Tata Motors shares at Rs 540? JLR, Tata Technologies monetisation key drivers for stock, says Motilal Oswal

Motilal Oswal Securities, which met with Tata Motors' management, said JLR is turning the corner and would be the key driver of the Tata Motors stock. The domestic brokerage said that the monetisation of stake in Tata Technologies -- possible value of Rs 25-47 per share for Tata Motors, could also act as a catalyst for the stock. The brokerage has maintain its 'Buy' rating on the stock with the target of Rs 540. The target suggests 31 per cent potential upside for the stock over Wednesday's closing price.

For JLR, Motilal Oswal Securities said, supplies are gradually improving and demand is healthy. As supplies improve, JLR should reach near the zero net debt level by FY25, aided by improved production, better margins and working capital release, Motilal Oswal Securities said.

"JLR will structurally continue its journey from being a premium brand to a premium luxury brand by focusing on its brand pull strategy and redefining Jaguar with premium positioning in the era of EVs with new launches starting from CY25. While its India businesses are already on a sustainable growth path, JLR is turning the corner and would be the key driver of the stock," the brokerage said.

Motilal Oswal Securities said the management is confident of achieving 10 per cent EBIT margin for JLR by FY26 (against 3.7 per cent in Q3FY23), driven by the normalisation of many discontinuities like the premium cost of chips, vendor compensation for lower volumes, commodity/energy costs; richer mix; favourable forex; and operating leverage.

This, it said, is after factoring in some dilution in the mix as well as an increase in VME.

"Apart from this, we believe working capital release (negative working capital business) and controlled capex should help JLR inch closer to the zero net debt level by FY25E (against EUR 3.85 billion in December 2022), which is delayed by a few quarters against earlier guidance of FY24," it said.

Motilal Oswal said that Tata Motors should witness a gradual recovery as supply-side issues ease (for JLR) and commodity headwinds stabilise (for the India business).

It is seen benefitting from a macro recovery in India, company-specific volume/margin drivers, and a sharp improvement in free cash flow and leverage in JLR as well as the India business.

The stock trades at 15.2 times FY24E and 12.3 times FY25E consolidated P/E and 3.8 times FY24E and 3.2 times FY25E EV/Ebitda.