Shares of Tata Motors climbed nearly 5 per cent on Friday, after analysts reiterated their bullish stance after the company’s ‘strong’ Q2 financial performance. The auto major reported a consolidated net profit of ₹3,783 crore for the September quarter, driven mainly by the robust performance of its British arm Jaguar Land Rover, as against loss of ₹1,004 crore posted in the year-ago period.

The stock surged to a high of ₹665.45 on the BSE in early deal, but surrendered some gains to close ₹647.80, up 1.73 per cent over the previous day’s close.

Total consolidated revenue from operations stood at ₹1,05,128 crore (₹79,611 crore), Tata Motors said in a post-market filing on Thursday. On a standalone basis, the company reported a net profit of ₹1,270 crore (₹293 crore).

Jaguar Land Rover (JLR) reported a revenue of £6.9 billion in the second quarter, up 30 per cent year-on-year, driven by higher wholesales, better mix, cost reductions and investment in demand generation.

While manintainig bullish stance, most analysts hiked target price for the stock, expecting strong growth from Tata Motors.

Margin beat

Prabhudas Lilladher increased its FY24/25/26 EBITDA estimates by 7/4/4 per cent, to factor in the company’s updated margin guidance and Q2 performance. “Though Tata Motors’ consolidated revenue was below our and consensus estimates (by about 3 per cent), margin beat at CV and PV helped report in-line absolute EBITDA,” said Prabhudas Lilladher. JLR has increased its FY24 EBIT margin guidance from less than 6 per cent to nearly 8 per cent.

“We maintain our positive stance on TTMT given: JLR’s volume ramp-up resulting in strong revenue, profitability and FCF; domestic CV benefitting from underlying economic strength, operating leverage, benign input costs and lower discounts; and focus on market share in PV segment (13.4 per cent in H1FY24 vs 8 per cent in FY21) led by model launches and rising EV penetration. Retain ‘Buy’ with SoTP based TP of ₹785 (earlier ₹760).

While foreign brokerages such as Jefferies and CLSA set the target price ₹800 and ₹803, Nomura and Morgan Stanely retained thier bullish stance with a target price of ₹786 and ₹711 respectively.

Healthy recovery

Another domestic brokerage, Motilal Oswal said Tata Motors should witness a healthy recovery as supply-side issues ease (for JLR) and commodity headwinds stabilise (for the India business). It will benefit from: the CV uptrend and stable growth in PVs, company-specific volume/margin drivers, and a sharp improvement in free cash flow as well as a reduction in net debt in both JLR and India businesses.

Dhruv Mudaraddi, Research Analyst, StoxBox, said, the company’s profitability is also expected to improve further owing to a richer mix, continued low-break-even in JLR, execution of demand-pull strategy in CVs, and the focus on margin improvement in PV/EV space.