Tata Surpass Maruti to Become the Most Valued Automaker in India

Tata Motors hit a market capitalization of INR 3.15 trillion on the BSE surpassing Maruti Suzuki’s INR 3.13 trillion, to become India’s most-valued automotive company after 7 years.

The stock of Tata Motors has increased 9.4% in the past month due to optimism surrounding the company’s successful sales and margin performance from its premium vehicle division, Jaguar Land Rover, located in the UK, as well as the achievement of its free cash flow targets.

In 2017, the market value of Tata Motors had reached INR 1.76 trillion, outpacing Maruti Suzuki’s INR 1.75 trillion. Maruti had gained a lead over Tata Motors in terms of market cap in 2015 ( INR 1.26281 trillion for Maruti versus INR 1.2608 trillion for Tata). While Tata Motors captured pole position again in 2017, it soon lost it and continued to trail Maruti in the subsequent years.

Brokerage JP Morgan re-rated the Tata Motors stock with a price target of Rs 925. It said in its report:

“Our constructive view on Tata Motors is driven by expectations of strong margin and free cash flow delivery at JLR, resilient market share and margins in India passenger vehicles driven by new platform launches, and balance sheet deleveraging which should reduce EPS (earnings per share) volatility and lead to a potential re-rating.”

Jaguar Land Rover reported a 27% year-on-year growth in its Q4FY24 wholesales at 101,043 units, and 29% retail pick-up year-on-year, with deliveries in the UK up 55%, China at 28%, Europe at 27% and North America at 6% on a yearly basis. Moreover, most of its deliveries comprised high-margin models including the Range Rover, Range Rover Sport, and Defender, accounting for over 62% of its sales in the December quarter.

Analysts expect higher sales and a favorable mix of products encompassing sales at Tata Motor’s JLR business to deliver better-operating margins in its upcoming third-quarter earnings, set to be announced on 2nd February. A note by equity brokerage and research firm Elara Capital said:

“We expect JLR Ebit margin of nearly 8% in Q3FY24 from 7.3% in Q2FY24 led by higher volumes and improved mix. Our FY24 JLR volume assumptions are at 401,000 units.”

Tata Motors’ group chief financial officer PB Balaji has said Jaguar Land Rover expects a free cash flow of 2 billion GBP for the ongoing fiscal, out of which it has already achieved 750 million GBP free cash flow in the first half of FY24. The automotive giant also benefited from the stake it sold in Tata Technologies via its initial public offer (IPO), leveraging the cash inflow to pare its debt. The JP Morgan report added:

“India business should also witness significant debt reduction in 3Q driven by organic FCF (Rs1,000-1,500 crore) and stake sale in Tata Technologies.”

Tata Motors expects it will grow its electric vehicle (EV) sales by 40% in 2024, compared to last year, when it sold 69,000 EVs, led by three new products built on an all-new, and Tata Motors’ first pure-electric architecture acti.ev. The carmaker launched the Punch EV, a pure-electric version of its popular micro-SUV Punch, at a starting price of INR 11 lac. Tata Motors will launch a clutch of ‘gen-two’ products on its acti.ev platform, including the Curvv, Harrier, Altroz and Sierra EVs, followed by the launch of its premium line of EVs based on a ‘gen-three’ premium electric platform Avinya, which will be based on a common platform between Tata Motors and Jaguar Land Rover.