Tata Motors Stock Analysis: CLSA Upgrade and Potential Upside

Key Highlights: CLSA Upgrade: CLSA has upgraded Tata Motors to "High Conviction Outperform," setting a target price of Rs 930, implying a 36.3% upside from the current market price. JLR Undervaluation: JLR is currently trading at 1.2x FY27 EV/EBITDA, significantly below its normative multiple of 2.5x. CLSA's sum-of-the-parts analysis values JLR at Rs 450 per share, compared to the current implied value of approximately Rs 320. This undervaluation provides a margin of safety against risks like US tariff hikes and weaker demand. Commercial Vehicle Recovery: CLSA anticipates a cyclical recovery in the medium and heavy commercial vehicle segment from FY27, which is expected to positively impact valuations in the coming quarters. Q3 FY25 Performance: Tata Motors reported a 22% YoY drop in consolidated net profit to Rs 5,451 crore in Q3 FY25, missing analyst estimates. This was attributed to weaker margins and subdued JLR volumes. However, revenue from operations saw a modest 2.7% YoY increase. JLR Performance: JLR's revenue declined 4.3% YoY to Rs 12,354 crore in Q3 FY25. Despite this, EBITDA margin improved by 120 basis points to 7.8% due to cost-cutting measures and PLI incentives. EV Sales: EV sales in the personal segment increased 19% YoY, while fleet sales were impacted by the expiry of FAME II subsidies. Outlook: Tata Motors expects demand to gradually improve, supported by infrastructure investments, new product launches, and stable interest rates. JLR's wholesale volumes are projected to improve further in Q4, though the company remains cautious about demand trends, particularly in China.