Buy Tata Motors; target of Rs 490: Emkay Global Financial

Emkay Global Financial's research report on Tata Motors

Tata Motors’ Q2FY23 consol. EBITDA grew 53% YoY (3-yr CAGR: -5%) to Rs62bn, missing our estimate by 9% mainly due to cost pressure in India. Consol. revenue grew 30% YoY (3-yr CAGR: 7%) to Rs796bn, standing 3% above our estimate because of JLR’s improved mix. JLR’s order book is strong at ~205,000 units. Models such as new generation RR/RR Sport and Defender form >70% of the order book which should lead to product-mix improvement ahead. JLR production ramp-up is expected to improve at a slower pace in H2FY23 versus earlier expectations, due to supply constraints. Owing to lower volume (JLR) and margin assumptions, we reduce FY23-25E consol. EBITDA by 5-14%.

Outlook

We maintain our positive stance on expectations of a sales upcycle across segments, aggressive cost savings and debt reduction. We reaffirm BUY on the stock, with SOTP-based TP of Rs490 now (Rs515 earlier), based on Dec-24 estimates (Sep-24E earlier). Key risks: Further delay in production ramp-up due to supply issues, luxury car demand contraction in target markets, lower-than-expected growth in India CVs/PVs, failure of new launches and adverse currency/commodity prices.