Buy Tata Motors; target of Rs 750: Emkay Global Financial

Emkay Global Financial' research report on Tata Motors

We attended JLR’s Annual Investor Day meet to understand its outlook and growth strategy. KTAs: i) JLR gave guidance for £28bn revenue with 5-7% EBIT margin in FY26 (vs earlier guidance of 10%; FY25: 8.5%); it maintained its interim/long-term guidance of 10%/15%, led by sustained focus on premiumization (growing share of higher-priced models), pricing discipline, and structural cost reduction. 2) FY26 FCF to be ‘close to zero’ vs £1.5bn in FY25 on lower profitability, drag from working capital, and sustained investment spends of £3.8bn (akin to FY25; previous guidance above £3.5bn). 3) JLR has factored in a potential trade between US and both, UK and EU; any delay could see margin pressure in H1FY26. 4) Amid slower than anticipated BEV adoption and changing emission regulations, JLR is increasing investments in ICE, on extended visibility; Jaguar to be fully electric; Range Rover EV launch planned for CY26. 5) JLR’s SDVs, with next-gen EV architecture, can boost processing power by 15x and cut wiring harness content by ~60%. 6) JLR has outpaced the Chinese premium PV market, and aims to maintain the pace via multiple targeted initiatives. We cut FY26E/27E consol EPS by ~15%, to factor in the challenging demand environment at JLR and the curtailed EBIT margin guidance. We build in £27.5bn revenue (5% YoY fall) with 6.4% EBIT margin and FCF of -£528mn.

Outlook

Over the last 5 years, JLR has significantly strengthened its business profile (largely resilient volume, high profitability) and balance sheet (net cash), thus positioning itself well to withstand near-term challenges. We maintain BUY on TTMT while trimming out SoTP-based TP by ~6% to Rs750.