Tata Motors Jumps 5% on Nomura Upgrade to 'Buy'

Shares of Tata Motors Limited surged over 5%, reaching a new all-time high of ₹1,084, following an upgrade by international brokerage Nomura, which now recommends buying the stock due to various growth drivers.

Around 11 am IST, Tata Motors share price were trading at ₹1,082, up 5.2% from the previous close on the NSE. Analysts have set a target price of ₹1,294, indicating a 26% upside from current levels. Over the past month, the shares have rallied 13%.

Nomura highlighted potential significant upsides from the execution of Jaguar Land Rover (JLR) and the demerger of commercial vehicles (CVs) from passenger vehicles (PVs) as key catalysts for value unlocking.

The margin for India's largest EV player is expected to increase from 7.8% in FY25 to 8.5%, and further to 10.1% by FY27, potentially reaching 11-12% by FY30. This growth is anticipated due to the phase-out of Jaguar's internal combustion engines (ICE) and the success of new EVs. Additionally, net debt of ₹1,600 crore (₹44 per share) in FY24 is projected to turn into net cash of ₹57 and ₹140 per share by FY26 and FY27, respectively.

"Despite signs of weakness in industry PV and EV demand, the launch of Curvv (scheduled for August 8) and Harrier EV in FY25 should support volumes," the brokerage stated in a recent note.

Nomura believes the successful execution of Jaguar Land Rover (JLR) can significantly boost Tata Motors' stock. The proposed demerger of Tata Motors' passenger vehicle (PV) and commercial vehicle (CV) businesses is seen as a potential value unlocker for the company's CV segment. Driven by Nomura's positive outlook, Tata Motors' stock rose over 4% to an all-time high of ₹1071 in early trading today, up from ₹1027.65 on the BSE.

Over the past year, the stock has climbed 67% and has risen 137% over the past two years. Tata Motors' stock hit a 52-week low of ₹593.50 on August 25, 2023. On the BSE, approximately 4.87 lakh shares were traded, amounting to a turnover of ₹51.37 crore today, with the firm's market cap rising to ₹3.55 lakh crore.

Nomura has increased the target multiple for JLR to 3.5 times its Enterprise Value-to-EBITDA from 2.75 times, citing potential upsides.

EBIT margins for Tata Motors are projected to increase from 7.8% in FY25 to 8.5%, reaching 10.1% by FY27, with further potential to rise to 11-12% by FY30, according to the brokerage.

The Tata Group firm will announce its Q1 earnings on August 1. For the March 2024 quarter, the company reported a net profit of ₹17,407 crore, supported by a tax credit of ₹8,159 crore. Tata Motors posted a net profit of ₹5,400 crore in Q4FY23.

Revenue for the January-March quarter of the financial year 2023–24 rose 14% to ₹1.20 lakh crore, up from ₹1.05 lakh crore in Q3FY23. EBITDA or earnings before interest, taxes, depreciation, and amortisation, increased by 33% year-on-year to ₹17,035 crore from ₹12,810 crore in Q3FY23.