Tata Motors shares gain 8% on Iveco synergy bets; Nomura, HSBC targets

Tata Motors Ltd (TMCV) shares gained 8 per cent in Thursday's trade despite Iveco's weak Q3 results. Nomura said the completion of the acquisition could pave the way for integration synergies, including cost efficiencies and sourcing advantages, supporting a gradual recovery in profitability over FY28-29.

Execution of cost optimisation initiatives and the pace of earnings recovery remain key monitorables, the foreign brokerage said. By 10 am, the TMCV stock had risen 8.34 per cent to hit a high of Rs 436.40 apicee.

"Based on our assessment, the acquisition of Iveco will be funded through debt and internal accruals and the company does not need to raise equity. We still value TMCV based on an SOTP approach. We derive our target of Rs 511, valuing the India CV business at an EV/EBITDA of 11x on average FY28-29F EBITDA (within our expected band of 10-15x) and maintain Iveco target multiple at 4x EV/EBIT (on CY28F)," Nomura said.

HSBC retained 'Buy' rating on TMCV with a target price of Rs 500. The 12-month consensus target, based on 25 recommendations, stood at Rs 503 apiece, implying a potential upside of 17.4 per cent, Bloomberg data suggests. UBS has the highest target on TMCV at Rs 645, while MOFSL's target of Rs 416 is the lowest on the Street.

Nomura said European truck demand remained largely stable across segments. Iveco continued to sustain its leadership position in truck chassis-cab configurations while strengthening its presence in the upper end of the LCV segment, it said.

In buses, the company sustained its strong presence in the European e-bus market, as well as across city and intercity applications.

While demand for LCVs remains subdued amid macro uncertainties, the management expects profitability to improve in Q4CY2006, with Industrial segment's free cash flow also expected to remain strong, supported by the usual seasonal pick-up, Nomura said.

"We still value TMCV based on an SOTP approach. We derive our target of Rs 511, valuing the India CV business at an EV/Ebitda of 11 times on average FY28-29F Ebitda (within our expected band of 10-15x) and maintain Iveco target multiple at 4x EV/EBIT (on CY28F)," it said.