Value Pick: Brokerages see 41% upside in Tata Motors stock amid fading chip issue and strong demand

Tata Motors Limited's shares have a potential of seeing a 41 per cent upside, many brokerages opine. The growth is likely to be supported by new launches in electric vehicle (EV) segment and through to price hikes. They were of the view that the semiconductor crisis is a fading story. 

Billionaire investor Rakesh Jhunjhunwala has also invested in this stock and he owns 39,250,000 equity shares, which translates into 1.2 per cent shareholding in the company. This is according to the December 2021 shareholding pattern available on the exchanges. 

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The stock on Tuesday gained almost 3 per cent to Rs 440.3 per share on the BSE as compared to 1.22 per cent rise in the BSE Sensex. 

Edelweiss Research 

The brokerage firm has lowered FY23E JLR volume by 13 per cent to 426k, factoring in supply constraints compensated by a strong order book and product cycle. With strong demand outlook for CVs (commercial vehicles) and PVs (passenger vehicles), it retains a Buy stance with target price of Rs 616 per share, which implies upside of 40 per cent. 

India and JLR are on the cusp of a strong demand and product-cycle tailwinds. This should facilitate balance sheet improvement of the company. The stock is trading at FY23/24E PER of 15.1x/11x. In India, FY23 can see a strong MHCV (Medium and Heavy Commercial Vehicle) recovery, which can support Tata Motor’s strong PV story. 

Ambit Capital 

With continued improvement in chip supplies amidst strong order backlog of around 155000 units and multiyear low dealer inventory, JLR’s wholesales should see sharp rebound, driving significant scale/EBITDAM expansion. Meanwhile, India business will benefit from cyclical revival in the domestic CV industry and continued market-share gains for the PV business.  

Combination of rising scale at JLR along with cyclical uptick in domestic CVs and continued market-share gains for PV business will drive significant FCF (Free Cash Flow) generation. This would lead to Tata Motors turning net debt free by FY24E, in brokerages view. 

The brokerage upgrades FY23E consolidated EPS by 8 per cent led by 5 per cent rise in consolidated EBITDA and reiterates Buy stance with target price of Rs 619 per share (41 per cent upside), implying around 12x/3x FY23E standalone/JLR EV/EBITDA.  

Julius Bar 

The auto industry is expected to see gradually improving trends, with a better demand environment post pandemic-led shocks, better chip availability and a cyclical uptick.  

Tata Motors is expected to see improved performance in both JLR and domestic operations on a cyclical recovery, new launches/refreshes, a better product mix, cost-cutting initiatives, and deleveraging.  

The recent deal for PV EV has also created significant incremental value for Tata Motors. However, the brokerage maintains Hold call with a target price of Rs 565 per share, over 28 per cent upside.