated net loss of Rs 6,511 crore in Q2FY24, against net profit of Rs 525 crore in Q1FY24 and Rs 1,297 crore in Q2FY23. Consolidated turnover also declined to Rs 55,682 crore in the latest quarter, compared to Rs 59,490 crore in Q1FY24 and Rs 59,878 crore in Q2FY23.

Productions were sequentially steady, however, deliveries dropped on both a quarter-on-quarter and year-on-year basis.

In Q2FY24, Tata Steel's products stood at 7.31 million tonnes, as against 7.13 million tonnes in Q1FY24 and 7.56 million tonnes in Q2FY23. Deliveries were at 7.07 million tonnes in Q2FY24, lower from 7.20 million tonnes in Q1FY24 and 7.23 million tonnes in Q2FY23.

Europe business was the spoilsport in Q2FY24 for Tata Steel. Koushik Chatterjee, Executive Director and Chief Financial Officer said, ". In Europe, margins moderated especially in UK business while Netherlands business was broadly stable on QoQ basis. Revenue per ton was lower in both geographies. However, improved costs in Netherlands led to broadly similar margins. Cash flow from operations before interest stood at Rs 4,658 crores driven by favourable working capital movement. Our capital expenditure was Rs 4,553 crores during the quarter and Rs 8,642 crores for the half year. This is broadly in line with our annual guidance of ~Rs 16,000 crores for FY2024 and we continue to prioritise completion of the 5 MTPA Kalinganagar expansion."

Chatterjee added, " Our Net debt stands at Rs 77,032 crores and the group liquidity position remains strong at Rs 27,637 crores. During the quarter, Moody's upgraded our credit rating to investment grade. Given our plans to change the processed route for steelmaking, the existing heavy-end assets at TSUK will only be used for a defined period. Accordingly, we have taken an impairment charge of Rs 12,560 crores in the standalone financial statements. We have also taken charge of Rs 6,358 crores in consolidated financial statements in relation to the UK business. We continue to remain focused on cost
optimisation, operational improvements and working capital management to maximise cashflows."

Last week, on Friday, Tata Steel shares dipped by 0.72% to end at Rs 117.30 apiece on BSE.

Despite the drag from the Europe market, brokerages are optimistic about Tata Steel due to its steady Indian business performance.

JM Financial in its note said, "Key takeaways from the call are - 1) Expected coking coal price movement (a) India : +USD11/t (b) Netherlands: (-)USD60/t (c) UK: (-)USD20/t 2) Netherlands BF likely to be operational by Nov end & expect to be EBITDA positive by 4Q aided by lower energy cost in 2H 3) Capex of £750 mn (of total £1.25 bn) likely to start from 2H24 and spread over 4 year period of which 20% to be spent after plant being fully operational. 4) Management endeavour is to be cash break even in UK during the transition to EAF. The sector awaits steel price increases in the backdrop of recent sharp hikes in coking coal and iron ore costs. In the meanwhile, spot spreads continue to be under pressure. Maintain BUY."

JM set a target price of Rs 150 on Tata Steel.

Also, Prabhudas Lilladher in its note added, "Key parameters to watch are a) progress on a consultation process with unions at Tata Steel UK (TSUK) which is ongoing and b) commissioning of Kalinganagar blast furnace (KPO II) & stabilization which will drive volume growth in FY25/26E. We expect Revenue/EBITDA/PAT CAGR of 5%/9%/28% over FY23-26E. At CMP, stock is trading at 5.3x/4.8x EV of FY25E/FY26E EBITDA. Retain 'BUY' rating with revised TP of Rs138 (earlier Rs144) valuing at 6x EV of Sept 2025E TSI EBITDA, as we roll forward."

On the contrary, Motilal Oswal's note said, "We marginally increase our FY25 revenue/EBITDA estimates by 5%/4%. The stock is trading at 6x FY25E EV/EBITDA and 1.4x FY25E P/B. We reiterate our Neutral rating on the stock with our SOTP-based TP of INR115."

From the current price level, Tata Steel's share price is expected to rise by as much as 28%.

Titan Company:

Tata's largest jewellery maker, Titan also posted healthy Q2 earnings. Titan earned a net profit of Rs 916 crore on a consolidated basis in Q2FY24, rising by 10% from Rs 835 crore in the same quarter a year ago. Consolidated revenue from operations which includes sales of products and services along with other operating revenues, came in at Rs 12,529 crore in Q2FY24, rising by a whopping 36.73% from Rs 9,163 crore in Q2 of the previous fiscal.

After the earnings, Amnish Aggarwal - Head of Research, Prabhudas Lilladher said, "TTAN's 2Q standalone revenue growth of 20% YoY was broad-based across all segments. Studded activation and double-digit growth in a number of buyers and average bill value aided jewelry growth while wearable sales grew by 131%. We expect growth momentum to accelerate in 2H given the festival and marriage season. Retain Accumulate."