Accumulate Tata Motors; target of Rs 1075: Prabhudas Lilladher

Prabhudas Lilladher's research report on Tata Motors

We met with Tata Motors' management to understand the rationale behind the demerger and receive general business updates. TTMT is on track to meet its outlined operational metrics, viewing the demerger as having no impact on these objectives. TTMT expects demerger to offer greater maneuverability, aiming for both entities to operate in a self-sustaining manner. Although we see limited benefits in terms of value unlocking, TTMT's confidence reassures us of a sustainable recovery in both the India PV and JLR. We remain positive on Tata Motors based on: 1) JLR’s volume ramp-up, leading to strong revenue, profitability, and FCF; 2) a focus on increasing market share in the PV segment through model launches and rising EV penetration; and 3) profitable and robust FCF performance, driven by margin expansion in the CV segment. We have adjusted our estimates primarily for the India businesses, resulting in a consolidated EPS change of 0.4% for FY24-FY26E, with an estimated CAGR of 12.4% over the same period.

Outlook

We have increased our EV/EBITDA multiple for the India PV business to 13x to align it more closely with Maruti Suzuki. Consequently, our SoTP-based TP has been revised upwards to Rs. 1,075. However, given the stock's sharp runup over the last three months, we are downgrading our recommendation to 'ACCUMULATE' from 'Buy'.

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