Stock price of auto giant Tata Motors skyrocketed by more than 4% on Monday after its strong numbers in the fourth quarter of FY23. The stock has even touched a fresh 52-week high.
At the time of writing, Tata Motors stock traded at ₹534 apiece up by ₹18.35 or 3.6% on BSE. In the few minutes of opening, the stock had hit a new 52-week high of ₹537.15 apiece.
In Q4FY23, Tata Motors surpassed estimates in consolidated net profit to ₹5,407.79 crore in the fourth quarter of FY23, against a net loss of ₹1,032.84 crore in the same quarter a year ago. Sequentially, the Q4FY23 PAT saw a growth of nearly 83%.
On a consolidated basis, revenue from operations stood at ₹1,05,932.35 crore in Q4FY23, as compared to ₹78,439.06 crore in Q4 of previous fiscal. In December 2022 quarter, the revenue was at ₹88,488.59 crore.
According to Tata Motors, volumes continued to improve on strong India demand and better supplies at JLR. Pricing actions and a richer mix led to improved ASPs and higher revenue growth. Easing inflation, better mix, pricing actions, and favorable operating leverage resulted in strong improvements in margins and profits.
On the stock hitting a fresh 52-week high, Sonam Srivastava- Founder at Wright Research- An investment advisory firm said, “Tata Motors’ Q4 results have significantly outperformed expectations, largely driven by positive margins in its Jaguar Land Rover (JLR) segment and a recovery in domestic commercial vehicle volumes. The company’s aggressive focus on EVs is also seen as a key trigger for re-rating. Improvement in product mix, coupled with lower input costs, contributed to these robust numbers. The easing of the chip supply crisis and softening of raw material prices are also advantageous for the company.”
Srivastava added, “The company’s bullish outlook, highlighting strong demand, the ramp-up in JLR production, and successful debt reduction, adds to the positive sentiment. Several brokerages have consequently revised their target price upward. However, investors should remain cautious about potential risks, such as rising interest rates impacting consumer sentiment in key markets. In the medium to long term, Tata Motors seems well-positioned to deliver healthy returns, given its strong operational performance, market leadership in the EV segment, and favourable industry environment.”
As per ICICI Direct Research, there are five key triggers for future price performance in Tata Motors. These are:
1. The brokerage expects healthy 20.1% revenue CAGR over FY23-25E driven by 10% total volume CAGR amid healthy wholesale visibility on the JLR front.
2. Demonstrated capability in newer technologies in CV space & pricing discipline across industry to aid aspiration of double-digit margins ahead.
3. Dominant position in domestic electric-PV space with 80%+ market share.
4. Firmer commitment towards EV by JLR with accelerated investment plan of £15 billion spend over the next five years coupled with healthy FCF generation target of £2 billion & net debt reduction to <£1 billion by FY24E.
5. Intent to go auto net debt free (most likely in FY25) though healthy CFO generation and sale of non-core assets (including stake sale in Tata Tech).
ICICI Direct has maintained a ‘Buy’ on Tata Motors and sees an upside of 26% in the stock going forward.
The brokerage’s note said, “TML’s stock price has grown ~11% over the past five years (~ ₹305 levels in May 2018), outperforming the broader Nifty Auto index.” It added, “We maintain BUY rating amid healthy profitability across all business segments, JLR’s volume recovery on the anvil, reiterated focus towards EV space at JLR coupled with healthy FCF generation targets for FY24E.”
The target price by ICICI Direct is ₹650 apiece in Tata Motors stock.
Also, Himanshu K Singh – Research Analyst, Prabhudas Lilladher added, “We maintain our positive stance given (1) JLR’s volume ramp-up resulting in strong revenue, profitability and FCF (aided by high order book), 2) CV segment (on the domestic side) benefitting from ongoing upcycle, operating leverage and tailwinds from lower commodity costs & lower discounting and (3) strong market share in PV segment (13.5% vs 8% in FY21) led by revamped portfolio, rising SUV share and rising EV penetration. We expect revenue/EBITDA CAGR of 12%/32% over FY24/25E. Retain ‘BUY’ with SoTP-based TP of ₹605 (Mar-25) (previous Rs. 590).”
Further, JM Financial analysts in their note said, “The company targets to turn net debt free by FY25. Maintain BUY with Mar’24 SOTP of ₹625 (standalone / JLR valued at 10x /2.5x EV/EBIDTA). Slower ramp-up in production, slowdown in key global markets and inherent risk in evolving EV technologies are the key risks.”