This Rakesh Jhunjhunwala auto stock has 30% upside scope as semiconductor supply woes recede

The brokerage said improvement in semiconductor supply should help Jaguar Land Rover (JLR) volumes going forward, disproportionately benefiting the cash flows.

Semiconductor supply is likely to improve every month and with the new Range Rover (RR) getting a positive response, the volume outlook will remain buoyant from 2Q, HSBC said.

“Improvement in volumes can have a disproportionately positive impact on cash flows and hence debt reduction,” it said. “Domestic PV business remains at the peak of its health with a strong market share of around 14 per cent.”

Domestic CV business outlook stays positive over the medium-term, the brokerage added. While the first leg of recovery was driven by large fleet operators, it expects a gradual pick-up from small/medium size fleet operators.

However, it sees global recession and demand slowdown as the key risks for the stock.

“Near-term global recession and impact on demand and pricing are the key risks. Over the next 2-3 years, we believe the biggest risk for Tata’s investment thesis is JLR’s ability to come back in the EV market,” said HSBC’s report.

With competition gaining significant traction in EVs, it may not be easy for JLR to come back, especially when the company is spending much lower than peers on R&D and software capabilities, the brokerage said.

Ace investor Rakesh Jhujhunwala held 3,92,50,000 equity shares or a 1.2 per cent stake in the homegrown automaker as of March 31, 2022, which is worth more than Rs 1,750 crore as of Monday’s share price.

The company has not yet announced its shareholding for the quarter ended June 30, 2022. Listed companies are obliged to release the list of key shareholders on a quarterly basis as per the Sebi norms.

JLR’s market share has fallen across markets as supply shortage continued to impact it more than peers, said the brokerage in its report.

“We lower FY23 and FY24 JLR volume estimates by 20 per cent and 8 per cent, respectively,” it added with a target price of Rs 570, from Rs 560 earlier. “Our overall EPS cut for FY23 is exaggerated due to the negative impact of operating leverage.”

The consensus recommendation from 29 analysts for Tata Motors is ‘Buy’, with 20 of them having a ‘strong buy’ call on the counter, whereas three suggested to hold the counter, shows Trendlyne data.

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