Tata Motors Gets 'Buy' Upgrade From HSBC On Attractive Valuation, Margin Outlook

HSBC upgraded Tata Motors Ltd. stock from 'hold' to 'buy' rating as its valuation is reasonable after recent correction and there are positive triggers for margin expansion, according to the brokerage. However, it reduced its target price from Rs 930 to Rs 840, implying an upside potential of 28% over the previous close.

Tata Motors' share price is down 45% from its July 2024 peak, led by a 13-15% cut in earnings, analysts at HSBC said in a note.

The company's margin expansion is expected to be driven by reduced discounts and warranty costs at Jaguar Land Rover and a recovery in the domestic Small Commercial Vehicle business.

Key triggers for re-rating include JLR meeting its fourth quarter guidance and new product launches in the domestic passenger vehicle market, which should help improve market share. Following a valuation de-rating over the last two-three quarters, the current valuation now appears reasonable, HSBC said.

"JLR's devaluation has been due to weakness in the global demand outlook, increasing discounts and US tariff uncertainty. We now see some near-term margin growth triggers," the note said.

Tata Motors' PV valuation has declined due to a loss of market share in both internal combustion engines and electric vehicles, as well as weak margin performance.

However, the company plans to launch several new models in 2025, including the Sierra, Sierra EV, and Harrier EV, along with facelifts of popular models like the Punch, Tigor, and Tiago. Additionally, the Curvy model will be relaunched during the IPL cricket tournament. These new launches are expected to help Tata Motors regain market share and maintain pricing power in a challenging demand environment, HSBC said.

Shares of Tata Motors closed 1.92% lower at Rs 655.5 apiece on Thursday, compared to a 0.33% decline in the benchmark Nifty 50. The stock has fallen 32% in the last 12 months and 11% since the start of the year.

Of the 34 analysts tracking Tata Motors, 21 have a 'buy' rating on the stock, eight recommend a 'hold' and five suggest a 'sell', according to Bloomberg data. The average 12-month analysts' price target implies a potential upside of 24%.