Tata Motors shares hit 7-year high; stock jumps 42% in 3 months. Should you reduce?

Tata Motors share price: Tata Motors' shares scaled a seven-year high of Rs 584 apiece on the BSE on Tuesday, June 20. The stock has rallied an impressive 42 per cent in the last 3 months and has been hitting fresh 52-week highs quite often. For the fourth quarter of the preceding fiscal (Q4FY23), the auto major reported a consolidated profit of Rs 5,408 crore against a loss of Rs 1,033 crore in the year-ago period. Total revenue from operations stood at Rs 10,5932.35 crore, up 35 per cent against Rs 78,439.06 crore in the year-ago period. The top line and bottom line beat analysts' expectations.

The company also said that its board of directors has recommended a final dividend of Rs 2 per ordinary share (100 per cent of face value) and Rs 2.1 per share for DVR shareholders, subject to approval by the shareholders at the annual general meeting (AGM). This was the first dividend announcement by the company in seven years. The last time the auto company had announced a dividend was in FY16. READ MORE

In Cred Equities, in its report released on June 14, highlighted three points regarding the company. They are as below:

• The revenue mix of the auto major improved in favour of the US and China for strong growth in recent years to 30 per cent of consolidated sales. But the impending recession threat in these economies is a concern.
• JLR guides an EBIT margin of 6–10% for FY24–26F, which is higher than the range guided in FY19 of 4–9%. Top-end guidance is based on a 300-bps improvement coming from sales growth.
• Aggressive management guidance on profitability looks stretched based on business cycles and peer comparisons and will be difficult to sustain. Reiterate REDUCE, as a rich +2SD PBV makes risk-reward unfavourable.

The brokerage made these observations post the company's unveiling of Tata Motors' Annual Report. It gave a "Reduce" rating on the stock with a target price of Rs 401.

Analysts at JM Financial, on the other hand, remain bullish on the stock. The brokerage has a "buy" rating with a target price of Rs 625. In its June 7 report, the brokerage said, "Overall PV demand remains healthy, and the planned increase in PV capacity (from 600k to 1 million units) is expected in 2HFY24. In respect of the CV business, the industry is expected to grow by single digits during FY24. Tata Motors aspires to reach double-digit EBITDA margins for both its CV and PV businesses and expects its EV business to be EBITDA breakeven (ex. PLI) in the medium term."