Tata Motors – Stock Analysis

Tata Motors is undergoing a significant restructuring to unlock shareholder’s value-

The Company announced plans to demerge its commercial vehicle (CV) and passenger vehicle (PV) businesses into separate listed entities, with an expected completion timeline of 12-15 months.

Tata Motors announced a value-unlocking exercise to demerge its Passenger and Commercial Vehicles segments into two separate listed entities. To enable sharper execution of their well-differentiated strategies and to further empower each business to pursue it purposefully with greater agility and accountability, the Board has proposed the demerger of the Company into two separate listed companies housing A) the Commercial Vehicles business and its related investments in one entity and B) the Passenger Vehicles businesses including PV, EV, JLR and its related investments in another entity.
This (demerger) will also help secure the considerable synergies across Passenger Vehicle, Electric Vehicle and Jaguar Land Rover (JLR) particularly in the areas of EVs, autonomous vehicles, and vehicle software

Tata Motors Finance Merger: The company is merging its NBFC arm, Tata Motors Finance, with Tata Capital, aiming to complete the transaction in 9-12 months.

Tata Motors is planning to separate its vehicle financing subsidiaries housed under Tata Motors Finance Ltd and merge them with Tata Capital to streamline operations and reduce its debt burden

ADR’s delisted & DVR simplification: Improved Corporate Governance and Shareholder Alignment:

Simplifying the share structure by eliminating DVRs can enhance corporate governance by ensuring all shareholders have equal voting rights.

India business net debt free in FY24 & JLR on track to become net debt free in FY25

Our Take- Long-Term Buy

Tata Motors’ management has provided a cautiously optimistic outlook, with a strategic focus on enhancing EBITDA margins over increasing volumes. The company acknowledges that Q1 and Q2 tend to be weaker quarters compared to Q3 and Q4. Given the current bearish market sentiment regarding the stock due to decreasing market share in Commercial Vehicle and Passenger Vehicle and cautious management guidance regarding volume volume growth, we anticipate that Tata Motors may face challenges in the short term. However, the long-term growth prospects remain compelling.

Market Leadership in EV Segment: Tata Motors continues to dominate the electric vehicle (EV) market, holding a commanding 73% market share. Company continues to focus on EV penetration and expanding its product portfolio across various price points and capitalize on strong demand for premium JLR models, positioning itself for future growth in these segments.

This leadership position, combined with the government’s sustained focus on infrastructure projects, positions the company favorably to capitalize on the anticipated demand surge across vehicle segments, especially with the upcoming festive season.

Financial Resilience and Valuation: Tata Motors’ commitment to becoming net debt-free by FY25 will significantly enhance profitability. The stock is currently trading at an EV/EBITDA multiple of 6.59x FY24 and a PE multiple of 11.6x, making it one of the most attractively valued stocks in the automobile sector. For context, Tata Motors’ current PE stands at 11x, well below its 3-year average of 20.7x, the 5-year average of 21.4x, and the industry average of 29.9x.

Tata Motors	PE
Current PE	10.8
3 Years PE	20.7
5 Years PE	21.4
Industry PE	29.9

Recommendation: We initiate a Buy recommendation on Tata Motors at a current market price (CMP) of ₹995, with a long-term investment horizon of at least 5 years. The company’s strategic initiatives, market leadership, and attractive valuation make it a compelling investment opportunity.

Here is a Revenue Mix for FY24 and Growth Guidance

Jaguar Land Rover-JLR has performed exceedingly well in FY24 with record £29 billion of sales, ~16% as EBITDA margins, ~8.5% as EBIT margins, ~£ 2.3 billion as FCF generation amid ~£3.2 billion of capex/investment spending. It has reduced its net debt from ~£3 billion to ~£700 million as of FY24. This substantially improves the financial health at JLR with company now aiming to be net debt free in FY25E amidst pent up capex spending to the tune of £3.5 billion for FY25E. Amidst healthy orderbook of 1.33 lakh units and slew of exciting product launches in the pipeline, we expect JLR to continue reporting healthy profitability going forward.

