Tata Motors hits a new high after over 8 years; stock up 57% so far in CY23

Based on preliminary cash balances, JLR expects to report positive free cash flow of over £400 million in the June quarter.

Shares of Tata Motors gained 1 per cent to hit an all-time high of Rs 609.30 in Friday’s intra-day trade, after a gap of over eight years on strong business outlook. The stock of the Tata-group automobile company surpassed its previous high of Rs 606, which it had touched on February 3, 2015.

So far in calendar year 2023, Tata Motors outperformed the market as shares surged 57 per cent, as compared to 7 per cent rise in the S&P BSE Sensex. The rating agencies have upgraded the credit rating of Tata Motors with a stable outlook.

On Friday, July 7, Jaguar Land Rover (JLR), Tata Motors' wholly-owned subsidiary, saw 30 per cent increase in wholesale volumes to 93,253 units in the April-June quarter of FY24 (Q1FY24).

The order book, too, remained strong with over 185,000 client orders at the quarter-end as chip and other supply constraints continue to improve.

In the prior month, Tata Technologies, a subsidiary of the Tata Motors, received market regulator Securities and Exchange Board of India's (Sebi's) approval to raise funds through initial public offering (IPO).

Tata Technologies intends to raise funds by way of an offer for sale (OFS) of up to 95.7 million equity shares for cash, representing approximately 23.6 per cent of its paid-up share capital. The IPO comprises an OFS up to 81.1 million equity shares by Tata Motors.

Analysts at ICICI Securities believe that this is sentimentally positive and value unlocking event for Tata Motors. The brokerage firm ascribes a fair value of around Rs 20,000 crore for Tata Technologies. The resultant value, therefore, would accrue around Rs 15,000 crore for 75 per cent stake and an addition of Rs 40/share as per their target price calculation.

The brokerage firm maintains 'BUY' on the stock with a target price of Rs 700 per share, tracking profitability at the helm in domestic CV & PV business (including EVs), and Jaguar Land Rover’s (JLR's) progressive volume recovery on the anvil.

Analysts at CARE Ratings, meanwhile, believe that improved gross cash accruals (GCA), strong liquidity position with the management’s focus to attain zero net auto debt by FY25 will lead to significant improvement in leverage and debt coverage metrics over the medium term.

"As a part of divesting certain non-core investments, the company plans to sell its 20 per cent stake in Tata Technologies through IPO, the proceeds of which will support Tata Motors’ debt reduction plans. Furthermore, Tata Motors continues to enjoy immense financial flexibility by virtue of being part of the Tata group," the rating agency said.

In the recently concluded June quarter, analysts at Motilal Oswal Financial Services expect Tata Motors’ India business performance to be a mixed bag as CV volumes declined 15 per cent year-on-year (YoY).

Lower raw material prices, cost control, and operating leverage, however, would expand Ebit margin for CV/PV to 90bp/190bp YoY in Q1FY24.

"JLR volumes to grow YoY, due to easing chip shortages and continued traction toward new models. We estimate EBIT margin of 5.6 per cent for JLR in Q1FY24 (vs -4.4 per cent in Q1FY23), supported by a favorable product mix, softening RM costs, and cost control," the brokerage firm added.