Buy Tata Motors Stock, Says Prabhudas Lilladher, Target Price Rs 520

Mansi Lall - Research Analyst at Brokerage firm Prabhudas Lilladher has a "buy" call on the stock of Tata Motors with a price target of Rs 520.

Tata Motors' 2QFY23 consolidated revenue surprised at Rs 796bn (+11% QoQ, PLe: 762mn) largely led by improved product mix at JLR. Though JLR reported merely 5% QoQ growth in wholesales, ASPs improved 14% on the back of improved supplies of New RR/RR Sport (current production of 2.4k/week vs 1.1k/week in Jun-22). This also led to ~400bps QoQ of EBITDAM (10.3%) improvement. We expect margins to further improve in 2H led by improved realizations and product mix (Defender, RR and RR Sport account for 72% of the order book 205k units). Chip supply issue is now sorted out and management expects volumes >160k units in 2H (147k in 1H); supplies should step-up in FY23. For the PV and CV business, 70bps of impact came on EBITDAM from residual high commodity costs - PV/CV EBITDAM contracted 70/50bps QoQ.

"We maintain our positive stance on TTMT as the (1) Likely market share gains in PV segment (14.2% vs 6.9% in FY19) led by revamped portfolio, customer preference for SUVs and rising EV penetration, (2) CV volumes gains from cyclical upturn, improving fleet utilization and freight rates and (3) revival in JLR and strong order book to benefit and drive FCF generation. We trim our EBITDA estimates by 9/3% for FY24/25 to factor in moderation in volume growth at JLR and cost pressures. Maintain BUY, with revised SoTP based Sep-24 TP of Rs 520 at 11.5x EV/EBITDA for standalone operations, 2x EV/EBITDA for JLR and 8x for PV business," Prabhudas Lilladher has said.