Shares of Tata Motors have been one of the biggest outperformer among Nifty stocks in 2023, delivering 65 percent returns, thanks to its slew of new and popular launches and leadership position in electric vehicles (EV), but that fails to impress Samir Arora, the founder and fund manager at Helios Capital.
Arora minced no words when he expressed that he does not like Tata Motors. His reason: heavy capex in a business that does not guarantee a better margin or profitability.
“I don't like Tata Motors because I don't like businesses where the capex is so much. For five years, you have to spend about $3 billion a year, and nobody explains what will be the payoff of that?” Arora argued while speaking at The Moneycontrol Diwali Party.
“You were making cars before, you're making cars now, except that you have to put $15 billion to change from ICE (internal combustion engine) to EVs. The cars were being made before; cars are being made now. Nobody's saying that you will make more margin, nobody's saying you will have bigger volumes overall of cars.”
This comes at the time when sales volume growth for Tata Motors has improved. Jaguar Land Rover (JLR) – its biggest subsidiary – has seen improvement in sales as well as revenue. Its credit rating has also improved.
Ratings agency Moody's on November 9 upgraded Tata Motors' corporate family rating (CFR) to Ba3 from B1. Moody's also upgraded JLR’s CFR to Ba3 as well citing its strong financial performance in the last 12 months..
JLR, which contributes about 80 percent of Tata Motors’ revenue, has gradually ramped up its production volumes over the past four quarters as supply chain constraints subsided, leading to a nearly 25 percent growth in rolling 12-month wholesale volumes which have grown to 3,64,000 units at the end of September 2023, from just 2,93,000 a year back.
Tata Motors plans to have a formidable lineup of EVs by 2025 with no less than 10 models. JLR’s EVs have already become popular with pending orders for months. At the end of September, JLR’s order book consisted of 1,68,000 new vehicles to be delivered, 77 percent of which were Range Rover, Range Rover Sport and Defender models.
Moody's forecasts whole-sales for JLR to increase further to at least 4,00,000 units by financial year-end 2024, as the company has previously indicated.
Not everyone agrees with Arora, though. Vikas Khemani of Carnelian Asset Advisors believes the company has done remarkably well in the last five years.
“In CVs, they're gaining market share, they've got the price realisation better. In PVs they are gaining market share for the last three years consistently. In EVs, they are the largest player. This year they will generate $2 billion of free cash flow. They are guiding in three or two years’ time, they will be debt free,” said Khemani. “The company which was saddled with all negativity, suddenly is buzzing.”
Tata Motors closed at Rs 650.80 on BSE on November 10.
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