Buy Tata Motors; target of Rs 495: KR Choksey

KR Choksey's research report on Tata Motors

Tata Motors announced that private equity firm TPG Group would be investing INR 7,500 crore in its new wholly owned electric vehicle subsidiary. In the new structure Tata Motors will be having two subsidiaries a) Tata Motors PV (PVCo) – 100% holdings, and b) Tata Motors EV (EVCo) – with 85-89% holdings and the balance 11-15% will be held by TPG group at an equity valuation of USD 9.1Bn. In exchange the Tata Motors will issue compulsory convertible preference shares (CCPS), which will be converted into ordinary equity shares in EVCo on the basis of achieving the revenue threshold.

Outlook

Since our last recommendation, the stock price has achieved our target price of INR 394. Further, we have revised our FY23E EPS of INR 30.9 (earlier INR 18), and we apply a P/E multiple of 16x (earlier 22x) on FY23E EPS to arrive at revised target price of INR 495 (earlier INR 394) per share, implying upside potential of 17.7%. Accordingly, we reiterate our “BUY” rating on the shares of Tata Motors.

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