Tata Motors Shares Gain As Analysts Bet On Plan To Expand Line-Up, Cut Debt

Shares of Tata Motors Ltd. rose after most brokerages maintained 'buy', citing the automaker's plans to expand its product offering to improve profitability and lower debt during an investor meeting.

"The focus on dealer profitability and capability has improved the network and customer experience. Advertisement and promotion spend on the Indian Premier League has helped the company improve volumes. It highlighted that bookings for Tiago and EV have doubled since the IPL’s end," Nomura said in a note. "The focus will be on building an aspirational portfolio with a focus on SUVs, technology, and safety, including alternate powertrains to capitalise on segment shifts and regulation," it said

Tata Motors' India Investor Day 2023 highlighted its focus on customer-centric innovations in both businesses, profitable growth by leading from the front, and consistent delivery on financial targets, Motilal Oswal Financial said in a June 8 note.

Shares of Tata Motors was trading 1.30% higher at Rs 575.35 apiece, compared to a 0.06% rise in the Nifty 50 as of 09:24 a.m. on Thursday.

Out of the 36 analysts tracking the company, 28 maintain a 'buy' rating and three recommend a 'hold', and five recommend 'sell' according to Bloomberg data. The average 12-month consensus price target implies and upside of 3.7%.

Here are the key takeaways from the meetings with brokerages:

Phillip Capital:

• The brokerage maintains 'buy' with a target price of Rs 654, implying an upside return potential of 15%.

• CV growth is expected to be led by buses and medium and heavy commercial vehicles, while intermediate light commercial vehicles and SCV remain subdued. FY24 volume and tonnage growth are expected to be in the single digits. Q1FY24 volumes should see some degrowth quarter-on-quarter.

• Company to be almost net auto debt-free by FY25; lower interest costs to enable an increase in dividends.

• Ebitda is in margin focus: positive for EV, double digit for PV, and strong double digit for CV.

• The upcoming elections, firm freight rates, and high utilisation levels are positives.

• Service income now covers 70% of dealership fixed costs; improved branding of spares; and a focus on increasing non-CV sales revenue.

• 99% of dealers are profitable; focus should be on retail and not wholesale.

• With the product line-up and new future launches for JLR and domestic PV businesses, the brokerage expects the order book to remain healthy.

Nomura:

• Nomura maintains 'buy' with a target price of Rs 610.

• The company has successfully run initiatives to change consumers’ perceptions about its cars, resulting in volume growth, while EVs benefited from an ecosystem approach, Nomura said in a June 6 note.

• The focus on dealer profitability and capability has improved the network and customer experience.

• Advertisement and promotion spend on the Indian Premier League has helped the company improve volumes. It highlighted that bookings for Tiago and EV have doubled since the IPL’s end.

• It has prudently expanded its production capacity through the acquisition of the Sanand facility from Ford.

• The company has achieved a 3.5–4% cost reduction in its average purchase value for the past few years.

• The company will focus on building an aspirational portfolio with a focus on SUVs, technology, and safety, including alternate powertrains to capitalise on segment shifts and regulation.

• It plans to expand its product portfolio with the launch of four new EVs and mid-cycle enhancements to refresh products, special editions, and feature upgrades.

• The company will focus on maintaining its leadership position in the EV segment. As battery costs have reduced, it gives Tata Motors an opportunity to provide higher-capacity batteries, resulting in its vehicles having a higher range.

• The company has built a fuel-agnostic platform with a modular architecture. The focus on modularity will help reduce costs.

Motilal Oswal Financial Services:

• The brokerage has reiterated 'buy' with a target price of Rs 650, implying an upside return potential of 14%.

• Most of the leading indicators, such as customer surveys and transporter confidence index (except ICV and LCV), seem positive. The company expects a single-digit growth rate for the CV industry in FY24.

• Usually, CV demand is good in a pre-general election year due to election spending, and it moderates after the elections.

• Tata Motors also introduced different variants (like in cars), thereby addressing various customer needs, from a base variant to one with premium features.

• The company is driving electrification to lead the EV transition in CVs by delivering comprehensive EV solutions customised to address the intended application requirements. For each of its EV products, it has an anchor customer in place.

• In e-buses, it is operating 730 e-buses in 10 locations and is expecting 3.3k e-buses on the road by FY25.

• It has entered into a JV with Cummins for all future zero-emission technologies, including BEV, hydrogen ICE, and hydrogen fuel cells.

• It focuses on increasing localisation for EV components to 85% (at tier-1 vendor level) in the next three to four years (vs. 70% in FY22) to reduce costs.

• Tiago.EV is seeing acceptance in smaller towns (50% of bookings are from outside of the top 20 cities). It is bringing in new customers, as 23% of customers are first-time car buyers and 24% are women buyers (2x of industry average).

• The company plans to launch six new products on Gen 2 and 3 platforms by FY26, taking the total EV model range to 10 products.

• For the CV business, Tata Motors targets a strong double-digit Ebitda margin, annual capex of Rs 25 billion, and strong FCF generation.

Jefferies:

• The brokerage maintains 'buy' rating, with a price target of Rs 665 apiece, implying an upside return potential of 17%.

• Key focus areas in CVs include improving customer acquisition through digitisation, enhancing brand positioning with differentiated content and digital marketing

• The company continues to expect single-digit growth in CV industry in FY24E.

• The company intends to further expand its portfolio across EV and ICE powertrains with four new vehicles in coming years, including a coupe Curvv, SUV Sierra, and Avinya model based on its third-generation EV architecture.