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Global financial investment and advisory firm CLSA has downgraded Tata Motors from Buy to Sell.
“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 (EV) ramp-up versus competitors,” said CLSA.
Price target ₹408
It has revised the price target downward to ₹408 target (previously ₹450). “Our valuation is based on Rs150/share for its CV business, ₹151/share for JLR and ₹99/share for its domestic PV business,” CLSA added. Shares of Tata Motors declined 1.61 per cent at ₹489.75 on the BSE, after hitting as low as ₹484.05 during the intra-day.
CLSA said it differs from the street on the valuation of the domestic PV business of Tata Motors. “We believe the valuation of c.$9.1 billion ascribed to it by a private equity fund for Tata Motors’ EV business is too high. We value Tata Motors’ PV business at $5 billion assuming Tata Motors’market share in the domestic PV segment increases from 12 per cent in FY22 to 16 per cent by FY50, and profitability remain elevated till FY50.”
The global brokerage firm said: “We value Maruti Suzuki’s passenger car business at an enterprise value (EV) of $20 billion with a market share of 44 per cent while ascribing an EV of $5.8 billion to Tata Motors’ passenger car business, which has an inferior cash flow profile to Maruti Suzuki.”
CLSA expects sharp improvement in volume for JLR (20 per cent CAGR over FY2022-24) versus its expectations of a mid-teen volume CAGR in global automotive demand as chip shortages ease.
CV - in a sweet spot
According to CLSA, domestic commercial vehicle business of Tata Motors will post strong growth over the next three years and it expects the company to gain market share. “We value its CV business at $9.3 billion versus our valuation of $5.9 billion for Ashok Leyland.”
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,” it added.
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