Neutral Tata Motors Ltd for the Target Rs 434 by Motilal Oswal Financial Services Ltd
Strong all-round performance in 1Q Iveco performance to remain the key monitorable
* Tata Motors’ (TMCV) 1QFY27 PAT at INR16b was above our est. of INR13.5b thanks to higher-than-expected margins and higher other income.
* Given the better-than-expected performance in 1Q, we have raised our earnings estimates by 6%/2% for FY27/FY28. We now factor in TMCV to post a CAGR of 12%/10%/12% in revenue/EBITDA/PAT over FY26-28E. The stock at 23.5x FY27E and 20x FY28E EPS appears fairly valued. Reiterate Neutral with a TP of INR434 per share, valuing the core business at 12x FY28E EV/EBITDA (in line with peers) and adding INR15 per share for its stake in Tata Capital.
Earnings above estimates due to strong margins and higher other income
* TMCV’s standalone revenue grew 23% YoY to INR194b (in line), driven by 27% volume growth YoY to 108k units.
* Despite the surge in input costs, EBITDA margins contracted only 80bp YoY to 11.7% vs. our est. of 10.8%.
* As a result, EBITDA grew 16% YoY to INR22.6b (8% above our est.).
* Other income grew by a strong 77% YoY to INR3.16b (vs. our est. of INR2.5b).
* The company incurred an exceptional loss of INR1b on account of employee separation.
* Adjusted for the same, PAT grew 13% YoY to INR16b (19% above est).
Highlights from the management commentary
* CV Vahan market share for TMCV improved by ~100bp in 1Q, led by market share gains across most segments, except ILMCV, where production was impacted by supply constraints in the western region.
* FCF generation stood at INR11.1b in 1QFY27 after investment spending of INR5.5b, compared to a cash outflow of INR18b in 1QFY26.
* The company expects 2QFY27 to witness healthy double-digit YoY growth for the CV industry. However, growth trends from Sep’26 onward will need to be assessed against a higher base.
* The company plans to execute the entire 70,000-unit order from Indonesia over FY27-28.
* TMCV expects continued pressure from commodities, particularly steel and rubber, in the near term. To mitigate the pressure, TMCV has taken a price increase of ~2.5%, effective 1st Jul’26.
* Following the receipt of necessary approvals, the tender offer for the Iveco acquisition is expected to be launched in early Sep’26 and they expect to close the acquisition by early Nov’26.
Valuation and view
Given the better-than-expected performance in 1Q, we have raised our earnings estimates by 6%/2% for FY27/FY28. We now factor in TMCV to post a CAGR of 12%/10%/12% in revenue/EBITDA/PAT over FY26-28E. The stock at 23.5x FY27E and at 20x FY28E EPS appears fairly valued. Reiterate Neutral with a TP of INR434 per share, valuing the core business at 12x FY28E EV/EBITDA (in line with peers) and adding INR15 per share for its stake in Tata Capital.
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