The Tata Motors share price is in focus as the demerger takes effect. The brokerage firm, Jefferies has however turned cautious on Tata Motors. The brokerage house has assigned the auto giant an ‘Underperform’ rating and a target price of Rs 575 per share. This implies a downside potential of roughly 15% from current market levels.
As per the brokerage report, several headwinds, particularly around its global operations and strategic moves, could make the stock less attractive at present.
Let’s take a look at the key reasons why the brokerage house is cautious on this stock –
Jefferies on Tata Motors: De-merger of the Commercial Vehicle business on track
The brokerage report noted that the de-merger of Tata Motors commercial vehicle (CV) business is progressing as planned. “The effective date is October 1 and the record date is tentatively in mid-Oct, subject to final approval from the Registrar of Companies,” Jefferies highlighted.
Post de-merger, the stock will trade ex-CVs and be renamed Tata Motors Passenger Vehicles (TMPVL), while the CV business will list as Tata Motor (TML) around November. Jefferies believes the market may face initial volatility during the transition.
Jefferies on Tata Motors: Jaguar Land Rover still recovering from cyberattack
Jefferies is particularly concerned about the ongoing recovery at JLR following a recent cyberattack. The report stated, “Sales have restarted, spares and servicing are ramping up, and production is expected to start soon. The loss of almost a month of production has affected liquidity.”
The brokerage is cautious that global uncertainties and the slow JLR recovery could weigh on earnings.
Jefferies on Tata Motors: Passenger vehicle demand in India remains robust
Despite the global challenges, Tata Motors has seen a positive uptick in domestic bookings.
As per the company, “Tata Motors highlighted a strong uptick in PV bookings starting on 5 Sep, with the industry up ~20% YoY and Tata outpacing at ~25%.”
However, Jefferies expects second-half industry growth to moderate to around 7–8% and predicts a medium- to long-term CAGR of 6–8%, reflecting a shift in consumer preference toward compact SUVs, EVs, and CNG models.
Jefferies on Tata Motors: Optimism on commercial vehicles, but caution on margins
On the CV side, Jefferies sees some positives. Tata Motors noted that “a large proportion of its CV customers do not claim input tax credit (~80% in SCVs, ~60% in ILCVs, ~30-40% in heavy trucks) and should benefit from the GST cut.”
Lower GST on spares and consumables, coupled with higher freight rates, is expected to boost demand, and the brokerage recognises potential synergies from the Iveco acquisition.
However, the brokerage remains cautious. It noted, “We are positive on India PV demand, but we see challenges for JLR, including increased competition & consumption tax in China, higher warranty costs, and the BEV transition.”