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Strong margin performance amid cost pressures Demand and margins both remain resilient

* Tata Motors’ (TMCV) 2QFY27 PAT at INR19.7b was 17% above our est. due to strong margin performance and higher other income due to strong FCF generation.

* Given the better-than-expected margin performance in 2Q, we raise our earnings estimates by 9% for FY27, while keeping our FY28 numbers broadly intact. We now model TMCV to post a CAGR of 11%/8%/11% in revenue/ EBITDA/PAT over FY26-28E. The stock appears fairly valued at 20.8x FY27E and 18.1x FY28E EPS. We reiterate our Neutral rating with a TP of INR416, valuing the core business at 12x FY28E EV/EBITDA and adding INR12 per share for its stake in Tata Capital. We have not integrated the Iveco financials into our numbers yet, nor have we ascribed a valuation for the same in our SOTP.

Margins expand QoQ despite commodity headwinds

* TMCV’s standalone revenue grew 42% YoY to ~INR241b (in line), led by 43% YoY volume growth to 135k units. Average realizations remained flat YoY.

* Despite commodity headwinds, its EBITDA margin expanded 20bp sequentially (-100bp YoY) to 11.9%, 140bp above our est. Operating leverage, cost efficiencies, and improved realizations helped drive the QoQ margin expansion. EBITDA grew 31% YoY to INR28.6b.

* Other income surged 82% YoY to INR3.3b (vs. our est. of INR1.8b).

* TMCV recorded an exceptional gain of INR2.1b due to the reversal of provisions made for the potential impact of the change in Labor Codes.

* Adjusting for this one-off exceptional item, PAT was 17% above est, having grown ~47% YoY to INR19.7b.

* FCF for 1HFY27 stood at INR57.2b, while CFO stood at INR65.4b

Highlights from the management commentary

* Management expects CV demand to remain healthy, supported by infrastructure activity, freight movement, improving fleet utilization, and consumption-led demand. Industry growth is expected at high-single-digit to low-double-digit levels in 3QFY27, with stronger growth in ILCVs and CV passenger vehicles, while HCV and SCV growth moderates on a high base.

* Commodity inflation remains a key margin headwind, with a further 150- 200bp increase expected QoQ in 3QFY27, mainly from steel and rubber. Four pricing actions have been implemented in FY27, including a 1-2% hike from Oct. However, these were insufficient to fully offset the input-cost inflation.

* The IVECO acquisition is progressing as planned, with the offer price revised to EUR14.4 per share as the best and final offer and all offer-related resolutions approved by Iveco shareholders. With ~35% of shares tendered as of 22nd Oct, management remains confident of successful completion, with settlement expected on 30th Oct’26, subject to fulfillment of offer conditions

Valuation and view

Given the better-than-expected margin performance in 2Q, we raise our earnings estimates by 9% for FY27, while keeping our FY28 numbers broadly intact. We now model TMCV to post a CAGR of 11%/8%/11% in revenue/ EBITDA/PAT over FY26- 28E. The stock appears fairly valued at 20.8x FY27E and 18.1x FY28E EPS. We reiterate our Neutral rating with a TP of INR416, valuing the core business at 12x FY28E EV/EBITDA and adding INR12 per share for its stake in Tata Capital. We have not integrated the Iveco financials into our numbers yet, nor have we ascribed a valuation for the same in our SOTP.

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