TATA Motors share price increases by 7% to a record high; should you buy?

Tata Motors had an impressive start on Monday, with its share price surging over 7% and reaching a new 52-week high. This upward momentum was fueled by the company's robust Q3 performance, which boasted a remarkable twofold increase in its consolidated net profit. On the BSE, Tata Motors shares experienced a substantial gain, climbing up to ₹942.00 per share, reflecting the market's positive response to the encouraging financial results.

In the third quarter of FY24, Tata Motors reported a net profit of ₹7,025 crore, marking a robust growth of 137.5% compared to ₹2,957.71 crore in the corresponding period of the previous year. The impressive financial performance was attributed to robust demand for both passenger and commercial vehicles, along with the impact of price hikes and a favorable product mix.

In Q3FY24, the company witnessed a significant 24.9% increase in revenue, reaching ₹110,577 crore compared to ₹88,489 crore in the previous year. Notably, the revenue generated by the British luxury car unit, Jaguar Land Rover (JLR), experienced a substantial YoY surge, climbing from ₹58,863 crore to ₹76,665 crore.

In the December quarter, the operational performance showed improvement with a 42.5% year-on-year increase in EBITDA, reaching ₹15,333 crore. Additionally, the EBITDA margin expanded by 171 basis points to 13.94%.

The global brokerage firm Jefferies has raised the FY24-26 EPS estimates for Tata Motors by 7-11%. The firm maintains a 'Buy' rating on the stock and has revised the target price to ₹1,100 per share.

Nomura noted that Tata Motors' Q3 Jaguar Land Rover (JLR) margins surpassed expectations, leading to a potential re-rating of the company. The firm anticipates that the success of electric vehicles (EVs) could be a key driver for the re-rating of JLR. Nomura has issued a 'Buy' recommendation for the stock, setting a target price of ₹1,057 per share.

On the other hand, Tata Motors' consolidated EBITDA fell 3% below Kotak Institutional Equities' estimates. However, JLR and the domestic commercial vehicle (CV) business EBITDA exceeded expectations due to favorable raw material trends and a more lucrative product mix. In contrast, the EBITDA for the domestic passenger vehicle (PV) business was affected by higher expenses related to product development for electric vehicles.

In general, the local brokerage firm anticipates a robust performance for FY2024-26E, driven by positive developments in the Jaguar Land Rover (JLR) business. This is expected to result from consistent demand patterns, increased market share in both the passenger vehicle (PV) and commercial vehicle (CV) segments, and the achievement of a net cash balance sheet by FY2025E.

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