Tata Motors - In A Strong Position Operationally: Prabhudas Lilladher

Prabhudas Lilladher Report

We met with Tata Motors Ltd.'s management to understand the rationale behind the demerger and receive general business updates. Tata Motors is on track to meet its outlined operational metrics, viewing the demerger as having no impact on these objectives.

Tata Motors expects demerger to offer greater maneuverability, aiming for both entities to operate in a self-sustaining manner. Although we see limited benefits in terms of value unlocking, Tata Motors' confidence reassures us of a sustainable recovery in both the India passenger vehicle and Jaguar LandRover.

We remain positive on Tata Motors based on:

1. JLR’s volume ramp-up, leading to strong revenue, profitability, and free cash flow;

2. a focus on increasing market share in the PV segment through model launches and rising EV penetration; and

3. profitable and robust FCF performance, driven by margin expansion in the CV segment.

We have adjusted our estimates primarily for the India businesses, resulting in a consolidated earnings per share change of 0.4% for FY24-FY26E, with an estimated compound annual growth rate of 12.4% over the same period.

We have increased our enterprise value/Ebitda multiple for the India PV business to 13 times to align it more closely with Maruti Suzuki India Ltd..

Consequently, our SoTP-based target price has been revised upwards to Rs 1,075. However, given the stock's sharp runup over the last three months, we are downgrading our recommendation to 'Accumulate' from 'Buy'.

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