Buy This Multibagger Tata Group Stock, Share Likely To Surge 17%: Motilal Oswal

Motilal Oswal, a leading brokerage firm in its recent report on Tata Motors Ltd (TTMT) suggests buy for a target price of Rs 514 apiece. Tata Motors is India's homegrown Auto sector leading player. It is a large-cap Auto company having a market capitalization of Rs 1,45,389 crore.

Tata Motors is a leading global automobile manufacturing company. Its diverse portfolio includes an extensive range of cars, sports utility vehicles, trucks, buses and defence vehicles. Tata Motors is one of India's largest OEMs offering an extensive range of integrated, smart and e-mobility solutions.

Considering Tata Motors' Current Market Price and the given target price, the stock could surge around 17% in 12 months.

Stock Outlook

The Current market price (CMP) of Tata Motors on NSE is Rs 439.55 apiece. The 52-week low is Rs 293.10 apiece recorded on 21 September 2021, and the 52 week high is Rs 536.70 apiece recorded on 17 November 2021, respectively. 

Returns over the Past 5 Years

Over the week, the stock moved down by 4.49%. Whereas, in the past 1 and 3 months, it gave 7.37% negative return and 14.01% positive return, respectively. Over the past 1 year, it gave 45.94% positive return. In the past 3 years, it gave multibagger 227.43% return and in the past 5 years, 5.18% positive returns.

 

Maintains FY23 EBIT and FCF guidance, and near zero net debt by FY24

The brokerage said, "We meet the management of TTMT to get an update on the business, especially for JLR, considering the changing operating environment. Semiconductor shortages still remain the key bottleneck for JLR, which is in turn impacting profitability and cash flows. The management maintained its FY23 EBIT margin/FCF guidance of 5%/GBP1b for JLR. It expects to be near zero net debt levels for the consolidated Automotive debt by FY24."

 

Key takeaways from the meetings

• Demand is not a concern in the Premium segment. Macro headwinds are yet to impact demand. The order book is still growing and cancellation rates are still very low. Its order book is now equal to three quarters of production, and hence any demand impact will reflect only after four quarters. 
• For JLR, the biggest issue remains semiconductor supplies. JLR is the most impacted player given the higher usage of semiconductors in its products, smaller scale, and product launches starting with the Defender. The Defender, RR, and RR Sport comprise 60% of its order book and is growing. JLR's focus is on prioritizing available semiconductors for high margin products. Visibility for its entire chain is currently at two-to-three weeks, but needs to go rise to two-to-three months. 
• JLR aims to boost production to 110-115k units per quarter (v/s its wholesale guidance of 90k units for 2QFY23). 
• Jaguar aims to reinvent itself as a niche brand rather than focusing on the mainstream Premium Car segment. This will result in the first new Jaguar EV on a dedicated architecture by CY25, and eventually becoming a completely electric brand. 
• JLR's capex investment is comparable with that of its peers, at 8-10% of sales (at GBP2.5-3b). Its peers are also investing in batteries, whereas JLR is relying on its partners for batteries. Capex of GBP2.5-3b is lower than its past peaks as the latter included: a) capacity expansion in Slovakia, b) an R&D center, and c) multiple platforms under development, including that for Jaguar. 
• Its near zero net debt target for JLR by FY24 will be driven by an improvement in supplies, leading to a reversal in working capital, which can release GBP1.2- 1.5b. We expect an FCF after interest expense of GBP1b in FY23. Net debt stood at GBP3.2b at the end of Mar'22. 
• An EBIT margin of 10% for JLR by FY26 (v/s its 5% guidance for FY23) will be driven by a mix and operating leverage. 
• India PV will see a launch of coupe Curve based on Gen2 architecture in CY24, which will compete in the Creta segment. The EV variant will be rolled out first, followed by ICE. 
• India PV capacity stood at 550k units, excluding Ford (fully utilized). Ford will add 300k units (scalable to 400k units). This should be sufficient for the next two years. Consolidated near zero net debt will be driven by: a) INR75b from TPG, b) release of working capital from JLR and an improvement in operating profit, c) India business FCF, and d) asset monetization. Net Auto debt was INR420b as of Mar'22, excluding lease liabilities of INR67b. It doesn't include any equity issue or monetization of JLR.

Valuation and view

TTMT should witness a gradual recovery as supply-side issues ease (for JLR) and commodity headwinds stabilize (for the India business). It will benefit from: a) a macro recovery, b) company-specific volume and margin drivers, and c) a sharp improvement in FCF and leverage in both JLR as well as the India business. The stock trades at 16.8x FY24E consolidate P/E and 4.2x EV/EBITDA. "We maintain our Buy rating, with a TP of ~INR520/share (Jun'24E based SoTP)," the brokerage said.

Disclaimer

The stock has been picked from the brokerage report of Motilal Oswal. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.