CLSA sees 40% upside in this Tata Group firm; should you invest?

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Shares of Tata Motors advanced over 2% in early trade on Thursday in a choppy session ahead of May series expiry. Global brokerage firm CLSA has retained a ‘Buy’ call on the auto major, citing JLR is set to outperform peers. The brokerage firm has set a target price of Rs 450 for Tata Motors, indicating an upside of nearly 40% from the current market price of Rs 321.60.

“Positive view on the company premised on strong free cash flow generation and deleveraging,” CLSA said.

Tata Motors-owned Jaguar Land Rover (JLR) on May 18 presented strong underlying profitability and cash flow for the three months to the end of March and “solid results” for the full financial year, reflecting a recovery from the impact of the Covid-19 pandemic on its business.

JLR’s pre-tax profit before exceptional charges increased significantly to GBP 534 million in the fourth quarter and GBP 662 million for the full year, reversing losses in the same periods a year ago which were impacted by the start of the pandemic.

“Non-China markets are leading growth on a lockdown-impacted base,” CLSA said.

Of late, Tata Motors on Tuesday reported a narrowing of consolidated net loss at Rs 7,585 crore for the fourth quarter ended March 31, 2021, aided by improved sales.

The company had posted a consolidated net loss of Rs 9,864 crore in the January-March period of 2019-20, Tata Motors said in a BSE filing.

The auto major’s total income in the fourth quarter stood at Rs 89,319 crore. It was at Rs 63,057 crore in the year-ago quarter.

HDFC Securities is also positive on Tata Motors with a price target of Rs 380. “Tata Motors continues to report an improvement in its operational performance as EBITDA margin for the standalone entity expanded 130 basis points QoQ to 8.7% and the JLR margin sustained above 15%. However, the results were impacted by a write-off of GBP 1.48 billion at JLR, related to a markdown of earlier project-related investments.”