Shares of Tata Motors surged 4.5 per cent to Rs 665.45 on the BSE in Friday’s intraday trade; Good time to invest or should you book profits?
Tata Motors Share Price: Shares of Tata Motors surged 4.5 per cent to Rs 665.45 on the BSE in Friday’s intraday trade. This comes after the company posted consolidated net profit of Rs 3,764 crore during the second quarter of 2023-24 (Q2FY24) as against a net loss of Rs 944 crore in the same period a year ago. Meanwhile, shares of Tata Motors with differential voting rights (DVR) — also known as A-ordinary shares, hit a new high of Rs 449.65, up 4 per cent on the BSE in the intraday trade today. The stock surpassed its previous high of Rs 449 touched on October 20.
During the quarter, Tata Motors’ revenues from operations increased 32 per cent to Rs 1.05 trillion, up from the Rs 79,611 crore during the July-September period of 2022-23 (Q2FY23). The company’s earnings before interest, tax, depreciation, and amortisation (Ebitda) during Q2 was Rs 13,767 crore, up from the Rs 5,571 crore in the second quarter last financial year. Ebitda margins came at 15.5 per cent, down 10 bps sequentially, but up 450 bps on YoY basis. The firm is confident of delivering a stronger performance in the second half of the financial year (H2FY24), buoyed by healthy order books at its luxury subsidiary Jaguar Land Rover (JLR), strong demand for heavy trucks in commercial vehicles, and new-generation products in passenger vehicles.
What Should Investors Do Now?
Tata Motors should witness a healthy recovery as supply-side issues ease (for JLR) and commodity headwinds stabilise (for the India business). It will benefit from the commercial vehicle (CV) uptrend and stable growth in passenger vehicles (PVs), company-specific volume/margin drivers, and a sharp improvement in FCF as well as a reduction in net debt in both JLR and India businesses, said those at Motilal Oswal Financial Services.
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Nuvama maintained a buy view on the stock with a September 2024E SoTP of Rs 840/share.Tata Motors’ Q2FY24 EBITDA beat Nuvama’s estimates due to better margins in India CVs on a richer mix and commodity deflation.
JLR’s EBIT margin was also elevated at 7.2% and management has guided for a further increase to 8%/10% in FY24/26, the brokerage note said.
“TTMT remains one of our top picks on expectations of a sales cycle recovery, margin expansion and debt reduction. Over FY23–26E, the uptrend across JLR and India business shall drive a revenue CAGR of 12%. Besides, better mix and cost control shall bolster EBITDA CAGR to 30%, not to mention much lower ‘friction’ from the reduction in net debt-to-equity to 0.3x in FY26E (from 1.7x in FY23) spurred by strong FCF,” Nuvama said.
Kotak has upgraded Tata Motors shares to ‘Reduce’ from an earlier Sell rating with a revised fair value of Rs 630.
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Overall, FY2024E performance will remain strong given healthy performance of JLR business and commodity tailwinds, which will drive balance sheet deleveraging, the brokerage said in its stock review post the September quarter earnings.
However, slowdown in developed markets amid higher interest rates remains a key concern for the JLR business, the brokerage pointed out.
Tata Motors’ consolidated EBITDA came in 7% below its estimates driven by an inferior product mix in both JLR and domestic PV businesses, which we believe will reverse in the coming quarters.
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