Buy Tata Motors; target of Rs 785: Prabhudas Lilladher

Prabhudas Lilladher's research report on Tata Motors

We increase our FY24/25/26E EBITDA estimates by 7%/4%/4%, to factor in company’s updated margin guidance and 2Q performance. Tata Motors’ (TTMT) consol. revenue was below our and consensus estimates (by c3%), led by lower realization across JLR, CV and PV segments. However, margin beat at CV and PV helped report in line absolute EBITDA. JLR has increased its FY24 EBIT margin guidance from >6% to ~8% (higher than expected). JLR’s ASP have declined QoQ for the third successive quarter due to poor mix, we see this trend normalizing now. Benefits from volume ramp up helped by a strong order book of 168k units (with >77% mix of higher ASP models) should support the ASP and margins at higher levels. Lower discounts at CV helped margins in 2Q; we see CV margins continuing to expand. TTMT sees 2H to be better than 1H for PVs and EVs to see fast ramp-up going ahead.

Outlook

We maintain our positive stance on TTMT given (1) JLR’s volume ramp-up resulting in strong revenue, profitability and FCF, 2) Domestic CV benefitting from underlying economic strength, operating leverage, benign input costs and lower discounts and (3) focus on market share in PV segment (13.4% in 1HFY24 vs 8% in FY21) led by model launches and rising EV penetration. Retain ‘BUY’ with SoTP based TP of Rs 785 (earlier Rs 760).