Aditya Makharia
VP- Equity Research, HDFC Securities

The company’s products are doing quite well. In the India car business, sales are over 20,000 units/month and at all-time high in terms of volume. Second, commercial vehicles are bouncing back because of the recovery in the market. Third, JLR is improving as the China market has bounced back. JLR is 70-75% of their revenue and due to the rollout of the vaccine in US and Europe, things are improving. JLR’s margin is back in double-digits and that business has started to contribute.

In India too, while cars were not the key contributor to revenue, it was loss making. Hence, profit from the truck business was being partially offset by that loss. Now, the car business has started breaking even and it has become Ebitda positive. The India car business’ contribution has increased and even in trucks, if you compare the sales of the past three months, you are seeing a good pick up in sales volume.

As far as the proposed restructuring is concerned, they have already formed a subsidiary for the car business in India. So, they will at some point find an investor and the company is targeting to become debt-free in three years. Therefore, the stock should do well.

Jigar Shah
CEO, Maybank Kim Eng Securities India

We have a ‘sell’ rating with a target price of Rs.160. Our thesis is that the stock has run up too much and if you look at the Q3FY21 result, which is good, the profit growth has mainly come from costs savings. So, despite sales being not so good for JLR, profitability moved up, which we believe cannot sustain for a long time. As the situation normalizes, the company will have to start spending again on research and development, as well as on selling, general and administrative expenses. This is where the main savings came from. In India, the recovery is still not so good. The car business has done well, but that's not their main business and trucks are still struggling. So, we are not very sure as to how it will pan out as cars do not contribute much to the overall earnings of Tata Motors.

The other matter of concern is debt which has gone to about 1x, purely on automotive debt basis. The other risk is the global shift to electric vehicles, especially in Europe and UK, where Tata Motors gets very large volume, probably more than 50%. So, Europe will, by and large move towards electric vehicles between 2030 and 2035, which will require JLR to incur huge capital expenditure due to that technology shift. So, generating free cash flow will not be very easy. Tata Motor’s EV/Ebitda of 6x FY22 estimated earnings is at a premium to European peers, and versus its long term EV/Ebitda of 4x is unjustified.