Why Tata Motors Share Price is Rising

Tata Motors, a prominent player in the commercial and passenger vehicle industry, has experienced a remarkable surge in its share price, reaching a record high of Rs 678 in early trade today.

The company's stock has shown remarkable growth since the outbreak of the pandemic, with a substantial increase of 489.1% from Rs 101 per share on 26 June 2020.

In 2023, the company's shares have surged by over 70%. In the past three months, they have gained more than 15% and have been frequently reaching new 52-week highs.

In addition to its impressive stock performance, Tata Motors has also excelled in the Nifty 50 index this year, further solidifying its position in the market.

The company achieved a significant milestone by crossing the Rs 2 tn mark in market capitalisation, becoming the second private company to accomplish this feat.

Here's why shares of the company have been on a roll.

#1 Tata Tech IPO approval

The rise in Tata Motors shares can be attributed to the announcement of the Tata Technologies (Tata Tech) IPO and Tata Motors' decision to sell a portion of its stake in Tata Tech.

The SEBI's approval of the Tata Tech IPO indicates a potential value unlock for Tata Motors. As Tata Motors holds a substantial stake in Tata Tech, the IPO allows the company to monetize its investment and realize the value of its subsidiary.

Additionally, Tata Motors plans to utilise the proceeds from the sale of its Tata Tech stake to reduce its debt. This debt reduction strategy is viewed positively by investors as it improves Tata Motors' financial position, reduces its interest burden, and enhances the company's potential for profitability.

Additionally, the Tata Tech IPO represents a significant event as the first public issue from the Tata Group in 20 years. This milestone has generated excitement and interest among investors, who see it as an opportunity to participate in the growth potential of a Tata Group subsidiary.

Update: Tata Motors recently announced that it has agreed to sell a 9.9% stake in IPO-bound Tata Technologies for Rs 16.1 billion (bn).

The stake will be purchased by TPG Rise Climate SF Pte Ltd, a climate-focused private equity fund, and Ratan Tata Endowment Foundation, for an equity valuation of Rs 163 bn.

TPG, which also invested in Tata Motors' electric vehicle business, will pick up 9% of Tata Technologies while Ratan Tata Endowment Fund (RTEF) will buy the remaining 0.9%.

With this sale, Tata Motors will garner Rs 14.7 bn as a consideration for the sale of its stake to TPG, while RTEF will pay Rs 1.5 bn.

The transaction is expected to be completed by 27 October 2023.

#2 JLR's Impressive Growth Momentum

The surge in the share price can also be attributed to the positive outlook for its luxury arm, Jaguar Land Rover (JLR), which has projected annual revenues of 28 bn pounds in the financial year 2024 against 22.81 bn pounds clocked a year back.

JLR has taken measures to improve its performance, including reducing break-even production levels by 50% in the financial year 2023 and discontinuing vehicle assembly at the Castle Bromwich plant as part of its transition to an all-electric platform.

These strategic decisions are expected to improve the company's utilization levels and streamline operations. JLR has also been working on partnerships for battery sourcing, leveraging Agratas, a subsidiary of the Tata Group, which is establishing battery plants in India and Europe.

Further the company's focus on the electric vehicle (EV) market has also attracted investor attention.

JLR management anticipates that EVs will contribute around 20% to the total volume by the financial year 2026. Plans for launching the first EV Range Rover in 2024 and a Jaguar pure-electric vehicle in 2025 indicate a commitment to tapping into the growing EV market.

Furthermore, the increased share of EVs in JLR's product lineup is expected to help achieve CO2 emission compliance by 2028, as these vehicles contribute to reducing blended emissions.

This positive outlook has further added to the rally.

Update: Last week, investors cheered JLR's stellar performance as the company reported impressive numbers for the April-September period.

JLR reported sales of 2,356 units, a 105% year-on-year (YoY) growth, with Q2 witnessing a 108% YoY growth and retail of 1,308 units.

JLR India had previously reported a 102% sales growth in Q1, compared to the same period last year.

JLR's order book in the current fiscal has seen consistent growth, with the first half closing order book 90% higher compared to the same period last year.

JLR said its certified pre-owned business grew by 83% in the first half of FY24. It attributed this strong sales performance to the successful launch of the 24MY Range Rover Vela.

Performance was also boosted by the rising demand for the Range Rover, Range Rover Sport, and Defender models. Defender was the best-selling JLR model as the auto major sold 1,000 units in H1FY24.

For Tata Motors, it's JLR's operations that matter. Over the past few years, JLR has accounted for 70%-80% of the company's top line.

Whenever JLR has done well on the profits front, the company's overall profits have looked really good.

And the years that JLR has done badly, the company's bottomline has also suffered.

So you could see why the stock of Tata Motors is rising.

#3 Strong Mutual Fund Buying

India's leading EV maker has seen massive interest from domestic mutual fund houses.

In the month of September 2023, Tata Motors was among the most bought stocks of mutual funds. The stock saw buying to the tune of Rs 11.8 bn.

Positive long-term outlook

Going forward, the company's Indian business is set to benefit from a favourable demand cycle and improvements in its passenger vehicle (PV) franchises.

As the largest electric vehicle (EV) player in the country, Tata Motors has established an early lead in the PV segment by focusing on SUVs and incorporating attractive product styling.

In the commercial vehicle segment, which includes trucks and mini-trucks, growth is expected to be robust, with an anticipated increase of 7% in the financial year 2024 and 11% in the financial year 2025, representing a significant jump of 4%.

However, despite the promising outlook, there are potential risks that could impact estimates. Supply chain constraints stemming from geopolitical tensions and concerns over a global recession and a spike in commodity prices pose challenges for the company.

Additionally, lower-than-expected growth in India due to macroeconomic slowdowns or an insufficient rainfall season is also a potential headwind that could affect the company's estimates.

How Tata Motors have performed recently

Shares of Tata Motors have surged over 13% in the past month. Over the past five days, the stock is up 6%.

Tata Motors shares touched a 52-week high of Rs 678 on 16 October 2023 and a 52 -week low of Rs 375.2 on 26 December 2022.

About Tata Motors

Tata Motors Limited is a leading global automobile manufacturer with a portfolio that covers a wide range of cars, SUVs, buses, trucks, pickups, and defense vehicles.

It's a US$ 34 bn organisation and a leading global automobile manufacturing company.

Tata Motors is one of India's largest OEMs offering an extensive range of integrated, smart, and e-mobility solutions.

Tata Motors has a strong presence in India, but it also exports its vehicles to over 100 countries around the world. The company has a number of joint ventures with other automotive manufacturers, including Fiat, Jaguar Land Rover, and Daimler.

To know more about the company, check out Tata Motors financial factsheet and its latest quarterly results.

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