PL Stock Report - Tata Motors (TTMT IN) - Analyst Meet Update - Increasing focus on EVs and profitability - BUY

Tata Motors (TTMT IN) - Himanshu K Singh - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: BUY | CMP: Rs568 | TP: Rs605

Analyst Meet Update - Increasing focus on EVs and profitability

Quick Pointers:

♦ Largely maintained its volume growth and margin guidance for India businesses

♦ New models in the Electric PV space to drive higher EV market share

We attended Tata Motors’ India Investor Day and came out positive on Tata Motors India strategy. Management highlighted continued growth in the CV and PV segment but with moderation in the growth rate. M&HCV demand outlook is strong and TTMT is confident of maintaining its lead in SUVs. We liked the strong focus on the margins across division to grow in a profitable manner by disrupting standard industry practices in the CV segment. EVs have become a big focus point for TTMT with a separate session being planned for highlighting increased awareness within the company related to climate change and holistic measures being adopted by the company to become net zero by 2040 in PV and 2045 in CV division.

We remain positive on TTMT given (1) JLR’s volume ramp-up resulting in strong revenue, profitability and FCF (aided by high order book), 2) CV segment (on domestic side) benefitting from ongoing upcycle, operating leverage and tailwinds from lower commodity costs & lower discounting and (3) strong market share in PV segment (13.5% vs 8% in FY21) led by revamped portfolio, rising SUV share and rising EV penetration. We expect revenue/EBITDA CAGR of 12%/32% over FY24/25E. We have a ‘BUY’ rating with SoTP based TP of Rs 605 (Mar-25).

♦ Volume expectation: Management expects volume growth in the PV and CV segment to moderate to single digits in line with industry volumes. EVs are expected to grow substantially in FY24 helped by launch of its new Gen2 EVs.

♦ Margins outlook: Management expects double-digit EBITDA margin and positive FCFs in PV segment in the medium term, with target to improve by 300bp from current levels of 7.5% in FY23. In the CV segments double digit EBITDA margin is expected in FY24, and strong double digit in medium term. In EV division, positive EBITDA margin (pre-PLI benefit) is expected in the medium term from -4.6% in FY23.

♦ Capex spends of Rs. 80bn in FY24 with up to INR25bn in CVs, up to INR30bn in PVs in FY24. India EV capex expected at USD2bn till FY27.

♦ TTMT is targeting near-zero consolidated net-automotive debt for India business in FY24 and consolidated level by Mar-25.

♦ TTMT has scaled up its manufacturing capacity to 1mn unit in the PV segment and aspires to reach those levels of volumes driven by new model launches, network expansion and increased traction in the EV space, which it plans to constitute 25-30% of total PV volumes by FY27.

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