Tata Motors: Regaining share in PVs, retain ‘buy’ at Rs 435 PT
For PVs, we see industry growing 30%/10%/10% in FY22/FY23/FY24.
Key takeaway: An improved strategy and cyclical recovery should drive a strong turnaround in Tata’s India business. Tata’s market share losses in trucks are behind, and it is outperforming AL on margins as AL’s earlier cost advantages have faded. Tata is regaining share in PVs, will launch a new SUV in 2HCY21 and is leading in EVs. We retain ‘buy’ at Rs 435 PT with India contributing Rs 200/sh of value. In an optimistic scenario, we see India value rising to Rs 300/sh in 2Y.
Better placed for next truck cycle: Tata lost 11ppt market share in trucks over FY12-18 as Ashok expanded its portfolio and dealer network while enjoying tax benefits at its Pantnagar plant. With a new CV business head in 2017, Tata reworked its strategy, focusing on sales engagement, dealer profitability and servicing. Tata’s share inched up from 50.8% in FY18 to 52.0% in FY21.
Ashok’s Pantnagar tax benefits, conversely, ended in March 2020. Ashok also had cheaper technology for BS4 emission norms, but this advantage has likely faded with the new BS6 norms from April 2020. We find Tata better placed for upcoming CV cycle and is already outperforming Ashok on CV margins.
An improved PV strategy: Tata is also regaining market share in passenger vehicles (PVs) with an SUV-focussed strategy, improved product styling and better brand positioning. Its FY21 market share at 8% was an 8Y high (1QFY22: 10%), and a new sub-compact SUV in 2HCY21 should provide a further boost.
Leading in EVs: While Indian passenger EV market is still nascent, Tata has an early lead with success of Nexon SUV and has ~70% share in EVs. It’s now launching electric variant of its small-sedan Tigor. Tata is also kick-starting the EV ecosystem with group firms: Tata Power setting up charging infra, Tata Chemicals evaluating Li-ion cell manufacturing, Tata Autocomp producing batteries and exploring motors, and Tata Motor Finance providing solutions for fleet EV adoption.
Cyclical recovery ahead: Indian trucks and PVs witnessed their worst downturns of four decades over FY20-21 and are poised for a big rebound. We expect truck industry volume rising 25%/45%/15% in FY22/FY23/FY24; our FY24E volume is still 9% below FY19 peak.
For PVs, we see industry growing 30%/10%/10% in FY22/FY23/FY24.
Big turnaround: We see Tata’s standalone EBITDA rising from average Rs 14billion over FY14-21 to Rs 82-96billion in FY23-24. FY22 should be a net loss, but we expect standalone net profit of Rs 22-34billion in FY23-24. Standalone net debt should fall to Rs 141billion/Rs 101billion by FY23/FY24 versus Rs 170billion average over FY14-21; ROE should rise from -9% over FY14-21 to 12-16% in FY23-24.
India Rs 200-300/sh of value: An improving India franchise should drive much higher standalone value for Tata than in the last decade. JLR is facing chip shortage and EVs concern, but upcoming Range Rover (RR) and RR Sport launches provide catalysts. In our Rs 435 PT, we assign Rs 200/sh (68% of CMP) to standalone at 4.0x FY23E PB (11.5x FY23E EV/EBITDA). In an optimistic scenario, we see standalone value of Rs 300/sh in 2Y at 5x FY24E PB (13.4x FY24E EV/EBITDA). Separation of India PVs into a subsidiary and potential entry of strategic or financial investor can drive further value unlocking.
Tata Motors share rises on hike in prices of passenger vehicles
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Tata Motors share price rose nearly 1 percent in the early trade on August 3 after the company increased the prices of its passenger vehicles. The hike, “on an average of 0.8 percent, depending on the variant and model”, kicks in from August 3, the company said in a release.
Tata Motors’ New Forever range will be protected from the increase for vehicles retailed on or before August 31, 2021, the company said.
At 0915 hours, Tata Motors was quoting at Rs 298.95, up Rs 2.15, or 0.72 percent on the BSE.
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The share touched a 52-week high of Rs 360.65 on June 15, 2021 and a 52-week low of Rs 103 on August 3, 2020. It is trading 17.11 percent below its 52-week high and 190.24 percent above its 52-week low.
Stocks to Watch: Bharti Airtel, Future Retail, IDBI Bank, Tata Motors
NEW DELHI: Here are top 10 stocks that may be in focus today.
Bharti Airtel: The telecom major on Sunday announced that its board has approved raising up to ₹21,000 crore via rights issue at ₹535 per share of fully paid-up equity share (including a premium of ₹530/- per equity share) at its meeting. Terms of payment of Issue Price will be 25% on application and balance in two more additional calls within an overall time horizon of 36 months.
Future Retail: The company on Saturday filed a new case against Amazon.com Inc at the Supreme Court in its latest effort to seek clearance for its $3.4 billion retail assets sale, which the U.S. firm has challenged. The Supreme Court this month dealt a blow to Future when it said an interim decision by a Singapore arbitrator in October 2020 that put its deal with Reliance Industries on hold - following Amazon’s complaint - was valid in India.
Go Airlines India: The airline has got the green light from the nation’s market regulator to raise 36 billion rupees ($485 million) through an initial public offering. GoAir’s share sale was put on hold in June by the Securities and Exchange Board of India.
IDBI Bank: The public sector lender has said said that it will offload its entire 19.18 per cent stake in Asset Reconstruction Company (India) Limited (ARCIL). The proposal was approved by the bank’s board on Friday, it said in a regulatory filing on Friday.
IDFC First Bank: The private sector lender is targeting to grow its retail loan book by 25% on a long term basis and expects the mortgage lending to account for 40% of its loan book going forward.
Pharma stocks: Leading drug makers Dr Reddy’s Laboratories and Zydus Pharma are recalling bottles of a product each, in the US market, for different reasons, according to the latest report of the US health regulator.
Power stocks: The Union power ministry may issue an order allowing Tata Power and Adani Power to sell electricity from their facilities in Mundra, Gujarat, according to media reports. The two plants, with a combined capacity of 8,000 megawatts, which operate using imported coal, are non operational in the absence of compensation for high fuel cost.
SAIL: The government owned steelmaker has announced an investment of ₹4,000 crore in Jharkhand over the next three years. This funding will be used to enhance the capacity of its Gua mines, and install a 4-million-tonne (MT) pallet plant.
Tata Motors: The homegrown auto major on Friday said it has received approval of the National Company Law Tribunal (NCLT) Mumbai bench to hive off its passenger vehicles business unit into a separate entity. Subsequently, the matter moved back to the NCLT for a final order.
Tata Steel: The domestic steel giant will invest ₹8,000 crore in capital expenditure on its India operations during the current financial year, the company’s chief executive and managing director T V Narendran said. The amount will be spent mainly towards completion of the expansion of the Kalinganagar plant, and expansion of mining operations and recycling business.
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