- CLSA initiates Tata Motors CV coverage with Outperform rating and Rs 673 target price
- Indian CV market upcycle driven by GST cut, fleet profitability, and core sector demand
- Iveco integration and Euro 7 norms expected to boost volumes and margins through FY28
The stars are finally aligning for Tata Motors CV. Following a period of consolidation, CLSA has initiated coverage on the automotive giant with an "Outperform" rating and a bold target price of Rs 673, implying a massive 40% potential upside from current levels.
According to the latest report, the company is entering a "sweet spot" of a cyclical upswing that spans both Indian and European markets, driven by fleet replacement cycles and shifting emission norms.
CLSA values the company at 14x FY28 estimated EV/EBITDA for its India business and Iveco, citing improving margins, disciplined capital allocation and a strengthening balance sheet.
The Domestic Engine: A Multi-Year Upcycle
After a muted FY24-25, the Indian commercial vehicle market shifted into high gear in late FY26. CLSA analysts point to a confluence of favorable factors: a GST rate cut, improved fleet owner profitability, and robust demand from core sectors like cement and metals.
CLSA projects that the upcycle could extend through FY28, supported by stable freight rates and regulatory tailwinds. The brokerage also flagged that fleet owners are increasingly turning towards newer, fuel-efficient vehicles, while road construction momentum remains robust at roughly 1.6 times real GDP growth - both supportive for medium and heavy commercial vehicle demand.
The Iveco Synergy and Euro 7 Catalyst
A major pillar of the bullish thesis is the integration of Iveco. While FY26 saw some execution hiccups due to supply chain constraints, the outlook for CY27 and CY28 is significantly brighter. The looming implementation of Euro 7 emission standards is expected to trigger a wave of "pre-buying" across Europe for vans and trucks.
CLSA expects Iveco to post a steady 5% volume CAGR through FY28, with EBIT margins strengthening to approximately 5.5%. This strategic combination is projected to yield meaningful scale and supply-chain synergies, making the merged entity a formidable player in the LCV space.
Electric vehicle adoption in light commercial vehicles across India and Europe is also expected to create incremental growth opportunities, positioning the combined entity favourably in emerging segments.
Cleaning Up the Balance Sheet
CLSA highlighted that consolidated cash flows are likely to strengthen meaningfully by FY28, driven by disciplined capex and improved operating leverage. This, in turn, should help reduce net debt and place the company in a more resilient position ahead of the next industry downturn.
The brokerage expects net profit to more than double between FY26 and FY28, with return ratios expanding steadily. Free cash flow generation is projected to remain healthy, enabling further deleveraging.
While constructive on the outlook, CLSA cautioned that adverse changes in emission or safety regulations for the domestic CV industry could pose downside risks. Any slowdown in infrastructure spending or freight activity could also temper demand momentum. However, the current trajectory suggests that Tata Motors is successfully "cycling up the hill" toward a highly profitable peak.
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