CLSA upgrades this Tata group stock despite over 40% fall from peak. Time to buy? | Stock Market News

Tata Motors has been under pressure for seven consecutive months, witnessing a significant stock correction due to concerns over demand for Jaguar Land Rover (JLR) and domestic commercial vehicles. However, global brokerage CLSA has upgraded its rating on the stock, citing favorable valuations and long-term growth prospects.

The brokerage has upgraded Tata Motors from ‘Outperform’ to ‘High-Conviction Outperform,’ with a target price of ₹930, indicating a potential upside of 36 per cent from current levels.

Why did CLSA upgrade Tata Motors?

CLSA highlighted that the Tata Group stock has corrected 40 per cent in the past six months, primarily due to weak demand projections for JLR across key global markets, along with sluggish growth in domestic heavy commercial and passenger vehicles for FY26. The brokerage firm also pointed out the potential risk of increased import tariffs in the US for European vehicles, which could further impact JLR’s sales in that market.

Despite these concerns, CLSA emphasised that Tata Motors’ current valuation remains attractive. The brokerage noted that JLR is trading at just 1.2 times the estimated FY27 EV/EBITDA, significantly below its normative multiple of 2.5 times. According to CLSA’s sum-of-the-parts (SOTP) valuation, JLR’s implied per-share value is ₹320, whereas the target valuation stands at ₹450 per share. This provides a significant cushion against potential tariff-related risks and weaker-than-expected demand and margins.

Additionally, CLSA expects the medium and heavy commercial vehicle segment to witness a cyclical revival from FY27, which could start reflecting in the stock’s performance over the next few quarters.

Stock Performance and Market Trend

Tata Motors’ stock has been on a downward trajectory, losing over 26 per cent in the last year. The weakness has extended into February, with the stock declining over 5 per cent so far this month. This marks the seventh consecutive month of losses since August 2024, during which the auto stock has eroded more than 41 per cent of investor wealth.

As of its previous close of ₹681.60, the stock is down over 42 per cent from its peak of ₹1,179.05, recorded in July 2024. Meanwhile, it is trading just 2 per cent above its 52-week low of ₹667, which was hit earlier this week.

Financial Performance in Q3FY25

Tata Motors reported a 22 per cent year-on-year decline in consolidated net profit for Q3FY25, coming in at ₹5,451 crore—below analyst expectations. The company’s earnings were weighed down by weaker margins and subdued JLR volumes, despite a sequential improvement in performance.

Revenue from operations increased by 2.7 per cent year-on-year to ₹1,13,575 crore, supported by a modest recovery in overall sales. However, the commercial vehicle segment faced a 4.3 per cent drop in revenue to ₹12,354 crore. Despite this, EBITDA margins improved by 120 basis points to 7.8 per cent, aided by cost-cutting initiatives and incentives under the Production-Linked Incentive (PLI) scheme.

The company’s electric vehicle (EV) business showed resilience, with sales in the personal segment rising 19 per cent year-on-year. However, fleet sales were impacted following the expiry of FAME II subsidies.

Commenting on the performance, PB Balaji, Group CFO of Tata Motors, stated that the company remains on track to deliver strong results for FY25 despite external headwinds.

JLR Outlook and Global Risks

JLR, Tata Motors’ luxury vehicle division, continues to face demand-related challenges in key markets such as China. The company is currently assessing the potential impact of former US President Donald Trump’s proposed tariff policies, which could lead to higher import duties on vehicles entering the US from Europe.

Despite these concerns, JLR delivered a robust quarter with record revenue of 7.5 billion pounds, up 1.5 per cent year-on-year. However, profit before taxes and exceptional items (PBT bei) stood at 523 million pounds, down by 103 million pounds compared to the previous quarter. Notably, this was JLR’s ninth consecutive profitable quarter, and the company maintains a cash balance of 3.5 billion pounds. Tata Motors stated that while JLR’s wholesale volumes are expected to improve in Q4FY25, the company remains cautious about the overall demand situation, particularly in China.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.