Buy Tata Motors; target of Rs 613: LKP

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26 Aug, 2025 12:21

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LKP`s research report on Tata Motors“Tata Motors has been the biggest sufferer of the cyclical downturn in the MHCV industry in India. Now, with the recent growth seen in monthly sales numbers both on a yoy as well as mom basis for the last couple of months on industry wide basis, we believe that recovery has entered the MHCV industry. With the advent of new government and expectations of some economic reforms and infrastructural development, the MHCV industry has started to respond already. LCV demand which generally reacts with a lag may follow suit in a couple of quarters. With the new launch of Zest, a new wave of enthusiasm is seen in PV segment as the initial response for it is heartwarming. With another new launch of a hatchback Bolt coming in a short while we expect PV segment of Tata Motors to report sales In line with the industry average of 10-12% for FY 15. As far as the foreign business of Tata Motors is concerned, JLR with its strong surge in sales on the back of new launches is scaling new highs. Also its margin expansion is the new buzz thing, which on the back of a richer product mix and solid growth in high margin China YTD FY15, has already reached 20%. We believe that with both the businesses now getting back into the groove, Tata Motors stock is expected to touch new highs despite the rally observed in it off late.”“The company is expected to continue its outperformance on the JLR front which is the chunk of their business. Emerging geographies like South America, China, Russia etc. are expected to drive the revenues going forward. Slurry of new launches, refreshes, variants, facelifts are expected to populate JLR’s stable in the coming couple of years. This along with expansion of capacities and JV commissioning in China with Cherry Automobiles will provide the extra boost to the volumes. On domestic front, the recent green shoots seen in the MHCV segment will yield superior benefits alongside with JLR. Cars segment with the newly launched Zest and the upcoming launch of Bolt will help the company to gain back its market share somewhat and move along with the expected growth rate of the cars industry at 10-12% in the couple of next years. On the margin front, increased quantum of high margin models in total sales and expansion of capacities for these models will lead them to settle somewhere between 17-18% in the next couple of yearsAlso,favorable currency movement (GBP has decreased by 2% v/s $ in August) coupled with higher chunk of sales coming from the high margin Chinese business will assist this margin performance. In line with our upbeat expectations on the stock we have upgraded our volume expectation for JLR by 12%/16% for FY15E/16E and by 10%/14% for domestic operations. Also on margin front, we have increased our JLR margin estimates by 100 bps/80 bps for next two years and by 200 bps/350 bps for FY15E/16E for domestic operations. Despite the rally in the stock, we still believe that the stock is worth a BUY, as valuations are also supportive (FY 16E EV/EBITDA of 3.3x v/s 4.5x for BMW). We value the JLR business at 4x FY16E EV/EBITDA and the domestic business at 2x FY16E EV/EBITDA to arrive at a target price of Rs 613, which would give an upside of 21%,” says LKP research report.

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