We believe Tata is in the early phase of a multi-year turnaround led by confluence of improved strategy and cyclical recovery. Indian truck and PV demand is recovering from the worst slowdown in decades, and Tata is gaining share. JLR is improving sequentially as chip shortages ease, and ramp-up of next-gen RR/RR-Sport should provide a boost. An early lead in India EVs offers big option value. Tata is our top auto pick; India business forms 67% of our Rs 625 PT.
PV market share at 9-year-high; #2 in SUVs in 3Q: Tata’s passenger vehicle (PV) market share has risen from 5% in FY20 to 12% in 9MFY22, a 9-year-high, led by focus on SUVs, improved product styling and better brand positioning. It was #2 player in SUVs in 3Q with 18% share. Its new sub-compact SUV, Punch, holds strong potential as it brings SUVs to a lower price range. Tata is now launching CNG fuel variants, which could further lift market share amid rising attractiveness of CNG vehicles. Indian PV demand is recovering too, and we expect strong 19% industry CAGR over FY22-24.
Better placed for next truck cycle: Tata lost 11ppt market share in trucks over FY12-18 as AL expanded its portfolio and dealer network while enjoying tax benefits at its Pantnagar plant. Tata reworked its strategy under a new CV business head starting 2017, focusing on sales engagement, dealer profitability and servicing. AL’s Pantnagar tax benefits, conversely, ended in March 2020. AL also had cheaper technology for BS4 emission norms, but this advantage has likely faded with the new BS6 norms from April 2020. Tata’s truck share has risen to 55% in 9MFY22, a 6-year-high. Truck demand is improving from a severe downturn, and we expect 22% industry CAGR over FY22-24 with Tata better placed in this cycle.
Aggressive plans for India EVs: India is still in nascent stages of PV electrification with EVs forming just ~1% of the market. Tata has taken an early lead though with EVs contributing 6% of its India PV volumes. It intends to expand its portfolio from 2 EVs presently to 10 by FY26, and the recent investment by TPG provides it the balance sheet strength to drive electrification.
Time to Buy: We believe Tata is in early phase of a multi-year turnaround. By FY24, we see EBITDA rising 96% from FY21, EPS exceeding past peak, and net auto debt falling 81% from FY21. We cut FY22E EBITDA by 9% on lower JLR volumes but maintain FY23-24 estimates; we retain Buy with
625 PT. On FY24 basis, we see value of700. The India business was a drag last decade, but now forms 67% of our PT.