Tata Motors shares jump over 8% after Q3 results. Should you buy, sell or hold?

Shares of automotive manufacturer Tata Motors rallied over 8% to Rs 453.2 in Friday's intraday trade on BSE after the company posted a consolidated net profit of Rs 2,958 crore for the quarter ended December 2022, against a loss of Rs 1,516 crore a year ago.

The auto major's consolidated operating profit, calculated as earnings before interest, taxes, depreciation and amortization or EBITDA, rose 11% YoY to Rs 9,900 crore and the margin improved 90 basis points to 11.1%.

The company reported consolidated revenue from operations at Rs 88,488.59 crore, up 22.5% as against Rs 72,229 crore from the year-ago period.

Its arm Jaguar Land Rover Automotive Plc (JLR) reported a strong 28% growth in revenue to 6.04 billion pound sterling, and earnings before interest and tax (EBIT) margin expanded by a sharp 230 basis points YoY to 3.7%. EBITDA margin, however, dipped 10 bps to 11.9%.

Tata Motors’ standalone net profit for the third quarter jumped nearly 3-fold to Rs 506.19 crore, and revenue increased 28% YoY to Rs 15,794 crore. On a year-to-date basis, Tata Motors shares have surged over 12% although they have fallen around 10% in the last one year.

Should you buy, sell or hold Tata Motors stock? Here's what analysts say:

Motilal Oswal
"Tata Motors should witness a gradual recovery as supply-side issues ease (for JLR) and commodity headwinds stabilize. It will benefit from macro recovery in India, company-specific volume/margin drivers, and sharp improvement in FCF and leverage in both JLR and the India business," Motilal Oswal said.

"The stock trades at 15.5x/12.5x FY24E/FY25E consolidated P/E and 3.9x/3.2x EV/EBITDA. We maintain our Buy rating with a TP of Rs 525/share (Dec-24Ebased SoTP)," it said.

Nomura
Nomura has a buy call on Tata Motors with a target price of Rs 508, which signals an upside potential of 14% from the current market prices.

"We roll forward our valuation to March-24F. In our SOTP, we value JLR at 1.2x EV/EBITDA, CV at 10x EV/EBITDA, PV at 1.3x EV/Sales and investments at Rs 85/share. The stock is trading at ~4.3x FY24F EBITDA. Rising JLR production and debt reduction would be important catalysts, in our view. We estimate Net Auto debt to reduce to Rs 230 billion, or Rs 60/share by FY25F-end from Rs 575 billion (Rs 150/share) currently," it said.

ICICI Direct
ICICI Direct upgraded Tata Motors' stock from hold to buy with a target price of Rs 530, which signals an upside potential of 19% from the current market prices.

"We expect a healthy 18.2% revenue CAGR over FY22-25E driven by 13.8% total volume CAGR amid a healthy order book at JLR (2.15 lakh units). The company has a dominant position in domestic electric-PV space, with Nexon EV as its most popular product and Harrier EV and Sierra EV slated for launch in CY25, coupled with the debut of Altroz & Punch CNG (twin cylinder) in Auto Expo. JLR is also set to embrace the EV trend with Jaguar going all-electric by 2025," it said.

HDFC Securities
HDFC Securities has a reduce rating on Tata Motors with a target price of Rs 415, which shows a downside of 7% from the current market prices.

"Although headline numbers at JLR suggest a margin beat relative to expectations, the beat is led by higher capitalised costs. Also, the decline in gross margin QoQ despite the best-ever mix has been a negative surprise. In India, while CV business performance has been impressive, PV business margin has been in line and Tata Motors Finance has again disappointed," it said.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)