Tata Motors, the automobile giant of Tata Group, continued to be under pressure. Post Budget, on February 3, Tata Motors stock dipped by nearly 3% to close below Rs 690 levels. The stock is a little over Rs 3 away from hitting new 52-week lows. The latest to join the bandwagon of downgrading rating on Tata Motors is HDFC Securities. The brokerage has trimmed its target price as well to Rs 718.
Tata Motors Share Price:
After market hours in February, Tata Motors’ share price closed at Rs 687.45 apiece, down by 2.6% on BSE with a market cap of Rs 2,53,058.93 crore. The stock is now about Rs 3.2 away from hitting its 52-week low of Rs 684.25 apiece. YTD, the stock is down by 8.3%.
HDFC Securities on Tata Motors:
In its latest report, HDFC Securities highlighted that “JLR’s Q3FY25 EBIT margin improved 38bps YoY to 9.1%, below our estimate of 9.4%. This was aided by lower depreciation due to longer use of the ICE Platforms and delays in EV launches. At the EBITDA level, JLR reported margins of 14.2%, broadly in line with our estimate of 14.3%. It stuck to its EBIT margin guidance of ≥ 8.5% for FY25, meaning it would need an EBIT margin of more than 10% in Q4, which is a challenging task. It also downgraded its revenue and ROCE guidance for FY25. On the FY26 EBIT margin guidance of 10%, it indicated that it would take a call whether to revise it only on the investor day in June 2025.”
HDFC Securities feels that the LR business continues to be impacted by a challenging global macro environment (especially in China), continued higher discounting, elevated variable marketing expenses (VME), increased warranty costs, higher consumer acceptance risk for the upcoming revamped Jaguar portfolio, and a slowdown in EV sales globally, which could lead to mistimed EV launches for the company.
Meanwhile, on the CV segment, the company is optimistic about growth driven by the expected pick-up in infrastructure and construction activities in FY26. On the PV segment, it expects higher competition in the EV segment to be offset by the rising demand for its CNG portfolio.
However, HDFC Securities believes that an ageing portfolio and recent successful launches by competition could lead to the company underperforming in the PV segment going forward. Hence, it said, “We value the company on a SOTP basis at a target price of Rs 718 and maintain a REDUCE rating.”
Other global brokerages have also trimmed target. Brokerage Nuvama is now predicting muted revenue and EBITDA CAGR of 2% each over the financial years 20225-2027. Meanwhile, brokerage UBS pointed out that Tata Motors Q4 outlook is ambitious considering the fiscals FY26 and FY27 are likely uncertain.
Nuvama maintained REDUCE on Tata Motors, while trimming its target price to Rs 720 from earlier Rs 750. While Morgan Stanley maintained ‘EQUAL Weight’ but reduced its target price to Rs 853 versus Rs 920. Furthermore, Jefferies downgraded its stance to ‘Underperform’ and also lowered its target price to Rs 660 which is a sharp cut from previous target of Rs 1,000. The three brokerages have now given Negative outlook.
Tata Motors registered a 22.5% decline in net profit to Rs 5,451 crore during Q3FY25, compared to the net profit of Rs 7,025 crore reported a year ago same quarter. Also, EBITDA declined by 14.7% to Rs 13,081 crore in Q3FY25, as against Rs 15,333 crore EBITDA in Q3FY24. However, revenue climbed by 1.8% to Rs 1.13 lakh crore in the third quarter of FY25, compared to revenue of Rs 1.11 lakh crore in Q3 of FY24.
Going ahead, Tata Motors is expected to complete the demerger of its business in a 1:1 ratio. The company’s demerger will be of two separate listed companies housing A) the Commercial Vehicles business and its related investments in one entity and B) the Passenger Vehicles businesses including PV, EV, JLR, and its related investments in another entity. The demerger is expected to be completed by March 2025.
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