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Hold Tata Motors, target Rs 186: Edelweiss Securities

Recovery in China remains critical for strong margin revival.|
Updated: Jun 13, 2019, 12.01 PM IST
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The brokerage has set a one-year horizon for the stock to hit the target price.
Edelweiss Securities has given a hold recommendation on Tata Motors with a target price of Rs 186.

Shares of Tata Motors traded at Rs 165.15 around 11:45 am on 13 June, 2019. The brokerage has set a one-year horizon for the stock to hit the target price.

Highlights from Jaguar Land Rover’s (JLR) investor day held on June 5:

  • The company is institutionalising the cost reduction focus across functions with measurable targets. The brokerage sees JLR’s efforts similar to that seen in India over last 2 years.
  • Negativity on diesel engines could be ending in Europe.
  • Recovery in China remains critical for strong margin revival.
  • Focus on new product cycle remains strong.
  • With MLA platform, JLR is aiming for 16 nameplates in FY22 versus 13 in FY19; EVs to be an integral part of strategy.

"We perceive a cultural shift in the company’s approach to business, which is now more inclined towards profitable and cash accretive growth. We will continue to keep an eye on JLR’s FCF cycle. We perceive probability of management adopting a conservative approach and FCF surprising on the upside," said the brokergae.

New product cycle remains intact. Moving towards MLA architecture will not only reduce costs, but will also provide further flexibility.

Management indicated that by end 2020 all the models will have an electric option. FY20 to see ramp-up of I-Pace, new Evoque and Defender.

Management believes China remains the single biggest opportunity market over the long term. All efforts are being made to get a structural and sustainable business model for JV as well imports.

"We are enthused by JLR’s strong cost rationalisation focus. This will ensure that JLR is well placed to capitalise on demand revival given its commitment to more than GBP 3.5 billion capex. We maintain hold, valuing the India business at 7 times September 2020E Ebitda and JLR at 5.5 times Ebit. The stock is trading at FY20 and FY21 PE of 11.2 times and 6.8 times, respectively," said the brokerage.

Clarity on FCF generation will be the single most factor for stock performance, the brokerage added.

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Disclaimer: This recommendation is analyst's own and does not represent those of & Please consult your financial advisor before taking any position in the stock/s mentioned.

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