Buy Tata Motors; target of Rs 355: ICICI Direct

ICICI Direct is bullish on Tata Motors has recommended buy rating on the stock with a target price of Rs 355 in its research report dated June 29, 2018.

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September 18, 2018 / 15:38 IST

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ICICI Direct's research report on Tata Motors

Tata Motors owned Jaguar & Land Rover (JLR) at its recently held Investor Day, highlighted its business challenges & strategies for the way forward. JLR has laid down its strategy that focuses on 1) increasing its offering of advance driver-assistance system (ADAS) that is shaping up the industry; 2) to launch four new models thereby taking total nameplate to 16 by FY24E; 3) focus on cost (via engineering capabilities, globalise sourcing & managing SG&A) and; 4) improving the financial performance (for FY19-21E, its EBIT guidance maintained at 4-7% while investment is expected to be £4.5 bn per annum). The huge investment will have near term impact on cash flow though the same will improve, going forward.

Outlook
We value the stock on an SOTP basis, with JLR (ex-China JV) at 2.5x EV/EBITDA basis contributing Rs 202/share while the domestic business contributes Rs 86/share. Inclusive of other subsidiaries, we arrive at a target price of Rs 355. We further believe lower than expected demand in the wake of huge capex may further impact its financial performance and remains a key risk for the company.

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