1:2 Split: Tata's Auto Stock Has Strong ROE At 30.5% Despite Falling 6% YTD; Best Time To Buy? Rs 900-1,100 TP

Tata Motors' share price has continued to be volatile with year-to-date performing declining by over 6% on BSE. From weekly to month-on-month, half-yearly and yearly, Tata Motors' performance has been bearish. Not just that the automobile giant backed by Tata Group is trading below its 10-day, 50-day, 100-day, and 200-day SMA which ranges from Rs 756 to Rs 954. Currently, the stock price is struggling to hold Rs 740 levels. Despite the latest drop, the current consensus recommendation on Tata Motors is BUY from about 17 analysts. The target price ranges from Rs 900 to Rs 1,100.

Is Tata Motors Stock Undervalued?

What is noteworthy is that Tata Motors's price-to-equity ratio is lower at 8.18, and the return on equity has been strong at 36.97% since the last financial year.

Data from Trendlyne showed that Tata Motors' PE ratio is lower than the automobile sector's PE ratio of 33.12. ROE is strong since more than 20% return on equity indicates an efficient use of shareholder capital to generate profit.

When the PE ratio is low compared to the industry or the broader market, it usually means that the respective stock is undervalued, creating good investment opportunities. Why? As per Angel Broking, a low P/E ratio in the stock market suggests that the market is not fully valuing the company's earnings potential and that the stock may be trading at a discount to its intrinsic value.

As per Alpha Spread, the intrinsic value of one TATAMOTORS stock under the Base Case scenario is 1,297.16 INR. Compared to the current market price of 740.8 INR, Tata Motors Ltd is Undervalued by 43%.

Tata Motors Share Price:

By the end of the December 26th session, Tata Motors shares ended at Rs 740.80 apiece, up by 0.6% on BSE with a market cap of Rs 2,72,697.73 crore. The stock's latest weekly performance is lower by 0.9%, while on a month-on-month basis, the stock plunged by 5.6%, and the six-monthly performance is down by 23.8% on BSE. YTD, the stock has declined by 6.3%. In a year, the stock is now flat.

Key factors to watch out for in Tata Motors:

From January 1, 2025, the company will hike the prices of its trucks and buses portfolio by 2%. The portfolio is part of its commercial vehicle segment.

Secondly, a key development to watch out is Tata Motors split-up of business in 1:2 ratio. 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.

Should You Buy Tata Motors?

Kotak Institutional Equities has recommended ADD for target price of Rs 925. While brokerage Sharekhan has recommended BUY for target price of Rs 1,099. Additionally, as per Trendlyne data, the consensus recommendation from 30 analysts for Tata Motors Ltd. is BUY. The average 1-year target price is at Rs 965.40 on Tata Motors, which hints at potential 30.3% upside ahead.

Also, recommending BUY for target price of Rs 970, LKP Securities said, marketing spends are expected to remain elevated (to drive JLR's order book). Healthy FCF generation is expected to support investments towards electrification at JLR and the company is on track to turn net cash by FY25 (guidance maintained). In the domestic PV segment, TaMo witnessed strong growth during festive season. Recent/new launches are expected to support growth. Domestic CV demand is also expected to pick-up during H2.