On Tuesday, Tata Motors witnessed a gain of over one percent in its share price, extending its rally for the fourth consecutive session. The stock price remained close to its previous session’s all-time high level.
In a significant milestone, Tata Motors has emerged as the 16th most valued automaker globally, surpassing Kia Corporation in terms of market capitalization. During the trading day, Tata Motors’ market capitalization surged to over ₹2.07 lakh crore.
This achievement underscores Tata Motors’ remarkable growth trajectory and the increasing market recognition of its value and potential. The rise in market capitalization signifies the overall market perception of the company’s worth and its ability to generate returns for investors.
On July 10, Tata Motors’ shares reached a record high of ₹634.60 per share on the Bombay Stock Exchange (BSE). This surge in share price can be attributed to the company’s report of a substantial increase in sales of Jaguar Land Rover (JLR) cars during the first quarter of the fiscal year 2023-24.
The impressive performance of JLR, Tata Motors’ luxury car division, has played a crucial role in driving the company’s share price to new heights. The rise in sales indicates strong demand for JLR’s premium vehicles, reflecting positive consumer sentiment and the brand’s appeal in the global market.
Tata Motors’ stock price has experienced a remarkable surge, appreciating by more than 62% since the beginning of the year. Furthermore, over a span of three years, the stock has delivered multibagger returns, soaring by over 480%.
During the April-June quarter of the current fiscal year, the luxury auto division of Tata Motors, Jaguar Land Rover (JLR), reported a significant year-on-year (YoY) increase in global wholesale dispatches and retail sales.
JLR recorded a notable 30% YoY jump in global wholesale dispatches, indicating strong demand for its luxury vehicles across various markets. This increase in wholesale dispatches reflects the company’s ability to deliver its products to dealerships and customers worldwide.
Furthermore, JLR experienced a robust 29% YoY surge in retail sales during the same quarter. Retail sales are a key indicator of consumer demand and provide insights into the market’s reception of JLR’s luxury vehicles. This strong growth in retail sales demonstrates positive consumer sentiment and a growing preference for JLR’s premium offerings.
Jaguar Land Rover (JLR) has provided an optimistic outlook by stating its expectation to report positive free cash flow of over £400 million in the April-June quarter. This positive cash flow projection signifies the company’s ability to generate cash from its operations during this period.
Furthermore, JLR had previously shared guidance that it aims to generate £2 billion in free cash flow for the fiscal year. This ambitious target highlights the company’s commitment to improving its financial performance and ensuring sustainable cash flow generation.
Jaguar Land Rover (JLR) holds significant importance within the overall revenue structure of Tata Motors, accounting for approximately 60% of the company’s total revenue. This indicates the substantial contribution that JLR makes to Tata Motors’ financial performance.
According to the domestic brokerage firm Motilal Oswal, Jaguar Land Rover’s (JLR) annual report for the fiscal year 2022-23 highlights the company’s strategy for transitioning to a modern luxury vision, with a strong focus on electric vehicles (EVs). This strategy revolves around three platforms that drive JLR’s EV ambitions.
Motilal Oswal expects Tata Motors to experience a healthy recovery based on the easing of supply-side issues for Jaguar Land Rover (JLR) and the stabilization of commodity headwinds for the India business. This positive outlook suggests that the company is well-positioned to navigate and overcome the challenges it has faced.
According to Motilal Oswal, Tata Motors is expected to benefit from multiple factors that will contribute to its growth and financial improvement.
- Commercial Vehicle (CV) Upswing: The brokerage firm anticipates an upswing in the commercial vehicle segment, which will positively impact Tata Motors. This suggests that increased demand for commercial vehicles, such as trucks and buses, will contribute to the company’s revenue growth and overall performance.
- Stable Growth in Passenger Vehicles (PV): Motilal Oswal expects stable growth in the passenger vehicle segment for Tata Motors. This indicates that the company’s lineup of passenger vehicles, including cars and SUVs, is expected to witness steady demand and contribute to the company’s sales and profitability.
- Company-Specific Volume or Margin Drivers: Motilal Oswal highlights that Tata Motors has specific volume or margin drivers that are expected to support its growth. These could include factors such as new product launches, market share gains, improved pricing strategies, cost optimization, or efficiency enhancement initiatives. These drivers will play a significant role in boosting Tata Motors’ financial performance.
- Improved Free Cash Flow (FCF) and Leverage: Motilal Oswal expects a sharp improvement in free cash flow and leverage for both Jaguar Land Rover (JLR) and the India business of Tata Motors. This suggests that the company’s cash flow generation is expected to improve, providing more flexibility for investment, debt management, and overall financial strength.
The stock of Tata Motors is currently trading at a price-to-earnings (P/E) ratio of 19.3x and 16.2x for the estimated fiscal year 2023-24 (FY24E) and fiscal year 2024-25 (FY25E) consolidated earnings, respectively. These ratios indicate the valuation of the stock relative to its earnings.
In addition, the stock is also trading at an enterprise value-to-EBITDA (EV/EBITDA) ratio of 5x and 4.2x for FY24E and FY25E, respectively. The EV/EBITDA ratio is a valuation metric that compares the enterprise value (market capitalization plus net debt) of a company to its EBITDA (earnings before interest, taxes, depreciation, and amortization). It provides insights into the company’s profitability and financial health.
Motilal Oswal, the brokerage firm, has reiterated its Buy rating on Tata Motors’ stock and has set a target price of ₹700 per share. This suggests that the brokerage firm expects the stock price to reach ₹700 in the foreseeable future based on its analysis and valuation of the company.
At 11:45 am, the shares of Tata Motors were trading 0.85% higher on the Bombay Stock Exchange (BSE), reaching ₹623.70 apiece. This indicates a slight increase in the stock price compared to the previous trading session.