Buy Tata Motors Ltd For Target Rs.450 - ICICI Direct
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India volumes picking up pace, EV optimism persists
About the stock: Tata Motors (TML) is an auto OEM from the house of Tatas, operating in domestic (PV, CV) as well as global markets (Jaguar Land Rover i.e. JLR)
* JLR is a luxury car brand, which includes two prominent names i.e. Jaguar (models like I-pace, etc.) & Land Rover (models like Defender, Evoque, etc)
* FY21 consolidated revenue mix – JLR 78%, India CV ~13%, India PV ~7%
Company Update:
* TML India reports robust volumes for Q2FY22 at 1.7 lakh units, up 49% QoQ
* India PV business posted decade-high quarterly sales of ~84,000 units in Q2FY22 despite ongoing semiconductor supply shortages.
Domestic EV sales were higher than 1,000 units for second successive month in September 2021 driven by Nexon EV; 1,078 units for the month & 2,704 units for Q2FY22 represented best-ever monthly & quarterly EV sales
* India CV volumes jumped 73% QoQ in Q2FY22 to 86,887 units
* JLR wholesale volumes for Q2FY22 were at 64,032 units
What should investors do?
TML’s stock price has underperformed Nifty Auto index in past five years, having de-grown at ~9% CAGR (~| 555 in October 2016).
* We maintain BUY on continued EV proactiveness
Target Price and Valuation: Retaining our forward estimates, we now value TML at a revised target price of | 450 on SOTP basis (15x, 3.3x FY23E EV/EBITDA on India, JLR businesses, respectively). We revise upwards our target multiples for India business amid continued outperformance at TML India and is in line with its peers.
Key triggers for future price performance:
* We expect healthy 20.9% revenue CAGR over FY21-23E backed by 17% volume CAGR; margins seen at 14.9% in FY23E along with RoCE of ~15%
* Cost control, efficiency improvement-led FCF generation targets for ongoing deleveraging push (FY21 net automotive debt at ~| 41,000 crore)
Alternate Stock Idea: Apart from TML, in our OEM coverage we also like M&M.
* Focused on prudent capital allocation, UV differentiation & EV proactiveness
* BUY with target price of | 1,000
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