Summary: Emkay Global Financial is optimistic about Tata Motors, recommending a “Buy” rating with a target price of ₹1175 in their report dated October 8, 2024.
Key Highlights:
- JLR Sales Drop: Jaguar Land Rover (JLR) experienced a nearly 10% decrease in Q2 sales, totaling 87,000 units, due to supply issues with an aluminum supplier. However, JLR anticipates a strong rebound in production and sales in the second half of the financial year as supply issues are resolved.
- Positive Outlook: Unlike other luxury brands like BMW and Mercedes-Benz, which have downgraded their forecasts due to weak demand in China, JLR is seeing encouraging signs for a volume rebound. The company aims to become net debt-free by FY25 and has shown solid operational improvements.
- Indian Market Strength: Tata Motors’ outlook in India is improving, especially in commercial vehicles (CVs). A potential recovery in infrastructure spending and a soft base from last year could drive demand for CVs, leading to increased margins over the next few years.
- Performance Compared to Peers: While some competitors are facing challenges, JLR’s focus on profitability and brand strength is driving its success. The contribution from high-margin models like the Range Rover and Defender has increased, accounting for 67% of JLR’s wholesale volume.
- Valuation Adjustments: Emkay has slightly reduced its earnings estimates for FY26 and FY27 but maintains a target price of ₹1175 per share based on a Sum-of-the-Parts valuation. The company’s financial health and relatively low valuations compared to other original equipment manufacturers (OEMs) also support their positive outlook.
Conclusion: Tata Motors is on track for recovery and growth, backed by JLR’s expected volume rebound and a healthy outlook in the Indian market, making it an attractive investment according to Emkay Global.
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