2:1 Split, 300% Dividend: Tata's Auto Stock Rise After Ex-Dividend; Buy For Rs 1200/TP By JM, Motilal Neutral

Tata Group-backed auto giant, Tata Motors crossed over Rs 1,000 mark on June 12 after turning ex-dividend for its final dividend payout of 300% on ordinary shares and 310% on DVR shares for FY24. Overall, the stock gained by more than 2% on BSE in a single day. After the ex-dividend date, Tata Motors is recommended to buy for Rs 1,200 target by JM Financial. However, brokerage Motilal Oswal is Neutral on the stock.

At the time of writing, Tata Motors' share price traded at Rs 994.45 apiece, up by 0.74% on BSE. The stock gained by over 2.1% to hit an intraday high of Rs 1,010 in the early trade. Currently, the company has a market value of over Rs 3.30 lakh crore.

Tata Motors' share price turned ex-dividend on June 11 for its final dividend payout of Rs 6 per share or 300% for FY24. The total comprises Rs 3 per share normal dividend and Rs 3 per share special dividend.

Meanwhile, Tata Motors DVR also turned ex-dividend for 310% or Rs 6.10 per share dividend payout for FY24. The payment of this will be done on or before June 28, 2024.

This is the highest dividend in 14 years by Tata Motors. In 2023, the company paid dividends of Rs 2 per share on its ordinary stocks. The highest dividend payout was in 2011 at Rs 20 per share.

After the dividend, Tata Motors stock will be in focus for its split into two aka 1:2 ratio. Tata Motors board has approved the demerger of the company 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.

Should You Buy Tata Motors Stock?

In its latest research note, JM Financial said, Tata Motors (TTMT) recently hosted its investor meeting highlighting future strategy for domestic businesses. In the PV/EV business, the company plans to launch 5- new models over the next 2 years across alternate powertrains. Investments in the EV business are expected to be INR 160-180bn over the next 6 years, largely towards developing new products, powertrains, regulatory changes etc. Overall, TTMT targets a 200bps market share gain in the PV segment by FY26 led by these launches. In respect of CV business, the industry is expected to grow by single-digit during FY25."

Further, in regards to demerger, JM's note highlighted that Tata Motors' demerger into PV and CV business is owing to limited synergies between the two. Expect NCLT approval in the next 1 month. The merger process is expected to
be completed 12 months after this approval.

Also, the brokerage added, "TTMT is targeting strong double-digit EBITDA margin for its CV business and expects PV-EV business to be EBITDA breakeven (ex. PLI) in the medium term. Net-cash position in domestic business drives comfort."

Accordingly, on the valuation, JM's note said, "We maintain BUY with unchanged with Mar'25 SoTP of INR 1,200 (standalone / JLR valued at 12x /3x EV/EBIDTA). The slowdown in key global markets remains monitorable."

On the other hand, Motilal Oswal in its note said, "TTMT's India Investor Day 2024 highlighted the clear targets that it has set out for individual business segments, which include: 1) CV business: a target for FCF of 6-8% of revenue, resulting in strong ROCE, by growing ahead of the industry and achieving strong double-digit EBITDA margin 2) PV ICE business: positive and growing cash flows by improving market share to 16% by FY27 and target for double-digit EBITDA margin 3) EV business: achieve EBITDA break-even by FY26. While TTMT's India business has already become net debt free in FY24, it has set a target for JLR to become net debt free by FY25. Now, TTMT's individual businesses are self-sustaining and investment spending is well funded. "

However, Motilal's note also said, "While there is no doubt that TTMT has delivered an extremely robust performance across its key segments in FY24, there are clear headwinds ahead that could hurt its performance, especially at JLR. The stock trades at 17x/14.6x FY25E/FY26E consolidated EPS and 5.9x/4.9x EV/EBITDA. Reiterate Neutral with our FY26E SOTPbased TP of INR955."

Disclaimer: The recommendations made above are by market analysts and are not advised by either the author nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.