Why Tata Motors shares have got a downgrade from CLSA
Premium- Tata Motors shares were trading more than a per cent lower on the BSE at ₹488 apiece in Tuesday's session
Global brokerage firm CLSA has downgraded auto major Tata Motors from Buy to Sell rating. The downgrade is premised on a lower valuation for its domestic passenger vehicle (PV) business, below the recent valuation ascribed to it by a private equity fund, and on a lower valuation for Jaguar Land Rover (JLR) due to its slower electric vehicle (EV) ramp-up versus competitors.
CLSA has cut its target on the auto stock to ₹408 per share from ₹450 earlier as it differs from the street on the valuation of the domestic PV business of Tata Motors.
In October 2021, Tata Motors had said that it will raise $1 billion ( ₹7,500 crore) in its passenger electric vehicle (EV) business from TPG Rise Climate at a valuation of up to $9.1 billion. The fund, as per the company, will be used to partly fund investment of $2 billion in the next five years by a new subsidiary of the company for expanding its EV business, including launching of 10 EV models.
“We believe the valuation of $9.1 billion ascribed to it by a private equity fund for Tata Motors' EV business is way too high. We value Tata Motors' PV business at $5 billion assuming Tata Motors' market share in the domestic PV segment increases from 12% in FY22 to 16% by FY50, and profitability remain elevated till FY50," the note stated.
Though, CLSA believes the auto maker's domestic CV business will post strong growth over the next three years and expects the company to gain market share.
“Tata Motors has committed to restricting investment in JLR, and given our view that profitability will improve at JLR, we forecast a sharp reduction in its net auto debt at the consolidated level, mainly from JLR's operations," the brokerage added.
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The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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