Prabhudas Lilladher has given Buy recommendation for Tata Motors with a target price of Rs. 600 in its research report issued on May 12, 2022

Prabhudas Lilladher’s research report on Tata Motors

Tata Motors’ consolidated EBITDA margin at 14.6% (+210bps QoQ) surprised positively, led by cost controls. Though chip supply at JLR improved QoQ, there still remain certain constraints led by lockdowns in China. 1QFY23 is expected to witness pressure led by chip shortage, inflation burden and Range Rover changeover. However, over FY23 new products (Range Rover deliveries from 2QFY23), demand momentum (as lockdowns in China moderate) and price pass-ons (as commodity prices to remain elevated) will improve profitability, in our view. JLR’s order book stands at record 168k units (46k for New Range Rover). For standalone operations, Tata Motors has been able to gain market share across segments; PV market share at 12% vs 8% in FY21, CV at 45% (+250bps from FY21) and EV at ~87%. We maintain our positive stance on Tata Motors as the (1) PV segment will likely gain further market share led by revamped portfolio, customer preference for SUVs and rising EV penetration (2) CV volumes will continue to benefit from cyclical upturn, improving fleet utilization and freight rates (3) revival in JLR and strong order book to benefit and drive FCF generation. Our EBITDA margin estimate contract by ~60bps for FY23/24 to factor inflation headwinds.

Outlook

Maintain ‘BUY’ with revised SOTP based FY24TP of Rs 600 at 11.5x EV/EBITDA for standalone operations, 2.5x EV/EBITDA for JLR and 9x for PV business (on improved market positioning vs 8x earlier).

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