The Tata Motors stock is on a roll. On October 12, it hit a new 52-week high on the National Stock Exchange (NSE). With this, the shares have now risen around 23 percent in the past five trading sessions, including today’s modest gains. What gives?
Basudeb Banerjee, an auto analyst at Ambit Capital points out, “A key reason for the sharp run up in the Tata Motors stock lately is owing to the news reports that the company is getting investors for its electric vehicles (EVs) business.”
On Friday, an Economic Times report, citing sources, said that private equity group TPG is in advanced discussions to invest $1 billion or more in the EV division of Tata Motors, valuing the segment at $8-9 billion.
Banerjee points out, “A good portion of the recent re-rating in the stock can be attributed to the potential value of the EV business for which Street was not ascribing much value earlier. As such, it is paramount that investors follow developments on this front closely in the coming days."
Meanwhile, Tata Motors Group’s global wholesales in the September quarter Q2FY22, including Jaguar Land Rover (JLR), increased by 24 percent year-on-year. In a press statement on Friday, Tata Motors said: “Jaguar Land Rover retail sales for the three-month period to September 30, 2021, continued to be constrained by the impact of the global semiconductor shortage on production, with wholesales for the period in line with July guidance.”
Needless to say, the semiconductor issue presents a significant challenge to Tata Motors from a near-to-medium perspective. On the brighter side, it helps that the recovery is progressing well. Outlook for the India commercial vehicle and passenger vehicle segments has improved.
“JLR is also witnessing cyclical recovery, supported by a favourable product mix. However, supply-side issues would defer the recovery process. While there would be no near-term catalysts from the JLR business, the India business (around 50% of SoTP) would see continued recovery,” said analysts from Motilal Oswal Financial Services in a report on October 11. The broker’s SoTP-based target price is Rs 460 apiece.
For perspective: the Tata Motors’ stock currently trades at around Rs 424 apiece on NSE.
SoTP is the Sum-of-the-Parts valuation methodology. Here, the value of each division or segment is determined separately and ultimately added together to arrive at the total value of the firm.
Going ahead, the company is expected to report a loss for the September quarter. “We expect consolidated results to be a loss, with both JLR and standalone in the red,” said analysts from IIFL Securities in a report on 11 October. The broker expects price hikes to offset part of the input cost pressures in Tata Motors’ standalone business.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
