On Monday, the company approved a demerger proposal, splitting it into two separate listed entities. The first unit encompasses the Commercial Vehicles and its related investments, while the second will include the Passenger Vehicles, consisting of PV, EV, JLR, and their related investments.
In recent years, Tata Motors has witnessed robust performance across its Commercial Vehicles (CV), Passenger Vehicles (PV+EV) and Jaguar Land Rover (JLR) businesses, attributed to the effective execution of individual strategies. According to the company’s exchange, as of 2021, these businesses have operated autonomously under their respective CEOs. Tata Motors has announced plans to demerge these entities, facilitated by an NCLT scheme of arrangement. Importantly, shareholders of Tata Motors will retain identical shareholding in both the listed entities after the demerger process.
Does this split decision change the fundamental and technical outlook for the stock in the long term? Is it still a good buy? Here’s what experts say.
Stock Price Trend
Tata Motors has delivered robust multibagger performance in the last one year, driven by significant improvements in its Jaguar and Land Rover segments, along with its commercial vehicle division. After seven quarters of losses, the company shifted to net profit in Q3FY23, maintaining this trend in subsequent quarters, leading to a notable increase in its share price.
The stock is up more than 132 percent in the last year and more than 30 percent in 2024 YTD. In comparison, the benchmark Nifty Auto has advanced 64 percent in the last 1 year and nearly 14 percent in 2024 YTD.
The stock has added more than 7 percent in March so far, extending gains for the fifth straight month since November 2023. Between November 2023 and March 2024, the stock jumped 62 percent.
It gained 7.4 percent in February 2024 and 13.4 percent in January 2024. Meanwhile, it rose 10.4 percent in December 2023 and 12.4 percent in November 2023.
Currently trading at ₹1,017.65, the stock hit its record high of ₹1,065.60 on March 5, 2024. It has now soared 154 percent from its 52-week low of ₹400.40, effective March 28, 2023.
Revenues
In the fourth quarter ending December 2023, Tata Motors, India’s most valuable carmaker, beat Street estimates as it reported a more than two-fold increase in net profit driven by strong sales at its British luxury car unit, Jaguar Land Rover (JLR). . Tata Motors’ consolidated net profit increased 137.5 percent to ₹7,025.11 crore in Q3FY24, compared to ₹2,958 crore in the year-ago period.
Its total revenue from operations in the third quarter of FY24 rose 25 percent to ₹1,10,577 crores of ₹88,488.59 crore, YoY, led by JLR sales which rose 27 percent in the period.
On the operating front, the auto major’s earnings before interest, taxes, depreciation and amortization (EBITDA) during the December quarter rose 59 percent to ₹15,333 crore from ₹9,644 crore in the year-ago period.
February Sales
Tata Motors reported an 8.4 percent increase in its total wholesale sales to 86,406 units in February compared to 79,705 units in the same month last year. The auto major’s total domestic sales stood at 84,834 units last month against 78,006 units last month, an increase of 9 percent.
Tata Motors’ passenger vehicle (PV) sales, including electric vehicles, in the domestic market stood at 51,321 units compared to 43,140 units in the year-ago month, up 19 percent, the company said in a regulatory filing. Meanwhile, its total commercial vehicle sales fell 4 percent last month to 35,085 units from 36,565 units, YoY.
Technical View
Om Mehra, Technical Analyst, SAMCO Securities
Tata Motors showed bullish momentum by reaching an all-time high of ₹1,065.60 (CMP ₹1018.30), its fifth consecutive month in positive territory.
The stock is exhibiting strength with solid support at ₹940-950 levels. It remains above the 20-day and 50-day moving averages aligning with bullish Nifty Auto Index, which is near its all-time high, also taking strength and support from its sectoral Index. Delivery volume increased by 259.07% above the 5-day average. However, the stock could experience a consolidation after a strong rally.
With each downturn, long-term investors could build their holdings in tranches. Stable investors, usually win the race, because they can prevent themselves from being left behind and, instead, buy the stock when it is at the right levels.
Rohan Shah – Technical Analyst, Religare Broking Ltd
Tata Motors has been in a strong uptrend and has rallied more than 50 percent in the last three months after breaking out of a consolidation pattern. Following a steady uptrend, the stock is now showing signs of fading upward momentum, indicated by the formation of a high wave candlestick pattern at the top and a bearish divergence in the momentum indicator. Thus we believe traders should refrain from creating fresh longs at these levels and wait for a dive to the 980-960 zone. On the other hand, the 1040-1060 is expected to act as a strong resistance zone in the short term.
Pravesh Gour, Senior Technical Analyst at Swastika Investmart
The stock is on a classic uptrend, currently hovering at its peak levels. A breakout of a flag formation on the weekly chart, accompanied by significant volume, suggests strong potential for further gains. With its trading position above key moving averages and a demand zone around 890-900, the overall outlook looks promising.
Immediate resistance lies at 1120, with potential for further upward movement beyond 1200 soon. Conversely, a break of the 900 level could lead to a test of support around 850. Momentary indicators such as the Relative Strength Index (RSI) signal positive momentum, while the Moving Average Convergence Divergence (MACD) indicates a bullish trend, as evidenced. center line crossover.
Fundamental Views
Prabhudas Lilladher
Tata Motors’ decision to go ahead with the demerger reflects management’s confidence in the robust turnaround of its PV and JLR business units. This confidence is underlined by the contrast to earlier periods, when the cash flow of the CV business was often redirected to support these units. The strategic separation of TTMT is set to significantly impact the company’s market positioning and sharpen its operational focus. At its core, the separation strategy seems to carefully consider the interests of all stakeholders such as shareholders (having an identical shareholding in both the listed entities), employees and customers (noting that it will not have a negative impact on employees, customers and its business partners).
We value TTMT based on SoTP, where we already value the CV business (at a multiple of 11x EV/EBITDA, similar to AL IN) and PV businesses (ex-JLR) (at a multiple of 10x EV/EBITDA, with a discount. to MSIL) separately to reflect their distinct market dynamics. We have a BUY rating on the stock.
Motilal Oswal
Tata Motors (TTMT) has announced the separation of its business verticals into two separate listed companies. While the split appears to be a step in the right direction, we do not foresee any need to revisit our target price, which is already based on SoTP valuation. In addition, despite factoring in most of the positive triggers in our estimates, we are limited upside by the recent sharp rise in the stock. We, therefore, downgrade TTMT to Neutral (from BUY) with an unchanged TP of INR1,000 per share.
On the back of strong performance across its key business segments, the stock significantly outperformed key indices with a 204 percent return in the last 36 months against a 50 percent return in the Nifty. Although the spread appears favorable, we see no need to revise our target price as it is already factored into our valuation.
Disclaimer: The opinions and recommendations made above are those of individual analysts or trading companies, and not of Mint. We advise investors to check with certified experts before making any investment decision.
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Published: 07 Mar 2024, 11:26 IST