Analyst Call Tracker | Why Tata Motors dazzled in 2023 but Eicher dimmed out?

has 23 buy, 13 hold, and 7 sell calls

While the NSE Nifty 50 and the BSE Sensex gained nearly 20 percent in 2023, the one stock that looked the brightest was Tata Motors, being the only one from the Nifty basket to gain over 100 percent through the year.

Buoyed by a robust outlook on the JLR front, better-than-expected margins, policy push towards electric mobility and an SUV-focused approach, the Tata Motors stock has seen the most upgrades among major automobile stocks in 2023.

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Wondering what's worked in the favour of the company? Is there enough steam in the engine to extend the rally in 2024? Here's what analysts said:

Focus on domestic retail sales: "In the CV segment, the company has been consistently focussing on improvement in operating performance and retail sales in place of chasing wholesale market share," said analysts at Sharekhan, with a ‘buy’ rating on the stock. This shift in strategy has been delivering favourable outcomes as it has been sustaining EBITDA margin at above 9 percent levels for the last three quarters.

Rising PV margins: Domestic brokerage firm Elara Capital has said that Tata Motors' passenger vehicle margin is expected to rise in the ensuing quarters, given upcoming launches and EV cost normalisation. It expects a double-digit margin for its commercial vehicle segment in FY24/25. "The company is well placed for the upcoming year and we expect the automobile major to become near net debt-free by FY25,” Elara said in a note.

Capitalising on EV push: The country's leading electric vehicle manufacturer has been steadily building up its space in the domestic passenger vehicle market. In the first half, the EV industry volumes grew by 107 percent; Tata Motors' volumes grew 77 percent. Nexon volumes slowed to make way for the new Nexon Facelift. Initial responses for new launches such as Nexon, Curvv, and Sierra have been positive.

JLR in top gear: Dolat Capital suggests that the supply constraints are gradually easing out, and hence Jaguar Land Rover’s volume performance in H2FY24 would be better than H1FY24. JLR's EBIT margin was 7.3 percent in Q2 and 8 percent in the first half. The target EBIT margin for FY24 has increased from 6 percent plus to around 8 percent. The order book remained strong with over 168k units.

Eyeing hydrogen fuel cell space: While hydrogen fuel cell technology is at a nascent stage, Tata Motors has been making efforts to secure its growth prospects in hydrogen space in future. "As infrastructure expands and FCEV costs decrease, they may emerge as a more practical choice for consumers", Sharekhan said. FCEVs use a propulsion system similar to that of electric vehicles, where energy stored as hydrogen is converted to electricity by the fuel cell. Unlike conventional internal combustion engine vehicles, these vehicles produce no harmful tailpipe emissions.

Shares of the EV major closed 0.6 percent lower at Rs 790. The company According to data, the company has 28 buy, 2 hold, and 4 sell calls.

Eicher Motors struggles in key market segments

On the other hand, as far as the two-wheeler segment is concerned, Eicher's stock has underperformed all its peers. Multiple analysts have expressed caution for the company. Here's why.

Fierce competition: Eicher, which manufactures Royal Enfield (RE), could witness a dip in RE volumes. This is due to the availability of affordable Triumph (made by Bajaj Auto) and Harley Davidson (made by Hero Motocorp).

"While RE has faced competition in the past also, this time it is different as the competition is coming from (1) global iconic brands and (2) The products would be supported by experienced and established mass market players which have both financial and distribution muscles,” analysts at Dolat Capital said. "In our view, RE would need to revisit its product and pricing strategy as prospective RE customers are likely to consider other major brands as potential alternatives."

While Eicher is well-positioned to capitalise on the trend with its new products, the recently introduced vehicles such as the Himalayan motorcycle, priced 25 percent higher, may not help the company regain the market share lost in the 250cc and above segment. Nomura Financial Advisory and Securities predicts Royal Enfield's market share will decline to 82 percent from 90 percent currently in the coming quarters.

Analysts at Elara Securities suggest that RE may lose market share in the premium segment in FY23-26, amid launches by peers. The contribution share of existing RE customers upgrading to a new RE may not rise significantly and any major outperformance versus industry growth is unlikely and premium valuation at 20-70 percent versus peers is unjustified.

"Once these two companies start ramping up production, Eicher Motors' volumes could get impacted, " Himanshu Singh, an analyst at Prabhudas Lilladher, told Moneycontrol.

Shares of the company closed 0.4 percent higher at Rs 3,877. According to data, the company has 23 buy, 13 hold, and 7 sell calls.

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