Tata Motors share price falls as CLSA downgrades stock to sell, cuts target price by over 15%; here’s why

Tata Motors share price fell over 2.5 per cent to Rs 484.05 apiece in intraday deals on Tuesday, after the broking form CLSA downgraded and lowered Tata Motors’ target price.

Tata Motors, CLSA
The valuation is based on Rs 150 per share for its CV business, Rs 151 per share for JLR and Rs 99 per share for its domestic PV business, said CLSA.

Tata Motors share price fell over 2.5 per cent to Rs 484.05 apiece in intraday deals on Tuesday, after the broking form CLSA downgraded and lowered Tata Motors’ target price. The brokerage firm said that the domestic PV business of Tata Motors is ‘overvalued’ while JLR is behind in electrification. It has downgraded the stock to ‘sell’ from ‘buy’ earlier, and slashed its target price to Rs 408, a 15.7% downside from today’s low. “This is premised on a lower valuation for its domestic passenger vehicle (PV) business, below the recent valuation ascribed to it by a private equity fund, and on a lower valuation for Jaguar Land Rover (JLR) due to its slower electric vehicle ramp-up versus competitors,” CLSA said.

So far in the trade, a total of 9.68 lakh shares have traded on BSE, while 2 crore shares exchanged hands on NSE. In the last one month, Tata Motors share price has gained 4.5 per cent, and 41.07 per cent in six months. On a year-to-date (YTD) basis, it has rallied a massive 155.23 per cent. Earlier on Monday, Tata Motors stock price surged 3.4 per cent as the company reported a 50 per cent jump to 35,299 units in total passenger vehicle sales in December 2021.

The valuation is based on Rs 150 per share for its CV business, Rs 151 per share for JLR and Rs 99 per share for its domestic PV business, said CLSA. The brokerage firm expects sharp improvement in volume for JLR as chip shortage eases. JLR has over 1.25 lakh booking and very low inventory. CLSA believes that most of the growth in auto volume will likely come from electric vehicles and hybrids and JLR does not have any launches in battery EVs till 2024.

CLSA believes that Tata Motors’ domestic CV business is in a sweet spot, as it will post strong growth over the next three years. The brokerage firm has valued its CV business at $2.3 billion versus its valuation of $5.2 billion for Ashok Leyland. It has also forecast that Tata Motors’ net auto debt will decline sharply. “Tata Motors has committed to restricting investment in JLR, and given our view that profitability will improve at JLR, we forecast a sharp reduction in its net auto debt at the consolidated level, mainly from JLR’s operations.

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