Tata Motors hits record high to become top Nifty 50 gainer, analysts expect stock to rally up to ₹1100

Tata Motors shares rose over 7% in early trade to hit a record high on February 5, after the domestic carmaker reported earnings for the October to December 2023. The auto stock became the top Nifty 50 gainer as multiple analysts have raised target price on the stock after a strong third quarter. In fact, its top line for the 12 months through December 2023 has reached the $50 billion mark.

Brokerages expect Tata Motors to deliver an even better January to March 2024 quarter led by seasonality and improving supplies at Jaguar Land Rover (JLR), the British luxury car unit that drove strong sales. The automaker also raised its guidance on JLR.

Jefferies, which has a buy call on the company, has raised its target price to ₹1100, implying it sees another 25% upside in the stock from the closing price on February 2.

Pointing to stellar improvement in operating performance, it noted that Tata Motors’ Q3 EBITDA or earnings before interest, taxes, depreciation, and amortization has jumped 59% year-on-year and 12% sequentially to a new high. EBITDA rose quarter-on-quarter across JLR and India commercial vehicles as well as passenger vehicles while net auto debt has fallen 25% QoQ to 19-quarter low, the brokerage highlighted.

Jefferies sees some industries demand concerns in India in the calendar year 2024 but it likes the firm’s strong PV launch pipeline. It has, thus, raised FY24-26 earnings per share (EPS) by 7-11%.

Morgan Stanley has also raised its target price to ₹1013. The brokerage said it has an overweight rating with JLR being driven by de-leveraging and Tata Motors’ electric vehicles (EVs) driven by the PV turnaround.

HSBC, on the other hand, has raised its target price to ₹920, which the stock has already surpassed. The brokerage has a hold call on the stock as it noted the firm continued to beat estimates led by benign global demand, pricing, and continued Range Rover demand.

The near-term outlook is still strong and may keep stock buoyant, however, the valuations look too punchy now, HSBC said. It added that the launch of CURVV is a key monitorable for domestic business.

Nomura has a buy call on Tata Motors with target price set at ₹1057. It notes that a further re-rating is likely on the back of JLR margins. The brokerage estimates net debt to go down further by ₹150/share by financial year 2025-26. It expects the success of EVs to drive JLR re-rating.

Goldman Sachs too has raised the target price to ₹960 with a buy call. It explained that Range Rover realisation, improving CV mix and pricing supported the EBIT margin beat.

It noted that going forward, Tata Motors management sees positive business momentum in JLR (28% of SOTP) as strong order banks on premium vehicles continue to come up for delivery. The recently launched Range Rover Electric is already at 16,000 sign ups, collectively supporting management’s target to raise the EBIT margin at JLR to 10% in FY26 versus 8% plus outlook for FY24 and 8.2% delivered so far in the nine months of FY24.

Macquarie has maintained its outperform rating with ₹1028 target price following the firm’s delivery on growth, margins, and deleveraging. It has also raised JLR margin guidance for FY24 to 8% plus versus 8% earlier.

CLSA, meanwhile, has raised target price to ₹1061 noting that Tata Motors’ business momentum is strong across segments.

It believes JLR is on strong footing, CV business saw margin beat in 3QFY24, in the PV business, EV dragged margins while ICE margins improved. The company appears set to turn net cash by FY25.

Tata Motors shares traded 6.71% higher from previous close at ₹937.80 on BSE at 10:34 am.