Tata Motors is cheap. Possibly the cheapest large-cap auto stock on the Indian stock market today.
It trades at a trailing P/E of 8.9 and an EV/EBITDA of just 4.5.
And yet, no one’s rushing to load up.
This is a company with strong free cash flows, a net cash position, margin-accretive new launches, and India’s most ambitious EV roadmap. On paper, it checks nearly all the boxes investors love. Still, the stock trades at just under 9x FY25 earnings and barely 7x FY26 estimates.
So, what gives?
Strong Fundamentals, Mixed Feelings
Let’s start with the basics. FY25 was Tata Motors’ best year yet. Group consolidated profit before tax rose to over Rs 34,000 crore. Free cash flows crossed Rs 22,000 crore for the year, and automotive debt turned into a net cash position. Capital employed improved across all verticals—commercial vehicles, passenger vehicles, and JLR.
The Indian business is humming. Tata’s PV arm crossed 1 million cumulative EV sales and maintained double-digit EBITDA margins. CVs delivered healthy profitability even as volume growth normalized. The company expects margin expansion of another 200–300 basis points over the next three years as mix shifts further towards premium products, exports improve and operating leverage kicks in.
And yet, despite the financial comfort, the valuation remains stuck in second gear.
The JLR Overhang
At the centre of this disconnect is Jaguar Land Rover (JLR), the British luxury carmaker that Tata Motors acquired in 2008. JLR was once the crown jewel, then a burden and now it’s just stuck in limbo.
Its FY25 performance was not terrible, wholesales were up 25% year-on-year, EBIT margin was 8.5% and the cash position turned positive. The Defender and Range Rover family remain strong sellers and enjoy healthy order books.
But China is proving difficult.
Dealer insolvencies and overstocking led to volume declines and a slowdown in retail traction. Sales in China dropped 30% year-on-year in Q4FY25, and JLR had to rejig its distribution strategy.
So now, instead of focussing on market share, the automaker is emphasizing on retail health and brand pricing. While that may be good for margins in the long run, it risks losing ground in a competitive market.
Adding to concerns, management has lowered JLR’s EBIT margin guidance for FY26 to 5–7%, down from the earlier 10% target and below the 8.5% delivered in FY25. This also entails a cut in revenue expectations, from over GBP 30 billion earlier to about GBP 28 billion now. Working capital is expected to be adverse through FY26, and free cash flow guidance has been slashed from GBP 1.8 billion to nil.
While JLR is targeting GBP 1.4 billion in annual cost savings from FY27 through various enterprise efficiency programs, those benefits will take time. For now, the outlook has softened.
JLR also faces pressure on BEV (battery electric vehicle) adoption. The all-electric Range Rover is expected to debut by the end of 2025 with global deliveries starting in 2026. But delays and a slower-than-expected shift to EVs globally could hamper its premium strategy. Jaguar’s transformation into an all-electric luxury brand is now set for FY26, but execution risks remain.
All of this has a bearing on margins. Variable marketing expenses rose in Q4FY25, offsetting some of the benefits from cost controls. Management expects margins to remain in the 8–10% band for now, with free cash flows moderating in FY26 before bouncing back.
And this moderation is important because JLR still accounts for a significant share of Tata Motors’ consolidated profits. If it stumbles, even temporarily, it affects the overall picture.
Domestic Brilliance
The Indian business continues to shine.
In commercial vehicles, Tata Motors enjoys a market share of around 37%. Going forward, it expects moderate volume growth but significant profit expansion. Realizations have improved across segments, on the back of richer product mix and premium variants. EBITDA margins crossed 11.8% in FY25, and management is targeting 14–15% over the medium term.
In passenger vehicles, Tata has made strides, turning into a serious player. With a market share of around 13% today, the company aims to hit 18–20% by FY30. SUVs continue to lead the charge and Tata plans to launch multiple new nameplates, including the Sierra, Curvv, and Harrier.ev over the next two years.
Its EV roadmap is aggressive and multi-layered. The company plans to launch 10 EV models by FY30 and expects EVs to contribute 25% of PV revenues by then. Gross margins for EVs are already at double-digit levels and are expected to improve further with scale and local sourcing. The electric Punch and Nexon have become segment leaders, and upcoming models will be built on the new acti.ev architecture.
