Tata Motors share price: ICICI Securities raise target price to Rs 325

Tata Motors Q3 FY21 operational performance beat consensus estimates with consolidated EBITDA margins at 14.8% (up 444 bps YoY); driven by strong performance across domestic PV/CV and JLR. Tata Motors Management remains focussed on FCF generation (Q3: Rs 79 bn) and thereby aiding net debt reduction (QoQ: Rs 68 bn). Tata Motors Management reiterated its hard (ambitious) target of turning net debt free by FY24. Tata Motors Management also laid out a strong market share target in domestic PV’s of >10% (9MFY21:7.8%) driven by new SUV launches (e.g. Safari, Hornbill). Tata Motors remains the market leader in CV business which is witnessing gradual recovery and we expect the industry to clock >30%CAGR over FY21-24.

JLR’s key mointorables:

a) progress on electrification (BEV+PHEV share currently  12%)
b) JLR volume ramp up led by new products/key refreshes (e.g. Defender)

Tata Motors Key highlights of the quarter:

Standalone revenues grew 35% YoY to Rs 146 bn while JLR revenues declined 6.5% to GBP 6 bn. JLR’s EBITDA margin improved 506 bps to 15.8% driven by structural cost reductions. Project Charge+ delivered recurrent cash savings of GBP 0.4 bn in Q3FY21. JLR reported a record FCF of GBP 562 mn driven by tight control on working capital. India PV/CV business both clocked positive EBITDA margins at 3.8%/8% respectively. India business delivered Rs22bn of FCF driven by better pricing, lower discounts and tight working capital.

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Tata Motors Key takeaways from concall:

Tata Motors Management indicated:

a) Realizations improvement in JLR was aided due to shift of mix towards Land Rover (84% vis-a-vis 78% YoY), higher regional contribution of China and North America
b) Tata Motors cost-savings on VME and warranty is likely to sustain at less than 10% levels in India business, Tata Motors management expects to overcome commodity price pressures via pricing increases, product mix and structured cost reductions programs
c) Tata Motors BEV+PHEV contributed 30% sales in UK+EU for Q3; there is strong response to new Defender 110 as current orderbook remains more than 3-months of sales; launch of Defender 90 is expected to aid volumes further in FY22
d) Tata Motors capex for India business in FY21E likely to be at Rs 18.5 bn (higher then target of Rs 15 bn) due to accelerated demand in domestic PVs.

ICICI Securities believes enhanced focus on FCF generation coupled with improving domestic business positioning, outlook is likely to aid investor confidence. ICICI Securities believes reporting separation of PV/CV business could aid value discovery. We maintain our target JLR multiple at 2.2x (rollover into FY23E) and reiterate our BUY rating on Tata Motors with a revised SoTP-based target price of Rs325 (earlier target of Rs 215).