Stock market outlook
The current market price (CMP) of Tata Motors on NSE is Rs 439.55 each. The 52-week low is Rs 293.10 each recorded on September 21, 2021, and the 52-week high is Rs 536.70 each recorded on November 17, 2021, respectively.
Returns over the past 5 years
During the week, the stock fell 4.49%. While in the past 1 and 3 months, it gave a negative return of 7.37% and a positive return of 14.01% respectively. Over the past year, it has given a positive return of 45.94%. Over the past 3 years it has given the multibagger a return of 227.43% and over the past 5 years 5.18% positive returns.
Maintains FY23 EBIT and FCF guidance, and near-zero net debt by FY24
The brokerage said: “We are meeting with TTMT management to provide an update on the business, particularly for JLR, given the changing operating environment. Management maintained its EBIT/FCF margin forecast for the year 23 at 5%/£1 billion for JLR. It expects a net indebtedness level close to zero for consolidated auto debt by FY24.”
Main lessons from the meetings
- Demand is not a concern in the Premium segment. Macro headwinds have yet to impact demand. The order book is still growing and cancellation rates are still very low. Its order book is now equal to three quarters of production, and so any impact on demand will only be reflected after four quarters.
- For JLR, the biggest problem remains the supply of semiconductors. JLR is the most impacted player given the increased use of semiconductors in its products, its smaller scale and product launches from the Defender. The Defender, RR and RR Sport represent 60% of its order book and are growing. JLR is focused on prioritizing available semiconductors for high margin products. Viewability for his entire channel is currently two to three weeks, but is due to increase to two to three months.
- JLR aims to increase production to 110-115,000 units per quarter (compared to its wholesale forecast of 90,000 units for 2QFY23).
- Jaguar is aiming to reinvent itself as a niche brand rather than focusing on the mainstream premium car segment. This will result in the first new Jaguar EV on dedicated architecture by CY25, and eventually become an all-electric brand.
- JLR’s capex investment is comparable to that of its peers, at 8-10% of sales (at £2.5-3bn). Its peers also invest in batteries, while JLR relies on its partners for batteries. Capex of £2.5-3bn is below its past peaks as these included: a) capacity expansion in Slovakia, b) an R&D center and c) multiple platforms under development , including that of Jaguar.
- Its near-zero net debt target for JLR by FY24 will be driven by improved supply, leading to a reversal in working capital, which can free up £1.2-1.5 billion. We expect FCF after interest expense of GBP 1 billion for FY23. Net debt stood at £3.2 billion at the end of March 22.
- A 10% EBIT margin for JLR by FY26 (vs. its 5% guidance for FY23) will be driven by mix and operating leverage.
- India PV will see the launch of the Curve coupe based on the Gen2 architecture in CY24, which will compete in the Creta segment. The EV variant will be deployed first, followed by the ICE.
- PV capacity in India was 550,000 units, excluding Ford (fully utilized). Ford will add 300,000 units (scalable to 400,000 units). That should be enough for the next two years. Consolidated net debt close to zero will be driven by: a) INR 75 billion from TPG, b) the release of working capital from JLR and an improvement in operating profit, c) FCF from India operations and d ) asset monetization. Net auto debt was INR 420 billion as of March 22, excluding lease debts of INR 67 billion. It does not include any capital increase or monetization of JLR.
Estimate and view
TTMT should experience a gradual recovery as supply issues ease (for JLR) and commodity headwinds stabilize (for Indian business). It will benefit from: a) a macroeconomic recovery, b) firm-specific volume and margin drivers, and c) a strong improvement in FCF and leverage in both JLR and the business. Indian. The stock is trading at 16.8x FY24E consolidates P/E and 4.2x EV/EBITDA. “We maintain our buy rating, with a TP of around INR 520/share (SoTP based on June 24),” the brokerage said.
The stock was selected in Motilal Oswal’s brokerage report. Greynium Information Technologies, the author and the respective brokerage are not responsible for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.