Tata Motors: BNP Paribas retains 'Outperform' despite margin pressures; cuts target price to Rs 765

BNP Paribas has maintained its 'Outperform' rating on Tata Motors Ltd while trimming its 12-month target price by 4 per cent to Rs 765, implying a 17 per cent upside from Monday's closing price of Rs 653.80. The brokerage cited near-term profitability challenges in the passenger vehicle (PV) segment and at Jaguar Land Rover (JLR), partially offset by a recovery in the commercial vehicle (CV) business.

For Q1 FY26, the carmaker's consolidated revenue of Rs 1.04 lakh crore, higher than BNP Paribas' estimates on the back of better product mix and realisations at JLR. However, EBITDA margin fell to 9.3 per cent (BNP estimate: 10.5 per cent), impacted by lower operating leverage and a higher tariff rate for JLR's US shipments. Net profit came in at Rs 3,980 crore, lower than BNP's estimates of Rs 4,260 crore.

BNP Paribas highlighted that JLR's margin was hit by a 380 basis points (bps) tariff impact in Q1, though part of this is expected to reverse in coming quarters. The automaker anticipates tariffs to hurt JLR's FY26 profitability by £400–500 million. Meanwhile, PV margins declined sharply quarter-on-quarter (QoQ) due to higher discounting, model transitions and softer demand in key markets.

On a positive note, the CV business showed resilience, with margins holding at 13.1 per cent and signs of demand improvement. BNP expects domestic CV volumes to grow in the mid-single digits this fiscal, aided by a better sales mix and cost control.

While trimming its FY26–28 earnings estimates due to weaker PV and JLR profitability, BNP Paribas sees Tata Motors' recent stock price correction as having "more than priced in" the risks. The brokerage continues to view attractive valuations and free cash flow yield as supportive of the investment case, especially with JLR's luxury EV rollout from 2026 and an anticipated CV upcycle.

BNP's key risks include weaker-than-expected demand recovery, prolonged tariff headwinds and intensified competition in EVs, while upside could come from stronger JLR model traction and a sustained CV market rebound.