Morgan Stanley raises Tata Motors to overweight status, pushing the stock up 14%

Tata Motors Ltd’s shares jumped over 14% on Thursday, the biggest in eight months, after Morgan Stanley upgraded the stock to overweight and upped the target price by 50%.

Morgan Stanley has raised the stock’s target price to Rs448 per share from Rs298. Tata Motors DVR was also upgraded from equal weight to overweight, with a price target of Rs300 per share raised from Rs119.

WHY TATA MOTORS STOCK SURGED?

The Tata Motors stock was trading at its highest level since April 2018, indicating that various brokerages are bullish on the company’s future prospects.

Morgan Stanley, a brokerage firm, has improved Tata Motor’s rating and boosted the target price from Rs 298 to Rs 448. The overseas brokerage firm expects its Indian business to perform well, according to the company.

“With its lean cost structure, revamped model portfolio, and high leverage, we expect 2022/23 to be a great year for Indian automobiles and Tata’s Indian business,” the brokerage firm stated.

Tata Motors is expected to see the “highest operating and financial leverage gains,” according to Morgan Stanley. Shares of Indian automakers have recently rebounded after hitting multi-year lows, and Morgan Stanley believes that Tata Motors will see the “highest operating and financial leverage gains.”

In the meantime, Motilal Oswal Securities has a ‘buy’ recommendation on the Tata Motors stock, with a target price of Rs 400 per share. Tata Motors’ three businesses are all recovering, according to the brokerage firm.

According to the brokerage, the Indian commercial vehicle segment will experience cyclical recovery, while the PV segment will experience structural recovery, according to a study.

According to the brokerage, while Tata Motors’ Jaguar Land Rover (JLR) business is seeing a cyclical recovery, supply-side concerns may cause the process to be delayed. It did, however, predict that the company’s India operations will continue to recover at a faster pace.

Morgan Stanley Report

Tata Motors, Morgan Stanley predicts, will achieve the largest operating and financial leverage benefits as India’s auto cycle rebounds from multi-year lows. Gains in market share in India’s passenger vehicle (PV) and commercial vehicle (CV) industries might reposition the company from a global luxury player to a global and India player. “In our bull case, Tata Motors achieves zero net debt by 2024, while India PV and CV multiples approach peers, resulting in an 84 percent increase in the stock’s value.” According to the paper, “our base scenario forecasts Rs158 billion in net debt by FY24.”

It has a consolidated net debt of Rs409 billion in March, and it aims to be debt-free by FY24 (MSe at Rs158 bln). Internal accruals and selling of holdings in businesses like Tata Finance and Tata Technologies would be used to meet the aim. For the time being, the company’s goal of zero net debt appears optimistic, but it will be reassessed as free cash flows begin to improve in FY23, it added.

After eight years of losses, Morgan Stanely anticipates the Indian business to turn a profit in FY23, and by FY24, it expects the India division to account for 17 percent of the group’s earnings.

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