Budget Stock Pick: This Auto Stock Can Benefit From Govt’s EV Spends

The Finance Minister declared today in her budget announcement that the government will encourage people to use public transportation in urban areas. Clean technology and governance measures, special mobility zones with a zero-fossil-fuel policy, and electric cars will be added to this. In the Union Budget 2022-23, it was also announced that, due to the scarcity of space in urban areas for establishing large-scale charging points, a battery swapping policy and interoperability standards would be developed. The private sector will be pushed to build sustainable and creative 'Battery or Energy as a Service' business models. The electric vehicle (EV) ecosystem will be more efficient as a result of this. As a result, Tata Motors' stock may be a good buy right now, as the firm reported excellent Q3FY22 results and may gain even more from the government's stance on EV spending.

Buy The Stock of Tata Motors Ltd (TML)

ICICIDirect has said in a research report that "TML's stock price has been flattish over past 5 years (~Rs 520 levels in January 2017), underperforming the Nifty Auto index."

According to brokerage firm "We retain BUY on continued EV proactiveness & robust demand prospects. We now value TML at Rs 625 on SOTP basis (13x, 3.5x FY24E EV/EBITDA on India, JLR; Rs 160 value to Indian EV business; earlier TP Rs 600)."

The brokerage has set a target period of 12 months for the stock to achieve the target price of Rs. 625 from the current market price of Rs. 504.50 as of 1 Feb, 3:30 pm IST.

Q3FY22 results according to the brokerage

• Tata Motors reported healthy Q3FY22 results.
• Consolidated total operating income was up 17.7% QoQ at Rs 72,229 crore.
• Earnings before interest, taxes, depreciation and amortization (EBITDA) margins were at 12.5%, up 250 bps QoQ.
• Consolidated loss after tax was at Rs 1,516 crore.

Key triggers for future price performance of Tata Motors according to ICICI Direct

• We expect a healthy 17.2% revenue compound annual growth rate (CAGR) over FY21-24E backed by 17.6% total volume CAGR (albeit on a low base).
• Cost control, efficiency improvement-led FCF generation targets for ongoing deleveraging push (FY21 net automotive debt at ~Rs 41,000 crore).
• Continued EV alertness in India (PV market leader with Nexon; plans to introduce 10 models by 2025) and Jaguar Land Rover or JLR (Jaguar all-electric by 2025; six BEVs in Land Rover in the next five years).
• Margins were seen at 14% in FY24E along with RoCE at ~17%.

Disclaimer

The stock has been picked from the brokerage report of ICICI Direct. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.