Here’s why Tata Motors is red hot even when 82% of its business is still in the woods

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Here’s why Tata Motors is red hot even when 82% of its business is still in the woods
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  • Shares of Tata Motors rallied more than 10% on October 7 to hit a three year high of ₹368.25 per share on expectation of a strong business outlook.
  • Bullish views by brokerage firms with increase in target price has played out well for the stock in the recent time.
  • Growth prospects in the India business, electric vehicle segment and gradual recovery in JLR business has doubled investors' money in Tata Motors’ stock in the last one year.
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Everyone seems excited about Tata Motors and the stock has rallied 10% yesterday, October 7 and 29% in the last one month.

This, despite the fact that its subsidiary, the international luxury brand Jaguar Land Rover (JLR) ⁠— which made for 82% of the company’s revenue at the end of June 2021 ⁠— is still struggling with tepid sales and sputtering production due to the chip shortage.

Here’s why Tata Motors is red hot even when 82% of its business is still in the woods
Flourish chart

For the last ten years, the shareholders of Tata Motors were frustrated holding its stock. But the losses of British subsidiary JLR and the Mumbai-based parent’s overwhelming debt over the last few years seem to have turned around in this new decade, despite the pandemic. “It (Tata Motors) is gaining market share in the PV segment whereas the JLR business is likely to show a strong recovery," Santosh Meena, head of research at Swastika Investmart, told Mint.

Morgan Stanley even expects Tata Motor’s Indian business to post profits by the end of March 2023, after 8 years of losses and in the following year, the India business may form close to 17% of the group’s earnings.

The optimism was not born overnight. Since the end of March 2019, the company has worked hard to increase its share in passenger vehicles from 7% to 10% at the end of June this year, in a market dominated by Maruti, Hyundai and its sister company Kia. Tata Altroz, Tata Tiago and Tata Nexon were some of the successful Tata models that drove this growth.
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Here’s why Tata Motors is red hot even when 82% of its business is still in the woods
Flourish chart

To brief you about what happened in the last one year, auto maker’s India business’ recovery was severely impacted by COVID. However, now the India CV business is on a strong footing and primed for strong cyclical recovery in both medium and heavy commercial vehicles (42% CAGR estimated over FY21-23) and light commercial vehicles (close to 21% CAGR), says a report by Motilal Oswal.

But that’s in the past. The sustenance of this growth in the future will depend on electric vehicles.

The good news for Tata’s believers is that EV sales in terms of units sold are up three-fold in the last 12 months. It r eportedly has a 70% market share among EV makers in India.

To put it into figures, Tata Motors sold 1,078 units of electric vehicles in September, up from a mere 308 units in September last year. Overall, it has sold 10,000 EVs in India so far, largely because of the success of the Nexon EV SUV. Currently it offers SUV Nexon and subcompact sedan Tigor in electrified form

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Jaguar Land Rover sales to improve gradually

JLR, on the other hand, is currently hamstrung by the chip shortage, which is expected to last beyond the end of 2021.

Hope floats that by the high-margin models, Range Rover and Range Rover Sport, get an upgrade, in 2023, the shortage will be behind and the company will rake in the profits. There are a lot of hopes pinned on the newly launched sports utility vehicle (SUV), Defender.

Growth prospects in the India business, electric vehicle segment and gradual recovery in JLR business has doubled investors' money in Tata Motors’ stock in the last one year.

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