Buy Tata Motors shares; stock valuation least demanding among OEMs: Emkay

Emkay Global has upgraded Tata Motors Ltd to 'Buy' from 'Add' earlier, as it feels the Tata group stock's valuation is least demanding among auto original equipment manufacturers (OEMs), following an 18 per cent slide from recent high. The stock has corrected 18 per cent from its 52-week of Rs 1,179.05 amid an outlook downgrade at peer BMW due to muted China demand and slowdown in domestic commercial and passenger vehicle demand as seen in the rising discounts and price cuts.

Emkay Global said China is a relatively smaller market for Jaguar Land Rover (JLR) at about 24 per cent  against BMW's 32 per cent. Profitability and debt outlook are largely intact, it said.

"India CV outlook is improving, with margins likely to see strong increase led by healthy fleet operator profitability, sustained pricing discipline; new launches, lower inventory would help outperformance vs a weak PV industry. Tata Motors balance sheet is healthier now, with valuations least demanding among OEMs," it said.

Emkay Global suggested an unchanged target price of Rs 1,175 on the stock. The target suggested a potential 22 per cent upside over the prevailing price. 

The underlying metrics for the domestic PV industry continue to worsen amid slowing retails,
rising inventory, and increasing discounts. Emkay Global said its channel checks point to further weakness in outlook beyond the upcoming festive period. 

"While TTMT would also be impacted by the overall sluggishness, we believe new launches incl. Curvv (forms 10 per cent of dealer volumes in some markets, as per checks) and relatively lower inventories would help it post better-than-industry performance (we build in 6% volume CAGR over FY24-27E)," the domestic brokerage said.

BMW recently downgraded outlook on 2024 deliveries and profitability amid supply issues at a vendor and muted demand in China. Emkay Global noted that JLR's commentary on China has been relatively stronger. 

It said JLRR’s electrification push would intensify from next year amid introduction of the electric Range Rover with a waitlist of 38,000 units and the upcoming all-electric transition of Jaguar. 

"While the overall growth expectations are modest, we expect profitability to sustain, driven by mix and cost actions with the deleveraging journey also on track (net debt free in FY25E)," Emkay Global said.