Reduce Tata Motors; target of Rs 255: Prabhudas Lilladher

Prabhudas Lilladher recommended Reduce rating on Tata Motors with a target price of Rs 255 in its research report dated February 22, 2021.

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Prabhudas Lilladher’s research report on Tata Motors

Tata Motors (TTMT) hosted ‘Investors Day’ for the India business (Link for PPT). The management’s re-iterated key target areas over next 2-3 years are 1) continued market share gains both in PV and CV led by competitive launch, 2) double digit EBITDA in CV and high single digit EBITDA in next 3 years, 3) FCF break even by FY23 and 4) retaining leadership in EV business. We believe sharp focus on execution both in CV and PV business will help to drive strong operating performance in S/A business. Hence we build in strong margin recovery in S/A to ~9.2% by FY23E from ~3% in FY21E. However, concerns on JLR scale remain, for which detailed action plan will be known on JLR investor day i.e. on Friday.

Outlook

We raise consol EPS by ~6% to factor in better S/A cost control initiatives and maintain reduce on the stock with revised SoTP based TP of Rs255 (v/s Rs231). We value S/A at 11x (unchanged) & retain JLR multiple to 2x EV/EBITDA. The key upside risk is global car alliance boosting scalability issues as JLR volumes remain static at -1% CAGR over FY16-20.

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