CNG and flex-fuel variants are also being added across the lineup, giving Tata the most diversified fuel portfolio among its peers.
Beyond vehicles, Tata is monetizing related businesses. The servicing and spares business is being scaled, digital retail platforms are being launched, and the company is actively exploring software-defined vehicle platforms to improve monetization per customer.
Demerger: A Trigger in the Waiting?
One structural change that could unlock value is the ongoing demerger of Tata Motors into two distinct entities: one housing the CV and JLR businesses, and the other focused on PVs and EVs. The appointed date is July 1, 2025, and the effective date is expected by October.
This could solve one of Tata Motors’ biggest valuation problems, complexity.
By splitting into simpler verticals with clearer strategies, each business can attract the right set of investors.
The market hasn’t priced in much for this demerger yet. If it proceeds smoothly, it could serve as a near-term catalyst.
So, Why the Discount?
For all its strengths, Tata Motors remains a stock with baggage.
JLR’s China woes and delayed EV transition are not over. The global luxury car market is under pressure, and the success of new BEV launches is far from guaranteed.
Back home, even though CV and PV businesses are doing well, the growth isn’t exactly exponential. CV volumes are moderating, and the margin expansion story is already baked into estimates. In PVs, competition is heating up—especially with new launches from Hyundai, Mahindra, and Maruti in the SUV and EV space.
There is a good chance free cash flow will be hit in FY26 due to increased capex and lower margins at JLR. Consolidated FCF yield could drop to just 0.6% before bouncing back in FY27. Return on capital employed (ROCE), while improving, is still in the mid-teens and well below other auto peers.
More importantly, the stock lacks a clear near-term trigger.
No IPO. No new global JV. No sudden spurt in volumes. Just good old execution; slow, steady, and unexciting.
Final Word
Tata Motors isn’t broken. But it isn’t quite the screaming buy that its P/E ratio suggests either. Or is it?
This is one of those stories that look better with a longer-term lens. The automaker ticks many of the right boxes: a clean balance sheet, improving margins, a strong domestic franchise, and a bold EV roadmap. Tata’s growing presence in SUVs and CNG-powered cars has helped it gain share in key segments. In commercial vehicles, a recovery in replacement demand, especially in medium and heavy trucks, is adding tailwinds as construction activity gathers pace.
Yet, the market remains hesitant, focussed instead on near-term hiccups like JLR’s China reset, softer margin guidance, and a temporary dip in free cash flow.
And that’s the gap.
At current valuations, JLR is being priced well below its historical multiples, even as new electric models and cost-efficiency plans are being rolled out. Meanwhile, the domestic businesses are firing on most cylinders. If the EV scale-up holds, margins improve and the demerger delivers a clean break, Tata Motors could quietly transform from a value stock into a growth story.
It may not look like a screaming buy now. But if execution holds, it might just end up being one in hindsight.
Disclaimer:
Note: We have relied on data from www.Screener.in throughout this article. Only in cases where the data was not available, have we used an alternate, but widely used and accepted source of information.
The purpose of this article is only to share interesting charts, data points and thought-provoking opinions. It is NOT a recommendation. If you wish to consider an investment, you are strongly advised to consult your advisor. This article is strictly for educative purposes only.
Manvi Aggarwal has been tracking the stock markets for nearly two decades. She spent about eight years as a financial analyst at a value-style fund, managing money for international investors. That’s where she honed her expertise in deep-dive research, looking beyond the obvious to spot value where others didn’t. Now, she brings that same sharp eye to uncovering overlooked and misunderstood investment opportunities in Indian equities. As a columnist for LiveMint and Equitymaster, she breaks down complex financial trends into actionable insights for investors.
Disclosure: The writer and his dependents do not hold the stocks discussed in this article. The website managers, its employee(s) and contributors/writers/authors of articles have or may have an outstanding buy or sell position or holding in the securities, options on securities or other related investments of issuers and/or companies discussed therein. The content of the articles and the interpretation of data are solely the personal views of the contributors/ writers/authors. Investors must make their own investment decisions based on their specific objectives, resources and only after consulting such independent advisors as may be necessary.