Domestic CV & PV segment- Industry have witnessed healthy demand recovery over the past couple of years (post-Covid). However management remains cautiously optimistic and expects overall CV industry growth to be flat to slightly declining range in FY25 and anticipates PV segment to grow by 5% in FY25 lower than industry growth of 6-8%. Company focus in the interim is to further improve upon the profitability in this space amidst its proven capabilities across powertrains (ICE, CNG, Electric, Hydrogen, etc.) and guidance for double digit EBITDA margins.

On the EV side Company continued to improve profitability in EV segment. It has passed on a benefit of reduction in battery prices to the customer, Company will be focusing on driving higher penetration of EVs and CNGs products in certain cities it plans to build upon its leadership position in E-PV space with target to sell ~1 lakh E-PVs in FY25E and is also a prominent player winning orders in CESL E-bus tenders

JLR
Units	FY21	FY22	FY23	FY24
Jaguar Sales Volume	90,440	68,405	63,001	49,561
Land Rover Sales Volume	3,22,471	2,79,245	3,09,216	3,51,742
Total JLR Sales Volume	4,12,911	3,47,650	3,72,217	4,01,303
Growth (YoY, %)	-21%	-16%	7%	8%
India
Units	FY21	FY22	FY23	FY24
M&HCV	90,152	1,34,797	1,87,185	1,84,216
Growth (YoY, %)		50%	39%	-2%
LCV	1,72,618	2,22,174	2,26,354	2,11,630
Growth (YoY, %)		29%	2%	-7%
PV	2,22,591	3,72,174	5,41,087	5,73,495
Growth (YoY, %)		67%	45%	6%
Total India Sales Volume	4,85,361	7,29,145	9,54,626	9,69,340
Growth (YoY, %)		50%	31%	2%

Tata Motors’ Financial Statements for Q1FY25:

(Rs crores)	Q1FY24	Q4FY24	Q1FY25	QoQ (%)	YoY (%)
Total income	103,597	121,446	109,623	-10%	6%
Total expenses	98,267	112,236	100,925	-10%	3%
EBITDA	15,785	17,135	13,217	-8%	19%
Profit before tax	4,864	9,369	8,870	-5%	82%
Tax	1,563	-8,160	3,178	–	103%
Profit after tax	3,301	17,529	5,692	-68%	72%
Earnings per share	8.3	45.4	14.5

Q1 FY2025 Analysis: Key Takeaways

Total Income: ₹109,623 crores, reflecting a 6% YoY growth and a 10% QoQ decrease
Profit Before Tax: Up 82% YoY to ₹8,870 crores, driven by favorable commodity prices across both Jaguar Land Rover (JLR) and Tata Motors India operations
Profit after tax: ₹5,692 crores for Q1FY25, up 72% YoY from ₹3,301 crores
EBITDA: ₹15,785 crores up 19% YoY, Margin remained steady at 14% QoQ
Earnings per Share: The EPS for Q1FY25 stood at ₹14.5, compared to ₹8.3 in Q1FY24

Key Financial Summary- (Rs in crore)

Particulars	FY20	FY21	FY22	FY23	FY24	5-year CAGR
Net Sales	2,61,068	2,49,795	2,78,454	3,45,967	4,37,928	7.70%
EBITDA	23,914	35,782	34,023	42,492	70,569	18.80%
EBITDA Margins (%)	9.2	14.3	12.2	12.3	16.1
Net Profit	-11,975	-13,451	-11,441	2,414	31,399
EPS (₹)	-33.3	-35.1	-29.9	6.3	85.3
P/E	-30	-28.5	-33.5	158.6	11.7
RoNW (%)	-18.7	-23.8	-23.4	4.6	33.7
RoCE (%)	1.3	6.3	4.8	9.8	22.5