Tata Motors’ share price has been on an incredible bull run this past year. Just today, the stock surged up over 8% to hit a new all-time high of ₹950, backed by robust results. While several brokerages think the stock is well set to soar even higher, analysts at HDFC Securities have a different stance.

The Tata Motors Analyst: Aniket Mhatre-led analyst team at HDFC Securities maintained the sell rating for the stock but raised the target price to ₹596 from ₹534.

The Tata Motors Thesis: The analyst noted that the company posted margin improvement across all business segment. The Jaguar Land Rover (JLR) segment saw a Q3 margin improvement of 130 basis points quarter-on-quarter to 16.2%, primarily attributed to a better mix of Range Rover sales and a favourable regional mix towards China. Meanwhile, in the India commercial vehicle segment, the margin increased by 70 bps QoQ to 11.1%, while the India passenger vehicle margin remained steady QoQ at 6.6%.

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While FY24 has been operationally robust for JLR, the analysts said that the outlook for FY25 presents several challenges.

1. Demand uncertainty in key regions: The brokerage highlighted that economic and geopolitical factors may create uncertainty in key markets, affecting demand for JLR vehicles.
2. Normalization of mix: As per the analysts the favourable mix seen in FY24 may normalize in FY25, impacting margins.
3. Rise in variable marketing expenditure + fixed marketing expenditure transitioning from “demand pull” to “sales push” mode: Increased marketing expenses may be required to drive sales amid competitive market conditions.
4. Need to raise capital expenditure (capex) amid potentially unsupportive margins: Despite the need for investment in future growth, margin pressures may limit the ability to allocate resources to capex.
5. Potential impact from ongoing Red Sea crisis: Geopolitical tensions and disruptions in global supply chains may impact JLR’s operations and sales in affected regions, the domestic brokerage noted.

In India, the brokerage said that the demand macroeconomic environment appears less encouraging, with muted volume growth expected for both commercial vehicles and passenger vehicles over the high base of the last two years.

Price Action: Tata Motors' share price was up 5.17% to trade at ₹924.20 in the late hours of trading on Monday. 

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