Tata Motors may be entering a phase where stronger commercial vehicle (CV) demand and improving margins start doing more of the heavy lifting for earnings.
That said, Nomura has turned more bullish on the stock, upgrading it to ‘Buy' from ‘Neutral' and raising its target price to Rs 554 from Rs 402, implying around 21% upside from its current level.
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The upgrade by Nomura analysts Kapil Singh and Siddhartha Bera comes after Tata Motors' commercial vehicle business delivered a stronger-than-expected June quarter, while management commentary pointed to healthy near-term demand and further room for margin improvement.
Why Nomura Turned Bullish
Nomura's key takeaways are:
- Upgraded Tata Motors to ‘Buy' from ‘Neutral' and raised the target price to Rs 554 from Rs 402.
- Said the CV outlook has become brighter, with MHCV demand expected to remain healthy.
- Raised its FY27 MHCV demand growth estimate to 8% from 5%.
- Sees further margin improvement following the 2.5% price hike implemented in July.
- Raised FY27-29F MHCV growth estimates and lifted LCV estimates by around 20% for FY27/28.
- Raised FY27/28 EBITDA estimates by 10-13%, with EPS estimates now 13-17% above consensus for FY27-29.
- Sees potential upside from IVECO, particularly through sourcing from low-cost countries over the next 2-3 years.
Q1 Beat Strengthens The Case
Tata Motors' standalone CV revenue rose 23% year-on-year (YoY) to Rs 19,400 crore, while EBITDA increased 9% to Rs 2,250 crore. The EBITDA margin came in at 11.6%, ahead of Nomura's 11.4% estimate and the 10.8% consensus.
Nomura noted "strong performance across segments", with TMCV gaining market share in HCVs and buses. The company also had 4,500 bus orders on hand.
Management expects healthy double-digit MHCV growth in Q2FY27, although it remains watchful of demand in the second half given the high base.
Price Hikes, EVs And IVECO Could Drive The Next Phase
Nomura expects margins to improve as the July price increase flows through. Tata Motors is also seeing stronger EV adoption, with electric vehicles accounting for 10% of SCV penetration as total cost of ownership improves.
The brokerage expects IVECO's margin profile to provide another potential earnings lever, particularly if low-cost sourcing opportunities materialise over the next 2-3 years.
With its revised SOTP valuation, Nomura now values Tata Motors at Rs 554, using a 12x EV/EBITDA multiple for the India CV business.
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