Hold Tata Motors; target of Rs 160: ICICI Direct

ICICI Direct's research report on Tata Motors

Tata Motors (TML) reported weak results in Q1FY20. While consolidated revenues were down 8.4% YoY to Rs 61,467 crore (JLR down 2.8% YoY, standalone down 19.9% YoY), the margin performance was more disappointing. Consolidated margins of 6.2% were at a multi-year low, dragged by negative operating leverage and higher marketing and warranty costs in JLR. Consequent consolidated loss at the PAT level was at Rs 3,680 crore (JLR loss at £402 million). JLR reported negative FCF of £719 million.

Outlook

Using SOTP valuation technique we value TML at Rs 160 i.e. 8x EV/EBITDA (FY21E) to TML standalone business (~15% premium to its competition) and 3x EV/EBITDA (FY21E) to JLR. We retain our HOLD rating on the stock.