Elara Securities India: Automobiles - Tata Motors - Aggressive PV market share target - Company Update - Accumulate - TP: INR 1,100 - Upside: 11%

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Focus on improving profitability and market share

Tata Motors (TTMT IN) hosted its annual investor meet recently to highlight its strategic roadmap across the commercial vehicles (CV) & passenger vehicles (PV) segments and mobility solutions. Management says it is focused on improving profitability and market share.

Stable CV outlook

Despite reaching peak volume in FY19, sales of higher-tonnage vehicles have driven tonnage growth beyond previous levels. The company anticipates industry volume to be stable in FY25 while expects industry volume CAGR of 4-5% during FY24-29, with a freight traffic CAGR of 6-8% during the same period, fueled by government infrastructure initiatives, sustained GDP growth, and the scrappage policy. No major regulatory changes are likely to take place in the next 3-5 years, allowing product line maturation. TTMT expects demand-pull strategy to help attain strong double-digit margin and free cashflow (FCF).

Targets double-digit margin for the PV segment

Management aims for double-digit margin in the PV business, driven by higher operating leverage, improving product mix, and cost reduction initiatives. Its retail market share in FY24 stood at 13.9% and the company targets to achieve a 16% market share by FY27 and 18-20% by FY30, driven by increasing the addressable market to 80% from the current 53% led by new launches. Capex for ICE PV is set to continue at 6-8% of sales, and TTMT has an adequate capacity of 1mn+ units currently.

EV focus intact

TTMT continues to lead the ePV segment with a 73% market share in FY24 and it aims to retain the lead, driven by a bouquet of products across price points, superior technology and improved charging infrastructure. The EV business is set to be EBITDA breakeven by FY26, led by decrease in battery prices, localization of key components with the assistance of Tata Autocomp. The company expects EV penetration to reach 30% of its total portfolio by FY30 vs industry's 20%. It plans a capex of INR 160-180bn during FY25-30.

Valuation: retain Accumulate with a TP of INR 1,100

While CV profitability is likely to remain healthy, we continue to monitor volume in the near term as it has peaked compared to the FY19 levels. We are impressed by TTMT's robust EV portfolio, resulting in a better customer profile than ICE (~25% first-time buyers and ~22% female customers). We await details on JLR at its analyst meet on 19 June in the UK. TTMT would continue to benefit from deleveraging, given FCF generation in India and JLR. We retain Accumulate with a SOTP-based TP of INR 1,100. We value India CV at 11x June 2026E EV/ EBITDA; India PV (ICE+EV) at 15x June 2026E EV/ EBITDA and JLR at 2.5x June 2026E adj EV/ EBITDA.

Source : Equity Bulls

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