Buy This Tata Stock For Potential Upside Of 18%, Delivered More Than 200% Returns In 3 Years

Given Tata Motors gets a buy call from Motilal Oswal for a target price of Rs 520 apiece. The company's 1QFY23 results are out. 1QFY23 performance saw a sharp miss due to several headwinds at JLR (mix, cost inflation, and hedge revaluation), though the India business delivered a strong performance. Given the improvement in semiconductor supplies and the strong order book at JLR, there is hope of JLR making good on the pain of 1QFY23. The India business should benefit from a continued demand recovery in CVs and production ramp-up in PVs. Considering the high fixed cost nature of JLR business, an improvement in production at JLR is the biggest factor to watch out for, followed by mix.

Stock Outlook & Returns

The Current Market Price (CMP) of Tata Motors stock is Rs 442.25/share, closed after falling 0.41% below its previous close. It was opened at Rs 440.25/share. The CMP of the stock is Rs 174.05 above its 52-week low levels and Rs 94.2 below its 52 week high levels.

Tata Motors Ltd is a large-cap automobile stock having a Market Capitalization of Rs 147,144 crore. Return on Equity (ROE) is negative 25.67%. TTM EPS is also negative Rs 34.45. PE Ratio is also negative at 12.18. It hit the 52-week low on 24th August 2021 at Rs 268.45/share, while the 52-week high it touched on 17th November 2021 at Rs 536.70/share.

In the past 1 week, its share price slid down 2.54%. In 1 month given a positive return of 6.28%, and in the past 3 months 1.66%, respectively. In the last 1 year, the shares of the company gained 55.84% returns. In terms of returns, the stocks performed well on long-term investment giving multibagger returns. In 3 years, it has delivered 201.26% multibagger returns, however, in 5 years, its return has fallen delivering a negative return of 0.57%.

The brokerage is bullish on the stock and suggests buying for Rs 520 target price. Considering this, it has the potential to gain 18% in 12 months if stocks are purchased at the Current Market Price.

 

The strong performance of the India business was eclipsed by JLR

1. Consolidated business: Consolidated revenue grew 8% YoY to Rs 719b, but EBITDA fell 39.5% to Rs 31.8b (est. Rs 69.7b). EBITDA margin stood at 4.4% (v/s 7.9%/11% in 1Q/4QFY22 and our estimate of 9.6%). Adjusted loss stood at Rs 65b (v/s a loss of Rs 44.5b/Rs 3b in 1Q/4QFY22 and our estimated loss of Rs 13b).

2. JLR - multiple factors hit its 1QFY23 performance: JLR's performance was impacted by several headwinds: a) adverse volume and mix (semiconductor shortages, slower ramp-up in new RR and RR Sport, and COVID-led lockdowns in China), inflation, and forex and commodity revaluation. Wholesale volumes (excluding JVs) fell 15% YoY. Net realizations improved by 4% YoY (down 2% QoQ) to GBP61.35k (est. GBP63.5k) due to a weaker mix. Net sales for JLR declined by 11% YoY to GBP4.4b (est. GBP4.6b). EBITDA margin fell 270bp YoY to 6.3% (est. 12.3%) due to a weaker mix, cost inflation, and operating deleverage. EBITDA declined by 38% YoY to GBP279m (est. GBP562m). Net loss stood at GBP605m (v/s a loss of GBP286m in 1QFY22 and our estimated loss of GBP34m), weighted down by FX losses of GBP221m.

3. Tata CV business - benefitting from a cyclical recovery: Volumes (including overseas subsidiaries) grew 104% YoY in 1QFY23, led by growth in M&HCVs/LCVs, which grew 111%/95%. Realizations remained flat YoY at Rs 1.6m (est. Rs 1.46m), led by higher nonvehicle sales. Revenue/EBITDA grew 107%/10x YoY to Rs 163.4b/ Rs 8.9b (est. Rs 150b/INR4.3b). EBITDA margin grew 430bp YoY, but fell 70bp QoQ to 5.4% (est. 2.8%). Recurring PBT stood at Rs 3b (v/s a loss of Rs 4.4b in 1QFY22 and our estimated loss of Rs 1.5b).

4. Tata PV business - ramp-up continues: Volumes grew 102% YoY, led by growth in UVs (up 182%). Realizations grew 5.5% YoY to Rs 0.89m (est. Rs 0.86m) in 1QFY23. Revenue/EBITDA grew 120%/3.4x YoY to Rs 116.65b/Rs 7.3b (est. Rs 113b/Rs 6.8b). EBITDA margin grew 220bp YoY, but fell 80bp QoQ to 6.2% (est. 6%). Recurring PBT stood at Rs 140m (est. Rs 49m) v/s a loss of Rs 3.6b in 1QFY22. FCF generation in the Auto business was negative at Rs 98b (v/s a negative Rs 182b in 1QFY22), due to an adverse working capital of ~Rs 89b. FCF for JLR deteriorated to GBP769m (v/s GBP996m/over GBP340m in 1Q/4QFY22). Consolidated net debt increased by Rs 120b QoQ to ~Rs 607b.

Motilal Oswal Suggests Buy for target price of Rs 520/sare

Tata Motors should witness a gradual recovery as supply-side issues ease (for JLR) and commodity headwinds stabilize (for the India business). It will benefit from: a) a macro recovery, b) company-specific volume and margin drivers, and c) a sharp improvement in FCF and leverage in both JLR as well as the India business. The stock trades at 16.8x FY24E consolidate P/E and 4.2x EV/EBITDA ratio. We maintain our Buy rating, with a Target Price of ~Rs 520/share (Jun'24E based SoTP).

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decision.