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This Rakesh Jhunjhunwala-led Tata stock has potential for upside ahead. 4 key trigger points

Tata Motors plans to become debt-free by FY24. Its free cash flow has shown signs of consistent improvement. (Bloomberg)Premium
Tata Motors plans to become debt-free by FY24. Its free cash flow has shown signs of consistent improvement. (Bloomberg)

  • In Q4FY22, Tata Motors posted a net loss of 1,033 crore for the quarter ending March 31, 2022 (Q4FY22) - steeply narrowing from a loss of 7,605 crore in the same period last year. Consolidated revenue dipped 11.5% yoy to 78,439 crore. 

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Auto giant, Tata Motors shares skyrocketed nearly 12% on Friday as investors took comfort in the company's narrowing of net loss to 1,033 crore in Q4FY22. Further, analysts are optimistic about this Tata Group-led company on the back of a strong demand outlook, impressive margin, and free cash flow targets.

On BSE, Tata Motors shares closed at 404.35 apiece up by 8.67%. The shares touched an intraday high of 415.75 apiece. Overall today, the shares have gained by at least 11.73%.

On the previous day, Tata Motors shares stood at 372.10 apiece.

In Q4FY22, Tata Motors posted a net loss of 1,033 crore for the quarter ending March 31, 2022 (Q4FY22) - steeply narrowing from a loss of 7,605 crore in the same period last year. Consolidated revenue dipped 11.5% yoy to 78,439 crore. EBITDA margin contracted by 320 basis points to 11.2% in the quarter.

Despite the decline in the top-line front, Tata Motors narrowing in loss lifted market sentiments. Also, the company continued to show recovery in its commercial vehicles business clocking a revenue of 18,529 crore up by 29.3% yoy - highest ever quarterly revenues since Q4FY19. Further, the passenger business also delivered a comprehensive turnaround with revenue at 10,491 crore in Q4FY22 increasing by a whopping 62% yoy - highest ever quarterly revenues. Notably, electric volumes rose to 9.1K units in Q4, and PV market share improved to 13.4% (+440bps).

Its luxury car firm, Jaguar Land Rover recorded revenue of £4.8 billion in Q4 FY22, up 1% from Q3 FY22, reflecting the higher wholesales offset partially by the impact of the runout of the previous generation Range Rover, with the New Range Rover still ramping up. The EBIT margin in the quarter was 2.0% with profit before tax about breakeven (£ 9 million) before a £ (43) million exceptional charge for their business in Russia. Free Cashflow improved to £340 million, up from £164 million in Q3.

Tata Motors plans to become debt-free by FY24. Its free cash flow has shown signs of consistent improvement.

In its outlook, Tata Motors said, "the demand remains strong despite geopolitical and inflation concerns. The supply situation is gradually improving, whereas commodity inflation is likely to remain at elevated levels. We expect performance to improve through the year as the China COVID and semiconductor supplies improve and aim to deliver strong EBIT improvement and free cash flows in FY 23 to get to near net auto debt-free by FY 2024."

Tata Motors shares have the potential for further upside going ahead. One investor, in particular, will gain hefty with Tata Motors' stellar performance on stock exchanges. That would be none other than the 'Big bull of Dalal Street' Rakesh Jhunjhunwala!

As of March 31, 2022, Jhunjhunwala holds 39,250,000 equity shares or 1.18% in Tata Motors. As per Trendlyne data, as of today, the ace investor's holding is valued at around 1,611 crore in the company. The data also shows that Tata Motors is among the top five stocks in Jhunjhunwala's portfolios in terms of value.

On Dalal Street, Tata Motors shares have advanced by more than 33% in a year. On May 14th last year, the shares were around 312 apiece level.

Jhunjhunwala picked Tata Motors shares in September 2020. Tata Motors shares have jumped by nearly 182% since September 2020.

Triggers to drive Tata Motors shares!

Shashank Kanodia and Raghvendra Goyal, Research Analysts at ICICI Direct has given a 'Buy' recommendation on Tata Motors shares after Q4 earnings. The analysts set a target price of 500 apiece on this Tata automobile flagship.

According to the duo, Tata Motors stock price has been flattish over the past five years (Rs430 levels in May 2017), underperforming the Nifty Auto index. They said, "We retain BUY on positive demand outlook, impressive margin & FCF targets for FY23E and intent to be net debt-free (automotive) by FY24E."

In terms of target price and valuation, the analysts said, " We now value TML at 500 on SOTP basis (10x, 3x FY24E EV/EBITDA on India, JLR; 160 value to Indian EV business; earlier TP 550)."

Further, these analysts highlighted four trigger points for future price performance in Tata Motors. These are:

Firstly, ICICI Direct analysts expect a healthy 13.2% revenue CAGR over FY22-24E backed by 15.8% total volume CAGR amid a strong order book at JLR (1.68 lakh units).

Secondly, cost control, efficiency improvement-led FCF generation targets for ongoing deleveraging push (FY22 net automotive debt at 48,700 crore).

Thirdly, continued EV alertness in India through concepts & real launches (PV market leader with Nexon; plans to introduce 10 models by 2025) and JLR (Jaguar all-electric by 2025; 6 BEVs in Land Rover in next five years).

Lastly, they said margin is seen at 14.3% in FY24E along with RoCE at ~13.7%.

Compared to Thursday's stock price level with ICICI Direct's target price, Tata Motors has a potential for over a 34% rise in stock ahead.

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