Should you buy Tata Motors after June quarter results?

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Shares of Tata Motors at Rs 295.60 apiece higher by 0.84% a day after the company reported a consolidated net loss of Rs 4,450.92 crore for the quarter ended June as against a net loss of Rs 8,437.99 crore in the year-ago quarter. At the same time, its net revenue more than doubled to Rs 66,406 crore as against Rs 31,983.06 crore in a year-ago quarter.

The top-line growth was primarily due to a low base in the year-ago quarter, led by lockdowns in local and global markets to contain the spread of the Covid-19 pandemic.

On the operational front, auto majors in EBITDA (earnings before interest tax depreciation and amortization) margins came in at 8.3% improving 570 basis points. The operating margin expanded mainly due to better volumes, improved product mix, offset by commodity inflation and fixed costs in India operations.

While the company has reported a strong quarter. However, there are significant challenges on the supply side including semi-conductor issues and runaway commodity inflation. So given this how should you tread in the stock here what do brokerages have to say.

UBS | Rating: Neutral | Price target: Rs 320 | Upside: 8.5%

Citing semiconductor shortage UBS has trimmed its Jaguar Land Rover (JLR) growth expectations. Despite the Indian business reporting margins as per expectations, JLR margins were weak. The brokerage has reduced the price target to Rs 320 from its earlier target of Rs 350 per share.

Motilal Oswal | Rating: Buy | Price target: Rs 400 | Upside: 36%

Tata Motors (TTMT) faced a double whammy of closure in the India business and a chip shortage in the JLR business in 1QFY22. The operating performance beat was driven by a favourable mix in both businesses. Looking beyond the near-term issues, Motilal Oswal expects good traction in the JLR and India businesses.

The brokerage has cut its FY22E EPS (earnings per share) estimate by 77%, accounting for sales loss due to the ongoing semiconductor shortage, while it maintained the FY23E EPS estimate.

Sharekhan | Rating: Buy | Price target: Rs 430 | Upside: 46.7%

Tata Motors to benefit from improving macro-environment in India and globally, post normalisation of COVID Wave-2. The company is generating strong free cash flow, which will help it pursue its business plans and reduce high debts. Sharekhan expects the company to become earnings’ positive in FY2022E and a 37.7%YoY PAT growth in FY2023E, driven by a 16.7% revenue CAGR (compounded annual growth rate) during FY2021E-FY2023E and a 130 basis points improvement in EBITDA margin to 13.5% in FY23E from 12.2% in FY21.

Edelweiss | Rating: Buy | Price target: Rs 397 | Upside: 35.5%

Tata Motors continues to maintain a strong focus on balance sheet improvement. Covid and semiconductor shortages have delayed the materialisation of the same. As production normalises, tailwinds like a model cycle for JLR–RR launch in nine months followed by RRS–demand revival in CV and sharp cost reduction initiatives will drive strong free cash flow.

It’s pertinent to note that despite subdued volumes, operating cash flows were largely in line with capex requirements. There is no compromise on capex fund and Q1FY22 capex is tracking the annual capex guidance.

The brokerage firm has cut its EPS estimate by 17% for FY22 and 7% for FY23 as lower volumes postpones deleveraging.

(Disclaimer: The recommendations in this story are by the respective research and brokerage firm. Money9 & its management do not bear any responsibility for their investment advice. Please consult your investment advisor before investing.)