Tata Motors investor day: Ambitious, but achievable plan
New targets to enhance market share and improve financial performance.
Highlights
-
- Aims to improve performance across all segments in the domestic business
-
- Targets to achieve breakeven operating margin for the EV segments
-
- Aims to improve market share both in PV and CV segments
- PV demerger is in progress to unlock value
The last two fiscal years had been outstanding for Tata Motors (TML; CMP: Rs 994; Market cap: Rs 3.64 lakh crore; Rating: Overweight). It achieved the milestone of making the domestic business net debt-free. In its recent investor meeting on 11th June 2024, the company has set new targets to further enhance market presence and boost financial performance.
Key highlights
Continued focus on EVs
TML is the undisputed leader in India’s electric vehicle (EV) market, boasting a diverse range of products. Thanks to the strong performance, TML has captured a 73.1 percent market share in the domestic EV segment. The company leverages the performance of its EVs, which have collectively covered 3 billion kilometres, to enhance reliability and improve the charging infrastructure. Further, TML plans to open EV stores in over 50 cities in the next 24 months to deepen penetration.
TML has recently doubled the size of its charging network. Most of this expansion involves adding more chargers to strengthen the existing infrastructure. In new locations, the company is trying to ensure charging facility for 6-7 cars at one go. Moreover, EV-friendly policies introduced by some states will support these initiatives.
The company expects EVs to constitute over 30 percent of its overall passenger vehicle volumes by FY30 and aims to achieve EBITDA breakeven by FY26.
PV: Target is to achieve higher market share
At present, TML’s addressable market is 53 percent of the passenger vehicle (PV) industry in which it holds a 26 percent market share. This translates to a 14 percent share of the overall PV market.
The management wants to expand the addressable market to 80 percent by introducing new models in segments where it has limited presence. It aims to achieve a 16 percent market share by FY27 and 18-20 percent by FY30.
CV: Aims to improve market share
The commercial vehicle (CV) segment has been on an upward trajectory, driven by the government’s focus on infrastructure, mining, and construction activities. The management has noted that CV demand is likely to remain strong, with replacement and scrappage demand to also contribute to future growth.
The company aims to gradually increase its market share and achieve a double-digit operating margin in the coming years.
Update on PV demerger
During the investor day, the management reiterated the reasons for demerging the passenger vehicle (PV) business from other businesses, emphasising how this move is expected to unlock value for PV business due to the cyclical nature of the CV business, which typically garners lower valuation multiples. By separating PV from the CV business, the PV segment can operate independently and potentially command a higher valuation.
TML said that the NCLT scheme will be presented to the board for approval. Following the board nod, it will take up to 12 months to obtain the necessary approvals from shareholders, creditors, and regulators.
In a nutshell, TML continues its focus on electric vehicles, leveraging its leadership position in the domestic market with plans to expand charging infrastructure and increase penetration. Alongside, it aims to boost its market share in the passenger vehicle segment and improve profitability, while continuing with the demerger plan to unlock value and enhance operational independence.
Valuation
Our SOTP valuation suggests a 12.3 percent potential upside for the stock. We recommend investors to consider accumulating the stock during market corrections.
Bymoneycontrol
