Tata Group-backed automobile giant, Tata Motors witnessed a sharp selling pressure on September 11, so much so that the stock price nosedived by a whopping 6.1% on BSE. The latest downtrend comes after global brokerage UBS assigned a 'SELL' call on Tata Motors while lowering its target price to Rs 825 on the auto player. Tata Motors which recently delivered a 300% dividend in FY24, merged its DVR shares and is going to split in the ratio of 1:2 ahead.
Tata Motors Share Price:
After market hours of September 11, Tata Motors' share price ended at Rs 976 apiece, down by 5.74% on BSE, with a market cap of Rs 3,59,227.59 crore. The stock was near its day's low of Rs 972 apiece.
However, Tata Motors' share price has given zero returns on a weekly, monthly, and six-monthly basis, correcting significantly already.
On BSE, in 5 sessions, the stock is down by Rs 107.10 or 9.9%, while in 1 month, the stock dipped by Rs 100.10 or 9.30%. In six months, the downside is about Rs 52 or 5.06%. The significant bearish saga has led to squeezing Tata Motors' earlier gains of 2024. Now, year-to-date, Tata Motors share price's gains is about only 23.5% on BSE.
Tata Motors UBS Call:
Taking into consideration Tuesday's closing price of Rs 1035.45 apiece, UBS is expecting a potential 20% decline in Tata Motors ahead.
In its latest report, UBS said, "JLR has had a good run over the last few years in terms of ASPs and margins thanks to very strong demand for its latest launches: the Defender, Range Rover and Range Rover Sport. This trio are JLR's premium models and have significantly boosted its ASPs and GM. JLR has used the semiconductor shortage to ration production in favour of these models, which have further lowered its dependence on lower priced/margin models. ASP/GM expanded from £49,000/26.7% in FY20 to £72,000/31% in FY24 as incentives fell to the lowest levels among peers."
Further, the brokerage explained that the success of these models also mitigated the impact of a relatively weaker recovery in China, its highest-margin market. However, the extended successful run of these models has started to moderate and the order book is now below pre-COVID levels.
However, as per UBS, significant rises in incentives have not been able to support volumes, with the brand posting a YoY decline in Q1FY25. Discounts for Range Rover Sport, which changed platforms in 2022, rose suddenly in July 2024 from near-zero levels. It said, "Given the time since its launch in 2022 and the Defender precedent, we expect discounts to keep rising directionally even as near-term deliveries could be affected by the disruption from flooding at an aluminum supplier."
Moroever, UBS said it would not be surprised if the incentives for Range Rover-JLR's apex model- start rising soon from near-zero levels. Rising discounts, moderating growth and a lack of any new ICE/hybrid launch (all new JLR launches are EVs and skewed towards Jaguar) could result in significantly weaker financials for FY26, even if consensus extrapolates the last two years' results.
It added, "The moderation in JLR's volume comes at a time when demand in India for CVs (commercial vehicles) is wobbling while passenger vehicles (PVs) have started underperforming their regional peers in growth and margin terms."
On the valuation, UBS said, "We value JLR at Rs340, on 7x one-year forward PE. We value the Indian CV/PV segments at Rs280/Rs170 on 10x/14x one-year forward EV/EBITDA. We value investments in subsidiaries/associates at Rs35.00. We expect further downside risk from margin slippage at JLR and within Indian PVs (especially the EV arm) on any significant shortfall in performance due to to high valuations."
As per Trendlyne data, the consensus recommendation from 31 analysts for Tata Motors Ltd. is BUY. Of the total, 11 analysts have still suggested 'Strong BUY', while 8 analysts recommended 'BUY', and another 8 analysts have advised 'HOLD', and rest are split between 'SELL' to 'Strong SELL' view. EPS is expected to reduce by 19.7% in FY25.
The consensus average target price for 1-year on Tata Motors is of RS 1,176.58, hinting at over 20.5% potential upside. While in the last week of August 2024, brokerage KR Choksey suggested BUY on Tata Motors for a target price of Rs 1,156.
Tata Motors Split:
The auto player is set to split in the ratio of 1:2. The company is planning the demerger of Tata Motors into two separate listed companies housing A) the Commercial Vehicles business and its related investments in one entity and B) the Passenger Vehicles businesses including PV, EV, JLR, and its related investments in another entity.
Click it and Unblock the Notifications
Sign in with Google