Need a dependable stock to play the EV theme on D-Street? Analysts eye over 30% upside in this one

Analysts are upbeat on Tata Motors as a proxy play for the emerging electric vehicle (EV) market in the country. Tata Motors shares have rewarded investors with a return to the tune of 37 per cent in the past year, beating gains of 9.2 per cent and 19.2 per cent in the Nifty and Nifty Auto indices, respectively.

Zee Business Analyst Kushal Gupta has a fundamental ‘buy’ call on Tata Motors. He believes the Tata group auto giant can be a great play in the EV space in tandem with brokerages’ positive views on US-based Tesla, one of the world’s largest EV manufacturers.

Here’s how Tata Motors shares have fared on Dalal Street over the past few weeks:

Gupta’s price target for the Tata Motors stock (TATAMOTORS) implies an upside of almost 22 per cent from Monday’s closing price.

What other market voices say about the stock

Tata Motors appears to be an interesting story with visible headroom in the stock from a longer-term perspective, according to Hemen Kapadia, Senior VP, Institutional Equity at KR Choksey Stocks & Securities. “As of now, Tata Motors is the clear winner as far as the EV space is concerned in India,” he told Zeebiz.com. 

“I think they are heading towards a debt-free journey that should be done by the end of the year… JLR should be on the way to being debt free by the end of 2024, which is positive… The response to the Nexon has not just been good but great. They have a few other interesting models in the EV space,” Kapadia said. 

He suggests a ‘buy on declines’ strategy citing the recent run-up in the stock. 

Analysts at Geojit Financial Services expect the auto maker's earnings performance to continue to improve in the coming quarters. "With the easing of chip supply, JLR should benefit from the healthy order book, driven by Range Rover Sport and the ramp-up in Defender. Its Indian business is steadily recovering and anticipates sustained growth in the near term," the brokerage said in a report dated August 8.

Also, Geojit expects the auto company's continuous efforts to minimise its cost, mainly in the JLR unit, and its favourable product mix to further aid expansion in its margin in the coming quarters.

"JLR's robust order backlog, rising demand, awareness of electric vehicles (EVs), and favourable industry trends bode well for Tata Motors," the Geojit analysts wrote. 

ICICI Direct analysts believe Jaguar Land Rover is set to achieve record profitability and cash generation in the year ending March 2024. 

"JLR is onto the path of healthy profitability with EBITDA margins in Q4FY23 at 14.6 per cent. With the present order book tilted in favour of higher profitable models and adequate price action in place, we expect EBITDA margins to improve to 15-plus per cent levels going forward," the brokerage's analysts wrote. 

The latest milestone in Tata Motors’ EV journey

This month, Tata Motors said its electric vehicle family touched the milestone of one lakh electric vehicles, underscoring its unwavering commitment to driving positive change and contributing to a sustainable future for the country.

The company said that it achieved the production of the last 50,000 vehicles over a period of mere nine months.

“Shaping the future of mobility, Tata EVs have covered a distance of 1.4 billion kilometres — an astonishing feat akin to three round trips to the sun,” the auto maker said in a press release, dated August 11.

How Tata Motors fared in Q1

The carmaker — whose popular models include Tata Nexon, Tata Tigor and Tata Tiago — opened the financial year with a strong performance on all parameters, driven by its luxury car unit Jaguar Land Rover (JLR) and its commercial vehicle business.

Last month, it reported a consolidated net profit of Rs 3,090 crore for the quarter ended June 30 as against a consolidated net loss of Rs 4,987 crore for the corresponding period a year ago. Its quarterly revenue grew 42.1 per cent on a year-on-year basis to Rs 1,02,236 crore, and earnings before interest, taxes, depreciation and amortisation (EBITDA) came in at Rs 13,559 crore as against Rs 3,181 crore a year ago, boosted primarily by Jaguar Land Rover, according to a regulatory filing.

The auto major’s margin — a key measure of profitability — improved to 13.3 per cent for the quarter ended June 2023 from 4.4 per cent a year ago.

According to Zee Business research, Tata Motors’ consolidated net profit was estimated at Rs 2,000 crore, revenue at Rs 1,01,500 crore, EBITDA at Rs 11,550 crore and margin at 11.4 per cent.

The net debt of UK-based Jaguar Land Rover, which accounted for 70 per cent of Tata Motors' revenue in the three-month period, decreased to 2.5 billion pounds at the end of June from 3.0 billion pounds three months ago, according to a statement.  

The company’s management remained optimistic about demand despite uncertainties such as a moderately inflationary environment in the near term. Read more on Tata Motors results

What next?

Tata Motors has lined up capital expenditure to the tune of Rs 38,000 crore for the year ending March 2024 — which includes three billion pounds for JLR .

The company has already laid out the third phase of its strategy in the EV space.

It plans to offer vehicles of different body styles at several accessible price points, meeting the evolving needs of EV consumers.

At the Auto Expo 2023, Tata Motors showcased future concepts the Curvv, the Harrier EV, the Sierra EV and the Avinya, envisaged to open up new segments of customers in the country.

(With inputs from agencies)