HDFC Securities has given an add rating to Tata Motors with a target price of Rs 112. The share price moved up by 1.87 per cent from its previous close of Rs 104.40. The stock’s last traded price is Rs 106.35.

Against the Covid backdrop, Tata Motors management is focused on conserving capital by aggressively scaling back capex spends in FY21E (by over 30 per cent) as well as seeking a strategic partner for the loss-making India passenger car business, says the brokerage. HDFC Securities says as the business normalises at JLR/India, the cash flows are expected to improve over CY21E (led by working capital reduction).

Investment Rationale

According to the brokerage, the demand environment at JLR is expected to gradually normalise over the second half of FY21, as countries are emerging out of the lockdown. The new Defender will keep product excitement alive, as the model has received 22,000 bookings. While sales are expected to decline in FY21, China will benefit from an early revival.

To contend with the volatile environment, JLR is reducing breakeven point to 500,000 units through various cost saving initiatives over FY21E. In India, the brokerage expects a delayed recovery for the MHCV segment, where Tata Motors remains dominant with a 50 per cent market share. For the car business, the OEM is reducing fixed costs and will focus on improving the (front end) sales experience for customers

The brokerage has set a Mar-22 SOTP target price of Rs 112. It values the India business at 9 times EV/EBITDA and the JLR business at 2 times EV/EBITDA.

Tata Motors-HDFCSecJune242020

Key risks: Earlier than expected stake sale of the PV business on the upside, delayed economic recovery and any increase in geopolitical risks on the downside.

Financials

For the quarter ended March 31, 2020, the company reported consolidated sales of Rs 61949.39 crore, down -12.81 per cent from last quarter sales of Rs 71051.42 crore and down -27.69 per cent from last year same quarter sales of Rs 85676.33 crore. The company reported net profit after tax of Rs -9671.25 crore in the latest quarter.

Promoter/FII Holdings

Promoters held 42.39 per cent stake in the company as of March 31, 2020, while FIIs held 16.84 per cent, DIIs 7.44 per cent and public and other 27.19 per cent.



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