Tata Motors shares down 4% but InCred sees co as CV turnaround beneficiary

InCred Equities initiated coverage on Tata Motors Ltd with an 'ADD' rating, saying the stock stood to benefit from an emerging commercial vehicle cycle upturn, even as shares fell 4 per cent in trade. The brokerage said the recovery was likely to be led by small truck operators, aided by a GST rate cut and rising freight rates, which it expected to drive double-digit volume growth over the medium term.

The Tata Motors stock fell 4.45 per cent to hit a low of Rs 422.50 on BSE, only to recover some ground later. At 12.35 pm, it was down 3 per cent at Rs 428.95.  

“The commercial vehicle downcycle has largely played out over six quarters,” InCred said, referring to the period between April 2024 and July 2025. It added that the GST cut in September 2025 had “sharply improved the business economics of small transporters” by lowering costs for tyres, lubricants and spare parts. 

According to the brokerage, these savings are likely to improve cash flows and reduce vehicle payback periods under the reverse charge mechanism of the GST regime. It said easing interest rates and an improvement in the Index of Industrial Production were expected to sustain demand recovery through FY28.

InCred said Tata Motors was better placed to reverse market share losses, particularly in the sub-16 tonne truck segment, where the impact of the downturn had been more pronounced. “With demand revival likely to be driven by small and mid-sized transporters, Tata Motors’ wide product portfolio and strong brand recall provide scope for market share recovery,” the brokerage said.

On the proposed Iveco transaction, InCred said the leveraged buyout of the industrial division for €3.8 billion, valuing the business at around six times FY25 free cash flow, came as a surprise. While medium-term synergies and potential market share gains were viewed positively, it flagged near-term concerns around equity dilution, funding uncertainty and weak quarterly performance.

“There is limited near-term benefit for the Indian commercial vehicle market,” InCred said, noting that Iveco’s portfolio was skewed towards premium, high-tonnage trucks, buses and vans, which accounted for only about 10 per cent of the medium and heavy commercial vehicle market. The brokerage said it had not assigned any value to Iveco given the volatility and funding risks, though it estimated the deal could represent around 10 per cent of Tata Motors’ share price in CY26 in a best-case scenario.

InCred valued Tata Motors’ standalone commercial vehicle business at 12.5 times one-year forward Ebitda, applying a 12 per cent discount to Ashok Leyland, which resulted in a CV business value of Rs 489 per share. Subsidiaries were valued at Rs 25 per share after a 20 per cent holding company discount, largely driven by Tata Capital. Based on its sum-of-the-parts valuation, the brokerage set a target price of Rs 513, implying an upside of 16 per cent from current levels.

Risks included a delay in the turnaround of the Iveco industrial business and weaker-than-expected domestic truck demand, InCred said.