Tata Motors rating: ‘Buy’. Rakesh Jhunjhunwala-owned stock may gain 15% more, debt reduction at play

By: |
June 16, 2021 11:30 AM

Ace investor Rakesh Jhunjhunwala owns a 1.3% stake in Tata Motors, his second-largest stock holding after Titan.

Rakesh JhunjhunwalaSince the beginning of the third quarter, when Rakesh Jhunjhunwala bought a stake in Tata Motors, the company’s stock has skyrocketed 256%. (Image: REUTERS)

Tata Motors share price may surge up to 15% in one year, helped by cyclical recovery in domestic and overseas markets, and its luxury unit Jaguar Land Rover’s focus on selling electric vehicles. Jaguar Land Rover has set the ball rolling to become a pure electric vehicle brand 2025 onwards. Motilal Oswal has a ‘buy’ rating on Tata Motors stock with a target price of Rs 405, implying a 15% upside from the current price of Rs 350. The stock has already surged 10% so far this month. Ace investor Rakesh Jhunjhunwala owns a 1.3% stake in Tata Motors, his second-largest stock holding after Titan.

Debt reduction

Jaguar Land Rover’s focus on electric vehicles, along with the cyclical recovery for Tata Motors’ domestic and international business would help the company reduce debt. It will improve cash position too.

Cyclical recovery taking shape

On the domestic front, Tata Motors has seen business being hit by the second wave severely. “Although Tata Motor’s India CV business is on a strong footing, the company may see stagnation in M&HCV volume recovery for now,” analysts at Motilal Oswal said. However, the strides made in the personal vehicle segment by Tata Motors have helped the company gain market share rapidly. Further, the overseas business is also on the cusp of cyclical recovery. The brokerage firm highlighted that Tata Motors has taken cost-cutting initiatives on both variable and fixed costs along with other cyclical and structural changes. “The convergence of the multiple factors could drive recovery in EBIT margins and leave scope for positive surprises on profitability,” Motilal Oswal said.

Plans to become purely electric car brand

The recently released Annual Report of Jaguar Land Rover unveils the ‘Reimagine’ strategy of the company where both the Jaguar and Land Rover brands would undergo transformation by electrification. The company plans to launch six new all-electric Land Rover models in the next five years and Jaguar would be completely reimagined as a purely electric brand from 2025. Jaguar highlighted that its ‘Reimagine’ and ‘Refocus’ projects would together deliver revenue of over GBP30 billion and double-digit EBIT margins by the financial year 2025-26. These would generate strong positive free cash flow from FY23 after an around GBP2.5 billion investment spend (annually) and a reduction in net debt, returning to a net cash position in FY25.

Big Bull’s second-largest bet

Big bull Rakesh Jhunjhunwala bought a 1.3% stake in the company last year for 4.27 crore equity shares. Since the beginning of the third quarter, when Rakesh Jhunjhunwala bought a stake in Tata Motors, the company’s stock has skyrocketed 256%. The value of big bull’s entire stake in Tata Motors stands at Rs 1,500 crore at the current market price. Tata Motors share price took a heavy beating last year in March when the covid induced market washout saw the stock tank to Rs 65 per share.

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