Tata Motors share cost target : PV or CV, which business might make more esteem?

 Nomura India indicated on Tuesday that the demerger of Tata Motors Ltd (TTMT) into commercial vehicle (CV) and passenger vehicle (PV) businesses might not immediately alter the Street’s valuation approach. This stance is grounded in the observation that the India CVs, JLR, and PVs segments are currently well-managed and boast comprehensive disclosures.

Nevertheless, Nomura anticipates that in the medium term, the separated entities should enjoy increased autonomy to pursue their respective strategies. Particularly, Nomura expresses confidence in Tata Motors' PV business, foreseeing significant value creation potential in the coming years. The PV segment has undergone a notable resurgence since 2020, with market share climbing from mid-single digits to 13.5 percent as of 9MFY24. This revival, Nomura suggests, is attributed to Tata Motors' emphasis on safety, appealing design, and feature-rich vehicles. The brokerage previously anticipated Tata Motors to potentially claim two models among the top 3 SUVs in India.

According to the foreign brokerage, Tata Motors aims to position itself as the second-largest PV player in India by FY25-26F. While acknowledging Hyundai Motor India's contemplation of an IPO in India valuing between $22-28 billion, Nomura points out Hyundai's considerably higher margins. Nomura maintains an unchanged target price of Rs 1,057 for Tata Motors at present. Furthermore, Nomura highlights Tata Motors' leading role in driving electric vehicle (EV) penetration in India, currently commanding over 70 percent market share in the EV segment and intending to expand its EV portfolio to 10 models by FY26. Tata Motors also aspires to derive 50 percent of its volumes from EVs by 2030, a move that could significantly enhance company value if successful.

While Tata Motors' PV business Ebitda margins currently stand at 6.5 percent, ICE margins have already seen improvement to 9.4 percent in Q3FY24. However, negative EV margins (negative 8.2 percent in Q3) have weighed down the overall margin.

Nomura anticipates a gradual improvement in EV margins over time, largely attributed to declining product development costs. Additionally, the CV business is poised for potential re-rating driven by bolstered market share and profitability. Nomura also highlights the prospective upside from success in e-Buses and e-LCVs, segments currently not assigned any value.



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