Tata Motors Ltd ‘s Q3 margin beat analyst estimates by a healthy margin and the decline in its average selling price got halted after three successive quarters due to better mix. JLR numbers came in strong on seasonality basis and demand commentaries continue to be positive. While Tata Motors could see some moderation in demand for passenger and commercial vehicles in FY25 on high base, analysts largely stayed positive on Tata Motors on improving margin trajectory, likely EV success and fast deleveraging.
Tata Motors trades at 5 times FY26 Ebitda, which Nomura India believes is attractive given a likely high free cash flow (FCF) yield of 12 per cent in FY25. It estimates Tata Motors to move from net debt of Rs 29,200 crore (Rs 79 per share) in Q3 to net cash of Rs 10 per share in FY25 and Rs 74 per share in FY26. “Further re-rating of JLR will depend on the success of its new EV models,” it said.
Motilal Oswal said Tata Motors should witness a healthy recovery as supply-side issues ebb for JLR and commodity headwinds stabilise for the India business. The next leg of growth will be driven by JLR, it said. The domestic brokerage expects EBIT margin to reach 9.9 per cent by FY26, in line with the management’s guidance.
“While the India CV and PV businesses would see some moderation in growth in FY25E, the focus shifts to margin expansion-led earnings growth, which is likely to sustain,” it said while suggesting a target of Rs 1,000.
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The Tata Motors management, said analysts, believes higher marketing spends will drive JLR’s order book. The focus is on achieving 10 per cent EBIT margin by FY26 through better mix and higher operating leverage.
“We like Tata Motors given it’s improving India franchise, early leadership in EVs in India, and JLR’s improved profitability. Standalone business is in mid-upcycle both in PV and CV whereas favourable product cycle to help drive JLR outperformance. We cut FY25E consolidated EPS by 10 per cent as we cut CV volumes for the domestic business while raise FY26 consolidated EPS by 9 per cent to factor in for better margins at JLR and fast deleveraging,” YES Securities said while suggesting a target of Rs 1,060 on the stock.
JM Financial said a strong free cash flow (FCF) generation is expected to support investments towards electrification at JLR and the company is on track to reduce net debt to £1 billion by FY24 end and turn net cash by FY25.
“Tata Motor EV portfolio is leading the domestic EV space. CV demand is expected to remain muted in the near-term. However, improving margins for both domestic CV and PV segments augurs well for overall profitability. Domestic business is also on track to turn net debt free,” it said while suggesting a target of Rs 1,000 on the stock.
Prabhudas Lilladher said Tata Motors benefitted from from volume ramp-up, good order book and rich mix of higher ASP models. Lower CV discounts helped margins in the third quarter. This brokerage sees the Tata Motors stock at Rs 1,010.
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