Tata Motors Shares Rise After CLSA Rating Upgrade; Here’s the Target Price
Tata Motors’ stock rose by 0.89% on BSE, trading at Rs 687.70, after CLSA upgraded its rating. The stock had previously faced a 37% correction over the past six months due to weak demand expectations.
- Rating Upgrade and Target Price: CLSA has upgraded Tata Motors from ‘Outperform’ to ‘High-Conviction Outperform,’ with a target price of Rs 930, signaling a potential 36% upside.
- Stock Correction: The company’s stock experienced a significant 37% correction, driven by weak demand and concerns about additional import tariffs from the US that could negatively impact JLR’s US sales.
Challenges and Key Concerns
Tata Motors’ key challenges include demand weakness in crucial markets like EU, China, and the UK. There are also concerns about potential import tariffs on European vehicles, which could affect JLR’s sales in the US.
- JLR EBIT Margin Guidance: CLSA notes that achieving JLR’s 10% EBIT margin target may be difficult under current conditions.
- Impact of Tariffs: The risk of import tariffs on European cars by the US is a key concern for JLR’s future performance.
Catalysts for Stock Growth
CLSA identifies several potential catalysts for Tata Motors’ stock recovery, including:
- Retail Demand and Discounting: The performance of JLR in key markets and the implementation of tariffs in the US are key factors to watch.
- Chinese Competition: Chinese Original Equipment Manufacturers (OEMs) gaining market share in the EU and UK could impact Tata Motors.
- Domestic Sales: Monthly retail performance of M&HCVs and new product launches in the Indian passenger vehicle market are expected to support the stock.
Valuation and Outlook
Currently, JLR trades at a multiple of 1.2 times estimated FY27 EV/Ebitda, which is significantly lower than its normative multiple of 2.5 times, indicating uncertainty in the business outlook.
- JLR’s Valuation: CLSA calculates the implied per-share value of JLR at Rs 320, compared to the target valuation of Rs 450 per share. This offers a buffer against potential adverse impacts from tariffs and weak demand.
Tata Motors’ Recent Financial Performance
Tata Motors recently reported a 22% YoY drop in profits, with a decline in JLR’s business contributing to the slowdown. However, revenue grew by 3% YoY, reaching Rs 1.13 lakh crore.
- Margins and Profitability: JLR’s EBIT margins improved by 9% YoY, mainly due to reduced depreciation, while margins in India’s CV and PV businesses were supported by PLI accruals.
Medium and Heavy Commercial Vehicle Outlook
CLSA has factored in a 5% decline in M&HCV sales for Tata Motors in FY26, aligning with industry expectations. However, a cyclical revival in this segment is expected to begin in FY27.
- Revival Outlook: After a few years of subdued growth, the M&HCV segment is expected to see recovery starting FY27, which should be priced in during upcoming quarters.
Broader Market Expectations
- Emkay Global View: Emkay Global suggests a recovery in the consumer discretionary sector, with Tata Motors expected to be a significant contributor. Their target price is Rs 950.
- MOFSL View: MOFSL remains cautious, forecasting continued margin pressure at JLR due to weak demand and rising costs, with a Neutral rating and a target of Rs 755.
Tata Motors’ stock is at a crossroads, with potential for growth tempered by demand challenges and external risks. The rating upgrade and target price suggest optimism, but ongoing concerns need careful monitoring.