Why This Analyst Sees Tata Motors Tanking 18% Even After Robust Q1 Print

Tata Motors‘ share price continued its dream after the Tata Group company posted estimate-beating results for the June quarter. However, analysts at HDFC Securities do not think the momentum will continue.

The Tata Motors Analyst: The Aniket Mhatre-led analyst team at HDFC Securities downgraded the stock’s rating to “sell” from “reduce”, but raised the price target to ₹520 from ₹457. The revised target price indicates an 18% downside.

The Tata Motors Thesis: The brokerage firm said that while the company posted strong numbers in Q1, it was largely on the back of one-offs. The firm in its review note, said that Jaguar Land Rover reported a 200 basis points quarter-over-quarter improvement in EBIT margin to 8.6% despite flat volumes and a similar mix, quarter-over-quarter. However, adjusted for one-offs, margins were largely stable.

The firm added that the India business failed to impress, given market share losses across all commercial vehicles (CVs) segments and sub-par margins in passenger vehicles (PVs). The analysts said that Tata Motors has experienced a continued decline in market share across all segments in CVs primarily due to supply constraints.

Despite this challenge, the CV EBITDA margin has remained relatively resilient at 9.4%. However, it remains uncertain how the EBITDA margin will stabilise going forward, especially as the company aims to recover its lost market share in the CV segment, the firm added.

In the PV segment, the EBITDA margin has faced a decline of 200 basis points quarter-on-quarter to 5.3%. The brokerage firm noted that the decrease is attributed to the ramp-up of electric vehicles (EVs), which might have incurred higher costs during their introduction. In contrast, the EBITDA margin for internal combustion engine (ICE) PVs has remained steady at 8.6%.

The analyst also highlighted that the recent imporvment in Tata Motors’ share price is also a reason for the downgrade.

Price Action: Tata Motor’s share price was up 0.78% to trade at ₹646.10 in the early hours of trading on Thursday.

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Posted In: Analyst ColorDowngradesPrice TargetAnalyst RatingsHDFC SecuritiesJaguar Land RoverTata GroupTata Motors