Buy Tata Motors; target of Rs 633: LKP

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26 Aug, 2025 12:21

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LKP's research report on Tata Motors

"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 though at a slower pace. On the margin front, a trade-off will happen between the high margin and low margin models of JLR and will impact the margins accordingly. However, favorable currency movement 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 margin front, we have increased our JLR margin estimates by 70 bps/90 bps for next two years to 19%/19.3% but have reduced margins for domestic business by 200 bps/150 bps for FY15E/16E on continuation of underperformance in Q2. The trimming of domestic volume and margin estimates for FY15 has led us to cut the overall earnings for this year. However, increase in margins for JLR in FY16E has more than offset the pruning down of domestic business expectations for FY 16. Despite the rally in the stock, we still believe that the stock is worth a BUY, as valuations are also supportive. We value the JLR business at 4x FY16E EV/EBITDA and the domestic business at 4x FY16E EV/EBITDA to arrive at a target price of Rs 633, which would give an upside of 17%", says LKP research report.

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