Brokerages remain bullish over Tata Motors even as the carmaker posted a 11% dropping its net profit during its second quarter earnings.

What Happened: The stock rebounded on Wednesday after having traded in the red for four straight sessions. On Tuesday, it slumped below ₹800 for the first time since January.

In Q2, the automaker’s net profit stood at ₹3,343 crore and revenue from operations slumped around 3.5% year on year to ₹1.01 lakh crore. Despite this Sharekhan sees the company benefitting from all its business verticals including Jaguar Land Rover (JLR), commercial vehicles (CV) and passenger vehicles (PV), going ahead.

It sees a stronger second half compared to last year driven by driven by strong volume growth and better operational efficiencies. This performance is expected to be supported by aggressive product launches, strategic market positioning, product differentiation, cost-saving initiatives and increased investments in research and development~. 

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The domestic CV business is expected to remain positive, with significant demand anticipated from sectors such as infrastructure, mining, and e-commerce. The PV business has undergone a notable transformation, benefitting from strong sales momentum, especially with its “New Forever” portfolio, and increasing traction in the electric vehicle (EV) segment, it noted.

The firm’s net automotive debt is expected to decline in the upcoming quarters, driven by reduced working capital pressures as JLR volumes continue to grow, Sharekhan said. It had a “buy” recommendation for the stock but downgraded its target price to ₹1,099.

On the other hand, JM Financial’s positive outlook was bolstered by the Tata Group firm’s strong outlook for the second half of the year. The management expects a strong second half, driven by easing supply constraints and effective cost management.

Marketing expenses are likely to stay high to support JLR’s order book. Healthy free cash flow (FCF) generation is expected to fund JLR's electrification efforts, with the company on track to become net cash positive by FY25, the brokerage said.

In the domestic PV segment, Tata Motors saw strong growth during the festive season, and recent and upcoming launches are expected to further support growth, it added. Domestic CV demand is also expected to rise in the second half according to JM Financials. It had a “buy” rating on the stock with a target price of ₹1,100, representing an unpaid of 39.4%.

Price Action: Tata Motors was trading flat at ₹789.10 on Wednesday morning.

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