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This Automaker Charts Ambitious Growth Path, has a 13% Upside

Published 2024/06/12, 13:09

At its recent India Investor Day, Tata Motors (NS:TAMO) laid out an ambitious roadmap focused on strengthening its franchise and improving profitability across both passenger vehicles (PVs) and commercial vehicles (CVs). Jefferies analysts highlight Tata's strategic goals and growth projections, emphasizing the company's potential to significantly enhance its market position and financial performance in the coming years.

Tata Motors aims to boost its market share in the PV segment from 14% in FY24 to 16% by FY27, and further to 18-20% by FY30. This growth trajectory is underpinned by a series of new product launches, including the mid-sized SUV Curvv and the Harrier electric SUV in FY25, followed by the Sierra and Avinya EVs in FY26. These introductions are expected to increase Tata's addressable market from 53% of total industry volumes to 80%.

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InvestingPro’s revolutionary fair value feature is depicting a healthy upside potential of 13.5% to INR 1,121. This valuation has been derived after taking 14 different financial models into consideration, making the final value more realistic.

Jefferies maintains a "Buy" rating for Tata Motors, with a price target of INR 1,250, reflecting a 28% upside. This outlook is supported by robust growth projections across Tata's segments:

  • Jaguar Land Rover (JLR): Volume growth of 9% and 6% in FY25 and FY26, respectively, with an EBITDA margin of 16.0-16.3%.

  • India CVs: Volume growth of 9% and 8% in FY25 and FY26, respectively, maintaining an EBITDA margin of approximately 11%.

  • India PVs: Volume growth of 11% and 18% in FY25 and FY26, respectively, with an EBITDA margin improving to 7.6-8.3%.

Jefferies also forecasts a 13% CAGR in EBITDA and a 23% CAGR in EPS over FY24-26, with Tata Motors' auto balance sheet expected to show $4.6 billion in net cash by FY26.

Moreover, Tata is focused on enhancing profitability in the PV segment. The company aims to improve its EBITDA margin in internal combustion engine (ICE (NYSE:ICE)) PVs by over 2 percentage points in the coming years, building on the current margin of 9.4% in FY24. Tata also targets a breakeven in its EV segment by FY26, a significant turnaround from the -7.1% EBITDA margin reported in FY24.

In the CV segment, Tata Motors is looking to capitalize on a projected 4-5% compound annual growth rate (CAGR) in industry volumes over the next five years, driven by sustained economic growth and a strong governmental push on infrastructure development. To reduce business volatility, Tata plans to increase the share of non-vehicle revenues from the low-to-mid teens in FY24 to 20% in the medium term. The company also aims to maintain a strong double-digit EBITDA margin, projected at around 11% for FY25-26.

Tata's strategy for CVs includes enhancing its product portfolio, investing in alternate fuel technologies, and leveraging digital business solutions. These initiatives are expected to position Tata strongly in the CV market, ensuring sustainable and profitable growth.

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