Tata Motors shares: BNP Paribas recommends 'Outperform' call, sees 23% upside potential

BNP Paribas Securities has maintained its 'Outperform' rating on Tata Motors Ltd, with a target price of Rs 830 — implying a potential upside of 22.76 per cent from Friday's closing price of Rs 676.10.

The brokerage highlighted Tata Motors' strategic developments, particularly in its Jaguar Land Rover (JLR) segment, which is pivoting to become a modern luxury brand.

"Investment case JLR is now pivoting to become a modern luxury brand. We think the strategy, if successful, could offer upsides to our margin and FCF (Free Cash Flow) expectations," BNP Paribas stated.

Tata Motors is also looking to increase its market share in passenger vehicles (PV) through various model launches and enhancements. The company is expanding its market for electric vehicles (EVs), which is seen as a major growth area.

BNP Paribas uses a blended valuation approach, factoring in JLR, the China JV, commercial vehicles (CV), PV and the India EV business. "Tata Motors has a diverse set of businesses that are at various stages of capex and have different accounting policies than peers," BNP Paribas explained.

It has benchmarked JLR's valuation against that of BMW and Mercedes Benz, with the China JV compared to Brilliance China Automotive. For the CV segment, the benchmarks are similar to those of Ashok Leyland (AL).

Tata Motors also faces several risks, both upside and downside. "Risks To the upside - Key upside risks to our SoTP-based target price include: Strong customer acceptance of new JLR model launches," BNP Paribas detailed.

On the downside, risks include potential macroeconomic challenges such as trade wars and rising commodity prices. "Key downside risks to our SoTP-based target price include: A sharp increase in interest rates," BNP Paribas warned.

Despite these risks, Tata Motors remains an attractive investment due to its free cash flow yield relative to other Indian auto OEMs. The company's CV business is expected to benefit from an industry upcycle.

The ongoing global macroeconomic uncertainty remains a critical factor that BNP Paribas identifies as a near-term risk for Tata Motors, potentially affecting its strategic plans and financial performance.