Home / Markets / Stock Markets /  Tata Motors jumps 14% as Morgan Stanley upgrades stock to overweight

MUMBAI: Shares of Tata Motors Ltd on Thursday surged over 14%, the most in eight months, after brokerage firm Morgan Stanley upgraded the stock to overweight and raised target price by 50%.

On the BSE, the stock rose to Rs380.55 apiece, the highest since February 2018. At 0300pm, the scrip was at at 375, up 12% from its previous close.

The brokerage firm believes that the incremental upside surprise will come from its India business. “We expect 2022/23 to be strong for Indian autos and Tata's Indian business, and with its lean cost structure, refreshed model portfolio and high leverage," the brokerage firm said.

Morgan Stanley has increased its target price for the stock to Rs448 from Rs298 a share. Tata Motors DVR was also upgraded to overweight from equal weight and price target raised by Rs300 from Rs119 a share.

As India's auto cycle emerges from multi-year lows, Morgan Stanley believes, Tata Motors will see the highest operating and financial leverage gains. Market-share wins in India's passenger vehicle (PV) and commercial vehicle (CV) businesses could also re-rate the name from a global luxury play to a global and India play. “In our bull case, Tata Motors reaches zero net debt by 2024, while India PV and CV multiples go close to peers, driving 84% upside in the name. Our base case assumes Rs158 bn net debt by FY24," the report added.

As of March, Tata Motors had a consolidated net debt of Rs409 billion, and has targeted zero net debt by FY24 (MSe at Rs158 bln). The target will be met via internal accruals and divestment of stakes in subsidiaries like Tata Finance and Tata Technologies. For now, the company's target of zero net debt looks bullish but will be monitored as free cash flows start to turn positive in FY23, it added.

Morgan Stanely expects the Indian business to post profits in FY23 after eight years of losses, and by FY24 it estimates the India business will account for 17% of the group earnings.

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