Broker's call: Tata Motors (Buy)

Target: ₹375

CMP: ₹328.10

In Q4-FY21, wholesale volume improvement is expected at 10-15 per cent q-o-q despite the impact of lockdown (38 per cent showrooms are now partially or fully closed). For the next five years, the outlook for SUVs (Land Rover models) and electric vehicles (new target segments of Land Rover and Jaguar) is stronger.

Jaguar's all-electric cars will be launched in 2025 and later. The company is also targeting double-digit EBIT margin by FY26. The new ‘Refocus’ programme will consolidate existing cost-reduction initiatives with new cross-functional activities. Margin drivers include better mix, material cost-reduction, headcount rationalisation, decline in warranty costs, focus on supply-chain efficiencies, lowering of production capacities by 25 per cent, asset write-offs leading to lower depreciation, and digitisation, among others. JLR will shift from existing six platforms to three new platforms. It expects free cash flows to be at break-even due to the reorganization costs of £500 million in FY22. We remain positive on expectations of a sales cycle recovery in JLR/India divisions, strong profitability growth on better scale/cost savings and deleveraging efforts through FCFs/divestments. We reaffirm Buy on Tata Motors with a target price of ₹375 (₹355 earlier). Luxury car demand contraction in target markets, failure of new launches, and adverse currency/commodity prices are key risks.