Prabhudas Lilladher has given Reduce recommendation for Tata Motors with a target price of Rs. 255 in its research report issued on Mar 01, 2021

Prabhudas Lilladher’s research report on Tata Motors

Tata Motors (TTMT) hosted an Investors Day for the JLR business (Link for PPT). The management re-iterated key focus areas over medium term such as 1) positive cash-flow from FY23 (v/s FY22 targeted earlier due to one-time write down of GBP1.5b), 2) double-digit EBIT margin by FY26 and 3) to achieve 20% EV contribution in volumes by FY26. The main focus is on profit over volumes while doubling market share in strong profitability segments like LR (such as Range Rover and Velar). But we believe this strategy is not apt as it will significantly reduce competitive positioning, which will not only impact market share but also brand reach in the medium term. Concerns on JLR scale continues to remain for us and we are not confident that this business would be able to meet its targets of double digit EBIT margins, positive FCF and net debt neutral over medium term.

Outlook

Our consol EPS remain unchanged besides maintain reduce on the stock with SoTP based TP of Rs255 (unchanged) as we value S/A at 11x (unchanged) and retain JLR multiple to 2x EV/EBITDA. The key upside risk is global car alliance boosting scalability issues as JLR volumes remain static at -1% CAGR over FY16-20.