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Recovery in commercial vehicle (CV) sales and gains in the passenger vehicles (PV) segment in the domestic market are boosting Tata Motors Ltd's prospects.

Not surprising, Tata Motors' stock prices have continued their up move. The stock hit fresh 52-week highs on Friday, having risen more than 35% since August lows. 

CV sales for Tata Motors have continued to improve with regular economic recovery and rising fleet utilization levels. With the monsoon season ending, further gains are likely with rising freight movement and better truck rentals.

The company’s CV sales during September improved by a strong 34% year-on-year. For Q2, CV sales have grown 57% year-on-year.

In the PV segment also, the company is making a mark helped by the rich portfolio with regular new launches and increasing electric vehicle portfolio. The company reported a 53% year-on-year growth in PV sales during the September quarter.

"As India's autocycle emerges from multi-year lows, we believe Tata Motors will see the highest operating and financial leverage gains," said analysts at Morgan Stanley Research in their note. Market-share wins in India's PV and CV businesses could also re-rate the name from a global luxury play to a global and India play, they added

The company is seeing strong market share gains too. The PV business market share stood at 10% during the first quarter of FY22, its highest since Q4FY16, say analysts. This is likely to lead to improved profitability of the segment too. "In FY23, the business will be moved to a separate low debt subsidiary; aggressive cost-cutting and leverage gains will drive PV business Ebitda margins to 8.5% by FY24 versus 2% in FY21," said analysts at Morgan Stanley.

The demand for cars and SUVs is expected to remain strong in the forthcoming festival season, though the supply situation for electronic components may continue to be challenging, said the company.

Chip shortages continue to pose challenges for all automobile manufacturers which also dragged their share prices. Tata Motors stock had tumbled more than 20 % from June highs till August lows on expectations of sales impact due to chip shortages. The company also had issued profit warning pertaining to Jaguar Land Rover, expecting an impact of chip shortage on its sales during Q1 and Q2.

JLR business still faces challenges posed by the semiconductor shortages. The risk, however, is well understood by the investors, say analysts who expect gains from this division hereon. The refreshed iconic Range Rover and RR Sport in FY23 and an order book of 110,000 should drive JLR to free-cash-flow positive, said analysts at Morgan Stanley.




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