Tata Motors Shares Hit New 52-Week High After Q1 Earnings Beat Estimates; Should You Buy Or Sell?

Tata Group-backed automobile flagship company, Tata Motors hit a new 52-week high on Wednesday after beating street estimates in the first quarter of FY24 driven by an uptick in JLR sales. The stock has gained by 4% in the overall trading session. The majority of brokerages have extended their target price on the automaker and estimates double-digit upside.

At the time of writing, Tata Motors share price traded at Rs 647.55 apiece, up by 1.27% on BSE. The stock hit a new 52-week high of Rs 665.30 apiece in the early deals.

In Q1FY24, Tata Motors registered a consolidated net profit of Rs 3,202.80 crore, as against the net loss of Rs 5,006.60 crore in the same quarter a year ago, Also, revenue from operations jumped by 42.12% to Rs 102,236.08 crore in the quarter under review as against Rs 71,934.66 crore in Q1 of FY23.

The profitability came in strong owing to easing in supply-chain constraints that lifted sales of luxury brand Jaguar Land Rover. Also, passenger vehicle sales remained steady.

Also, Tata Motors has declared to convert equity shares of Tata Motors DVR into ordinary shares. Under this scheme, the company will issue 7 new ordinary equity shares for every 10 DVR equity shares.

Should you buy or sell Tata Motors shares after Q1 results?

Motilal Oswal and Prabhudas Lilladher upgraded their target price for Tata Motors.

In a research note, Himanshu K Singh - Research Analyst, Prabhudas Lilladher said, "We increase our FY24/25E EBITDA estimates by 13%/9%, to factor in company's guidance and 1Q results. Tata Motors' (TTMT) consolidated revenue was higher than our and consensus estimates (+c30% YoY). Moreover, solid performance of JLR and India CV business boosted margin beat. JLR's volume improvement along with better mix will likely continue and may result in guidance upgrade in coming quarters. Benefits from better product mix should continue helped by a strong order book of 185k units (with 76% mix of higher ASP models) and help post strong ASP and margins. Also, lower discounts at CV should help margins and TTMT is confident of maintaining its lead in SUVs."

Overall, Singh added, "We maintain our positive stance on TTMT given (1) JLR's volume ramp-up resulting in strong revenue, profitability and FCF, 2) CV segment (on domestic side) benefitting from ongoing upcycle, operating leverage and tailwinds from low commodity costs & low discounting and (3) sustained market share in PV segment (13.5% vs 8% in FY21) led by revamped portfolio, rising SUV share and rising EV penetration. We expect Revenue/EBITDA CAGR of 17%/44% over FY24/25E. Retain 'BUY' with SoTP based TP of Rs 760 (earlier Rs 675)."

Meanwhile, Motilal Oswal's note said, "TTMT should witness a healthy recovery as supply-side issues ease (for JLR), along with a better mix, lower discounts and operating leverage (for all 3 businesses). 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 the India businesses."

Accordingly, Motilal's note added, "We upgrade our FY24E/25E consolidated EPS by 28%/11% to factor in: a) JLR's
moderation in certain costs and higher R&D capitalization, b) margin improvements in India CV business, c) lower margins for the India PV business, and d) scheme of arrangement of cancellation of DVR shares w.e.f FY24. Retain BUY with a Sep'25E SOTP-based TP of Rs 750."

Furthermore, although Kotak Institutional Equities although raised its EBITDA estimates for Tata Motors, the brokerage gave 'Sell' recommendation on the stock.

Kotak's note said, "We have increased our FY2024E consolidated EBITDA estimates by 12% baking in strong 1QFY24 performance of JLR as well as domestic CV business. We have increased our FY2025-26E consolidated EPS estimates by 8% driven by (1) 1-2% increase in EBITDA assumptions and (2) 4% positive impact due to reduction in share capital on account of cancellation of DVR shares."

Also, Kotak expects FY2024E performance to remain healthy led by (1) improvement in JLR business performance and (2) steady demand conditions in the domestic markets, which will drive deleveraging. However, increased competitive intensity in the Chinese BEV market as well as market share loss in CV segment remain an area of concern. Hence, it said, SELL stays with a revised FV of Rs600 (from Rs550) based on SoTP methodology.

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor 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.