Buy Tata Motors Ltd For Target Rs. 860 By JM Financial Services
Key takeaways from Analyst meet
Tata Motors (TTMT) hosted an analyst meet highlighting recent performance and outlook across businesses. With respect to JLR, there are early signs of demand improvement in markets like EU and UK (US continues to remain strong) and the company is confident of achieving its FY25 guidance of >=8.5% EBIT margin and turn net-cash in the near-term. While near-term growth for Domestic CV & PV is expected to be muted, we expect underlying demand environment to improve from FY26 esp. for domestic CV (led by revival in government capex) and domestic PV (led by new launches, enhanced marketing). We maintain BUY with unchanged with Mar’26 SoTP of INR 860 (standalone / JLR valued at 12x /2.3x EV/EBIDTA). Recovery in underlying demand remains a key monitorable.
* JLR targets on track: The Company highlighted that North American market continued to remain strong. EU and UK, which was muted so far, has also started showing signs of improvement. While demand situation in China remained challenging, JLR has been relatively outperforming its peers. On electrification, adoption is slowing down leading to EU government relaxing emission targets (expect UK to follow). With respect to margins, the company expects VME spends to reduce with run-down of Jaguar volumes as VME on Range Rover remains low at 2-2.3%. Warranty cost, however, may remain elevated owing to relatively higher cost of labour and repairs in US which is now largest region for JLR. Overall, the company remains confident on meeting its FY25 guidance (revenue of £29bn; EBIT margin at >=8.5%; FCF of £1.3bn). Capex is expected to peak in FY25/26 and despite this, the company has maintained its guidance of turning net cash positive during FY25.
* Domestic PV business - new launches/marketing to drive performance: The Company plans to relaunch Curvv during upcoming IPL and Sierra (ICE) launch is expected during festive season (i.e. mid-FY26). The company indicated that focus is now on enhancing product marketing and ramping-up servicing network. With respect to outlook, near-term demand looks muted. However, the management indicated that worst is behind in terms of volumes for EVs and it expects to meet its EV penetration target of 20% by FY27 (15% penetration required to meet CAFÉ norms). On margins, the company indicated that domestic PV margins are at least 300bps below its internal target and it remains committed to double-digit EBITDA margin for its PV + EV business in the medium-term led by better mix, higher operating leverage, VAVE and other cost reduction initiatives.
* Domestic CV business - mixed bag; expect gradual recovery ahead: TTMT highlighted that while demand for buses continues to remain robust (led by orders from STUs), demand for trucks remains muted. Management also indicated of increased focus on turning around SCV segment going ahead. During the past few quarters, focus has been on improving realisation across segments through value-selling and cost reduction efforts and remains confident on maintaining / improving margins even further. With the improvement in freight rates and fleet utilisation, the company expects CV demand to improve going ahead. Continued focus of GOI on infrastructure spends remains industry tailwind for medium-to-long term.
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