ICICI Direct Bullish Over Tata Motors Stock, Sees An Upside of Nearly 26%

Brokerage firm ICICI Direct is bullish on Tata Motors Limited. The stock-broking firm feels that the share price will rise by nearly 26%. The stock price of this large-cap auto company from Tata Group has grown approximately by 11% over the past five years (roughly from 305 levels in May 2018), outperforming the broader Nifty Auto index.

Q4FY23 Results

Tata Motors has delivered a strong performance in Q4FY23 and for the fiscal year 2023. Its consolidated total operating income (TOI) was up 19.7% QoQ at Rs 1,05,932 crore and the EBITDA margins were at 14.7%, up 87 bps QoQ.

The consolidated profit after tax (PAT) of the company was reported to be Rs 5,408 crore for the quarter and for FY23 it was positive, reported after five years. The EBITDA margins in 4FY23 for the Jaguar Land Rover (JLR) segment was at reported at 14.6% while its Indian commercial vehicles and passenger vehicles segment was at 10.1% & 7.3%, as per the ICICI Direct research note.

Outlook

The note stated that Tata Motors demonstrated capability in newer technologies in commercial vehicle space and the pricing discipline across the industry would aid to aspire the double-digit margins ahead. "We expect healthy 20.1% revenue CAGR over FY23-25E driven by 10% total volume CAGR amid healthy wholesale visibility on the JLR front," it said.

The company has a dominant position in the domestic electric passenger vehicle space with a more than 80% market share. Further, the company intends to show a firmer commitment towards electric vehicles by JLR with an accelerated investment plan of £15 billion spent over the next five years.

The company also shows a healthy free cash flow generation target of £2 billion and would reduce its net debt to £1 billion by FY24E. The company intends to go debt-free (most likely in FY25) through healthy CFO generation and the sale of non-core assets (including a stake sale in Tata Technologies).

Valuation & Rating

ICICI Direct suggested, "We maintain BUY rating amid healthy profitability across all business segments, JLR's volume recovery on the anvil, reiterated focus towards EV space at JLR coupled with healthy FCF generation targets for FY24E."

Further, it upgraded the estimates and rolled over the valuations to FY25E, the brokerage now values Tata Motors at a target price of Rs 650 per share on a SOTP basis (8x, 2x FY25E EV/EBITDA on India, JLR; Rs 150 value to Indian EV business, stake in Tata Tech).

Dividend details

The Tata Motors directors, in the board meeting held on May 12, recommended a final dividend of Rs 2 per ordinary share of Rs 2 each (at 100%) and Rs 2.10 per ordinary share of Rs 2 each (at 105%) for the financial year ending March 31, 2023. It is subject to the approval of members at the ensuing annual general meeting (AGM) and on approval, it will be paid to the eligible shareholders from August 14, 2023 onwards.

Share price movement

The latest stock price of Tata Motors is Rs 532.60 per share, which has rallied by nearly 3.29% on an intraday basis, at the time of writing this note. In the last one year, the share price has surged by 31.41%, and in the last three years, the price has skyrocketed by 531.04%.

Disclaimer

The stocks have been picked from the brokerage report of ICICI Direct. Greynium Information Technologies, the author and the brokerage firm are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to consult with certified experts before making any investment decision.