Jefferies raises Tata Motors’ target, sees 24-40% upside in stock

“The price target of Rs 700 is based on 11X FY25E EV/ EBITDA for India CVs, 10X FY25E EV/EBITDA for India PVs, 2.3X FY25E EV/EBITDA for JLR, and 50% discount to transaction value in stake sale to TPG for India EVs,” Jefferies said in a note.

Meanwhile, Rs 790 price target is based on “12X FY25E EV/EBITDA for India CVs, 10x FY25E EV/EBITDA for India PVs, 2.0X FY25E EV/EBITDA for JLR, and 50% discount to transaction value in stake sale to TPG for India EV business,” the Jefferies not said further.

“We expect both JLR and India businesses to perform well in FY24, driving strong earnings growth and deleveraging. By FY25E, we expect EBITDA to be 2.1X of FY23, EPS to rise to an all-time high, and the auto balance sheet to turn to net cash. Our FY24-25 EBITDA and EPS are 11-12% and 40% above Street, respectively,” the note said.

JLR volumes are seen rising by 22%/8%/5% in FY24E/25E/26E while its EBITDA margin expansion is estimated at 15%/15%/14.9% in FY24/25/26E in the base case scenario. In the upside scenario, JLR volumes are seen growing by 24%/10%/7% in FY24/25/26E and FY24-26E margins are estimated at 100 bps above the base case.

The US-based diversified financial services company has also estimated a downside scenario for Tata Motors stock and put a price target of Rs 440, which is a 22% decline.

“Rs 440 PT based on 10x FY25E EV/EBITDA for India CVs, 8X FY25E EV/EBITDA for India PVs, 1.5X FY25E EV/EBITDA for JLR, and 50% discount to transaction value in stake sale to TPG for India EV business,” the Jefferies note said.Tata Motors shares were up by over 1% on the NSE on Tuesday.

Tata Motors, which is a leader in the commercial and EV segments, during its ‘Investor Day’ meeting vowed to focus on strengthening its brands with an emphasis on EVs while achieving strong profitability and cash flows. The company during its investor meeting said it was aiming to maintain break-even levels and reduce capacity while optimising investments through platform reduction and partnerships such as battery sourcing from a Tata group company.

Domestic brokerage Nuvama also has a ‘Buy’ stance on the stock with a SoTP-based value of Rs 645 based on 2X FY25E EV/EBITDA for JLR, 11X FY25E EV/EBITDA for the India CV business and Rs 108/share for the India E-PV business, based on a 20% discount to the transaction value.

Following its ‘Investor Day’ meeting last week, several top brokerages had come out with their views on the stock. Among them were BNP Paribas, Sharekhan, CLSA, Nomura, Motilal Oswal and Kotak Institutional Equities. Barring Kotak which has a ‘Reduce’ recommendation on the counter, all others have a ‘Buy’ rating. The target range is between Rs 610-Rs 650. Meanwhile, Kotak has put the target at Rs 530.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)