Tata Motors shares jump over 4% post Q2 earnings. Should you buy or sell?

Tata Motors shares jumped 4.6% to the day’s high of Rs 666 on the NSE in the opening trade on Friday on strong Q2 earnings followed by favourable views from top domestic brokerages.

Motila Oswal and Nuvama reiterated their buy stance on the stock noting a beat in its results versus their estimates. Meanwhile, Kotak Institutional Equities also upgraded the stock to ‘Reduce’ from an earlier sell view even as it highlighted headwinds.

Tata Motors on Thursday reported a consolidated net profit of Rs 3,764 crore for the quarter ended September 2023, against a net loss of Rs 945 crore a year ago.

However, the profit figure was lower than an ETNow poll of Rs 4,315 crore. Consolidated revenue from operations increased by 32% year-on-year (YoY) to Rs 1.05 lakh crore, tad lower than the estimated Rs 1.07 lakh crore.

The automaker’s operational performance improved significantly during the quarter, with consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) surging 93% on year to Rs 21,214 crore.

As a result, the operating margin expanded by a staggering 638 basis points on year to 20.18%.

Here is what brokerages recommended:

Motilal Oswal: Buy | Target: Rs 750

Motilal Oswal reiterated a buy on Tata Motors with a December 2025E SOTP-based TP of Rs 750. Company’s 2QFY24 results significantly beat brokerage’s estimates on consolidated EBITDA and PAT.

“The 2Q performance was driven by better-than-expected PAT in JLR/PV businesses. Its CV business was in line,” the brokerage said in its post earnings stock review. The consolidated net debt (auto) declined further by Rs 3,000 crore QoQ to Rs 38,700 crore, the brokerage said.

“We upgrade our FY24E/FY25E consolidated EPS by 6%/3.5% to factor in higher-than-estimated capitalization of R&D at JLR, partially offset by volume/margin cuts in both CV/PV businesses,” a Motilal Oswal note said.

Nuvama: Buy | Target: Rs 840

Nuvama maintained a buy view on the stock with a September 2024E SoTP of Rs 840/share.Tata Motors’ Q2FY24 EBITDA beat Nuvama’s estimates due to better margins in India CVs on a richer mix and commodity deflation.

JLR’s EBIT margin was also elevated at 7.2% and

management has guided for a further increase to 8%/10% in FY24/26, the brokerage note said.

“TTMT remains one of our top picks on expectations of a sales cycle recovery, margin expansion and debt reduction. Over FY23–26E, the

uptrend across JLR and India business shall drive a revenue CAGR of 12%. Besides, better mix and cost control shall bolster EBITDA CAGR to 30%, not to mention much lower ‘friction’ from the reduction in net debt-to-equity to 0.3x in FY26E (from 1.7x in FY23) spurred by strong FCF,” Nuvama said.

Kotak Equities: Reduce | Target: Rs 630

Kotak has upgraded Tata Motors shares to ‘Reduce’ from an earlier Sell rating with a revised fair value of Rs 630.

Overall, FY2024E performance will remain strong given healthy performance of JLR business and commodity tailwinds, which will drive balance sheet deleveraging, the brokerage said in its stock review post the September quarter earnings.

However, slowdown in developed markets amid higher interest rates remains a key concern for the JLR business, the brokerage pointed out.

Tata Motors’ consolidated EBITDA came in 7% below its estimates driven by an inferior product mix in both JLR and domestic PV businesses, which we believe will reverse in the coming quarters.

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William Murphy

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