1:2 Split Soon: Tata's Auto Stock Is Below Rs 950; BUY For 31% Gains; Sharekhan Sets Highest Target Rs 1,235

After Q4 results, Tata Motors' share price witnessed a significant drop in this week's trading week, falling by 3% on BSE. The stock has seen a sharp correction and is now below Rs 950 levels. This brings a buy-on-dips opportunity as Sharekhan has set the highest target price of Rs 1,235.

Among the key positives for recommending BUY on Tata Motors is the rise in JLR's free cash flow to to GBP 892 million which almost halved its net debt to GBP 732 million in Q4Fy24.

Moreover, the domestic business has reported net cash of Rs 987 crore, and excluding the EV business the underlying EBITDA margin in PV IC business has improved by 80 bps q-o-q to 10.2% -- and these are key positives.

Tata Motors share price ended at Rs 945.75 apiece, up by 1% on Friday with a market cap of Rs 3,14,342.62 crore. However, its weekly performance is down by 3% on BSE. While YTD, the stock is up by 20%.

The stock's 52-week high and low are at Rs 1,065.60 and Rs504.75 apiece respectively.

In its research note, Sharekhan said, "Tata Motors' (TML) operating performance was broadly in line with estimates as its revenue and AEBITDA missed estimates by a mere 0.7% and 2.3% respectively, while AEBITDA margin missed estimates by mere 20 bps. TML has been consistently reporting improvement in its operating performance and the same has been reflected in a reduction in net debt and dividend payment, given this this was the second consecutive year when TML has announced a dividend. Going forward the management has indicated a (1) flat EBIT margin in FY25 (2) JLR to be net debt-zero by FY25 and (3) the Domestic PV industry to grow by under 5% rate in FY25 and (4) the domestic CV industry to revive in H2FY25."

The brokerage believes that TML would continue to sustain its operating performance and sustain the cash generations.

Furthermore, the brokerage said, that improvement in operating performance has been visible in the reduction in net automotive debt and cash generation as TML has announced a dividend for the second consecutive year. Going forward the cash level will remain at a break-even point in Q1FY25 in JLR business due to the reversal of working capital benefits and domestic CV business may see slow movement due to the election in Q1FY25.

It added, that with a high base and rise in inventory levels the management expects the domestic PV industry may grow at less than a 5% rate in FY25. JLR's order book though declining (in line with management's guidance) continues to be healthy at 133k units ( compared to 148,000 units in Q3FY25) and hence the management assumes a rise in VME cost in FY25 leads it to guide for a flat EBIT margin expansion in FY25.

Also, the brokerage highlighted that Tata Motors management is looking for double-digit EBITDA margins in both CV and PV businesses. Further, it is sustaining its leadership position in the electric car business Tata Group company is planning to set up a Li-ion cell plant. In the CV business, the company is continuing to focus on retail sales performance with value-added product offerings, which we believe would help its CV division sustain profitability. Further, the PV business has been gaining a healthy market share backed by its new product launch strategy and we believe that losses in the EV business would come down in coming quarters.

Furthermore, the brokerage said, "An EV battery cell plant within the group would help the company in achieving speedy product validation and reduce the dependence on the third party suppliers. While hydrogen fuel cell technology is at a nascent stage, TML has been making efforts to secure its growth prospects in hydrogen space in future. Post incorporating Q4FY24 performance in our estimate, We maintain our Buy on Tata Motors Ltd (TML) with a revised PT of Rs 1235 on expecting continued improvement in JLR, PV and CV businesses and reduced net automotive debt."

Hence, Sharekhan has maintained BUY on Tata Motors for a target price of Rs 1,235.

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.

Meanwhile, 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.

Additionally, Tata Motors announced a final dividend of 300% amounting to Rs 6 per share to investors holding its ordinary shares, while it announced a final dividend payout of 310% worth Rs 6.10 per share having a face value of Rs 2 each, higher than the dividend that ordinary shareholders will get.

This comes ahead of Tata Motors' merger 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.