Tata Motors shares hit near two-year high on Jan sales, Budget infra push

shares touched a new high on Tuesday as investors lapped up positive developments including robust monthly sales volumes of January and an emphasis on infrastructure in the Budget. This, together with a strong operational performance of the consolidated entity including Jaguar Land Rover, drove company’s shares up 15.21 per cent to Rs 322.30, the highest since May 2018.

The Tata Group flagship’s total commercial vehicles sales in the domestic market shed 2 per cent to 30,764 units as compared 31,348 units in the same month a year ago. But its core Medium and Heavy Commercial Vehicles (MHCVs)—its cash cow, rose 22 per cent to 8416 units over the year ago after several months of decline. A small base of last year and a gradual pick up in the economic activity led to the increase. Even the company’s intermediary and light commercial vehicles, which advanced 29 per cent year-on-year, propped up overall volumes.

By virtue of being the market leader, selling one in every two trucks, will also be the key beneficiary of the huge fillip infrastructure projects have got in the Budget, say analysts. Finance Minister Nirmala Sitharaman announced a slew of measures, including setting up of a Development Finance Institution (DFI), allowing large-scale asset monetisation, and allocating the highest-ever capital expenditure of Rs 1.08 trillion for building highways. The total allocation for the highways sector is Rs 1.18 trillion, up 28 per cent from Rs 91,823 crore in 2020-21.

Meanwhile, Tata Motors’ passenger vehicles that have been reporting a steady uptick in volumes for over a year, jumping 94 per cent YoY to 26,978 units in January, the highest in several years on the back of good demand for all new-generation models.

Encouraged by the operational performance in the third quarter – both domestic business and JLR and the road ahead, most of the brokerages have upgraded estimates. The biggest surprise for the Street was significant (free cash flow) FCF generation (GBP 582 million in JLR; Rs2200 crore in India)

“We are revising up consolidated FY22/23E (profit after tax) 23 per cent/12 per cent. More importantly, our FCF assumptions undergo strong upgrades. We now expect JLR and India to be FCF positive in FY21 with strong accretion in FY22 and FY23. Maintain ‘BUY’ with a revised SOTP (some of the parts) based target price of Rs 366 (Rs 215 earlier) as we roll over to June 2022E,” wrote Chirag Shah and Jay Mehta, analysts at Edelweiss India Equity Research.

Others too have raised their estimates. “We are raising estimates over FY21-23 to factor in the improving outlook. The estimates for FY23E are revised upwards by 23 per cent,” wrote Adiya Makharia, analysts at HDFC Securities. Makharia has set a revised FY23 SOTP target price of Rs 315. “We value the India business at 11x EV/EBITDA and the JLR business at 2.5x EV/EBITDA (vs 2x earlier) to factor in the recovery and healthy margin profile,” he wrote.

The upgrades in estimates come on back of a steady run the stock has seen since the last few months. Since the beginning of this fiscal to till date, shares has zoomed 353.5 percent from Rs 71.05 a piece on March 31, 2020 to Rs 322.5 on February 2.

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