Tata Motors: Domestic brokerage Nuvama Institutional Equities said the uptrend across JLR and India business should drive a revenue growth of 15 per cent compounded annually over FY23–25. Tata Motors arm Jaguar Land Rover (JLR) in its Analyst Day expected revenue to surge from 22.80 billion pound in FY23 to 28 billion pound in FY24 and 30 billion pound in FY26. It sees EBIT margin to expand notably from 2 per cent in FY23 to 6 per cent-plus in FY24 and 10 per cent-plus in FY26. The British arm sees annual capex spend plans of about 3 billion pound and expects free cash flow (FCF) of 2 billion pound. Besides, JLR expects a net cash target to be achieved by March 2025.
Domestic brokerage Nuvama Institutional Equities said the uptrend across JLR and India business should drive a revenue growth of 15 per cent compounded annually over FY23–25. It believes that cost control should bolster Ebitda growth for Tata Motors to 35 per cent annually, "not to mention much lower ‘friction’ from the reduction in net debt-to-equity to 0.8 times in FY25E (from 1.7 times in FY23E) spurred by strong FCF," it said.
Nuvama has a 'Buy' rating on the Tata Motors stock with a price target of Rs 645, suggesting a 14 per cent upside from hereon. This is despite a 43 per cent jump in Tata Motors shares year-to-date.
Nuvama said its constructive view on the stock is driven by expectations of continuation of a cyclical upturn in JLR and domestic PVs/CVs and a healthy product pipeline and order book at JLR, which would improve the mix in favour of the more profitable LR brand.
Besides, Nuvama sees increasing focus on electric vehicles (EVs) in domestic and JLR businesses and margin expansion emanating from rising economies of scale and highly-efficient, cost-cutting measures. Lastly, Nuvama sees a reduction in leverage on account of robust FCF.
The JLR management expects EV share in overall volumes to reach nearly 20 per cent by FY26. The First EV Range Rover launch has been planned for 2024 while the Jaguar pure electric launch is scheduled for 2025.
Overall, the JLR management expects volume growth to be driven by production ramp-up and the huge pending order book (200,000 units), particularly for new models—Defender,
Range Rover, Range Rover Sport, etc.
Volume guidance remains unchanged at 400,000 units for FY24E, representing growth of 24 per cent. EBIT margin is seen supported by better scale, a favourable product mix, rationalisation of vehicle architectures from seven to three, and a 20 per cent reduction of production capacity by FY26.
Nuvama's price target for the stock is based on 2 times FY25E EV/Ebitda for JLR, 11 times FY25E EV/Ebitda for the India CV business and Rs 108 per share for the India e-PV business, based on a 20 per cent discount to the transaction value.