Sharekhan is betting on the stock of Tata Motors has a good buy for 2022 and beyond. The firm remains positive on Tata Motors Limited driven by expected robust operational performance by the company across its business segments.
Strong sales numbers
Tata Motors continues to report strong monthly sales in November 2021, with commercial vehicle (CV) sales up 15.2% y-o-y and passenger vehicle (PV) sales up 37.6% y-o-y. Chips shortage issue is easing and is expected to gradually improve from H2FY2022, which would help Jaguar and Land Rover (JLR) and PV vehicle (domestic) businesses to improve, driven by operating leverage benefits, the brokerage has said.
Aggressive on the launch of electric vehicles
According to the Sharekhan, the management stays positive and maintains its timelines on product delivery, new launches, and capex programmes for all business verticals. Recently, the private equity (PE) investor agreed to invest US$1 billion (~Rs. 7,500 crore) on the valuation of electric vehicle (EV) subsidiary pegged at US$6.7 billion-9.1 billion for 11-15% stake.
"We believe Tata Motors is taking the right steps towards increasing its focus on the electric vehicles business in India. Funding from external investors would help the company to aggressively develop and launch EV models. Moreover, Tata Motors is likely to benefit from the rerating of valuation multiples, driven by improved ESG ratings and its focus on EV technology. Besides the EV business, we expect TAMO to benefit from all its business verticals - JLR, CVs, and PVs. H2FY2021 saw strong volume growth and better operational efficiencies aided by aggressive product launches, market positioning, product differentiation, cost savings, and investments in R&D," the brokerage has said.
Likely benefit from improving macro environment
"We expect Tata Motors to benefit from the improving macro-environment in India and globally, post normalisation of the economy. The company is generating strong free cash flow), which will help it pursue its business plans and reduce high debts. We expect Tata Motors to become earnings positive in FY2022E and post 64.8% y-o-y PAT growth in FY2023E, driven by a 16.7% revenue CAGR during FY2021-FY2023E and a 120-bps improvement in EBITDA margin to 13.4% in FY2023E from 12.2% in FY2021. The stock is trading at P/E multiple of 17.1x and EV/EBITDA multiple of 5.2x its FY2023E estimates. We maintain our Buy rating on the stock with an unchanged price target of Rs. 610," the brokerage has said.
The stock has been picked from the brokerage report of Sharekhan. 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.