Tata Motors (NS:TAMO) stock has done well this year as it outperformed most automakers. The stock soared to a record high of ₹1,180 in July, up by over 1,800% from its lowest point in 2020. It has risen by over 31% this year, outperforming the companies like Toyota, Ford, General Motors (NYSE:GM), Stellantis, and Volkswagen (ETR:VOWG_p), which have dropped this year.
Tata Motors strong demand
Tata Motors strong performance has made it the 12th biggest automaker in the world in terms of market cap. It has become a bigger company than the likes of Stellantis, Hyundai, Ford, and Suzuki.
This growth happened because the company has had strong demand for its commercial and passenger vehicles. The most recent data shows that the number of registered vehicles in India rose to over 326 million in 2020 from less than 110 million in 2008. The number has likely grown since then.
India’s growth is important for Tata Motors because it is its biggest market. Other large Indian automakers like Mahindra & Mahindra and Maruti Suzuki (NS:MRTI) have all jumped for the same reason.
Most notably, unlike its Western peers like VW, BMW, Ford, and GM, Tata Motors has mostly focused on selling Internal Combustion Engine (ICE (NYSE:ICE)) vehicles. While Tata has invested in electrifying its business, most of its energy has remained on the ICE segment.
Most traditional companies that pivoted to EVs have had to scale down their operations in the past few months because of the waning demand and soaring losses.
Tata Motors is also highly diversified. It sells commercial vehicles like trucks, passenger vehicles, and luxury ones through its Jaguar Land Rover (JLR) brand.
Tata financial results
The most recent results by Tata Motors and Jaguar Land Rover were strong. Its total revenue rose bu 5.7% to ₹108k crore or $13 billion while its EBITDA was over ₹15.6k crores.
This growth happened as the company increased the number of vehicles it sold more vehicles than it did in the same quarter in 2023. It sold 330.3k units, a big increase from the 322.2k it sold in the same period in 2023.
Tata Motors EBITDA remained stagnant at ₹14.4k crore while its profit before tax was ₹8.8k crore.
These numbers demonstrated that the company was doing modestly well in a tough market for vehicles. Jaguar Land Rover sold 97,755 vehicles in the quarter, generating over £7.2 billion in revenue and a profit of £693 million.
As a result, JLR received credit upgrades from S&P Global and Moody’s, which is a positive sign that will result in lower borrowing costs.
Growth and valuation concerns
Still, there are concerns about Tata Motors valuation and growth prospects, which explains why the stock has moved into a correction after falling by over 15% from its highest point this year.
Some of the sell-off happened on Wednesday when analysts at UBS downgraded the company, citing the substantial discounts being offered by Jaguar Land Rover. UBS maintained its sell rating on the stock with a target of ₹825, down by over 16% from the current level.
UBS is one of the most bearish analysts covering Tata Motors. Jefferies, a leading Wall Street company, has a target of ₹1,330, meaning that they expect it to jump by over 30% from the current level.
Nomura, however, has a buy rating on Tata Motors stock and recently upgraded the stock’s outlook from ₹1,294 to ₹1,303. Altogether the average stock target for Tata Motors shares is ₹1,176, up by 20% from the current level.
A key concern about Tata Motors is that it is trading at a higher valuation compared to its global peers. It trades at a forward P/E ratio of 15.8 and a 2026 multiple of 12.7. In contrast, most global automakers have P/E multiples of less than 5. Ford has a 2025 P/E ratio of 5.6 while GM has a multiple of 4.76.
Therefore, Tata Motors will need to continue growing to justify a higher valuation than its global peers. The challenge, therefore, is where this growth will come now that there are signs that the Indian economy was slowing.
Tata Motors share price analysis
The daily chart shows that the Tata Motors stock price peaked at ₹1,180 in July and has now moved into a bear market after falling by over 15%. It has dropped to its lowest point since July 2023.
The stock has also moved below the 50-day and 100-day moving averages and the key support level at ₹1,057, its highest point in March. Also, the MACD and the Relative Strength Index (RSI) have pointed downwards.
Therefore, the stock will likely continue falling as sellers target the next key support level at ₹900, down by 9% from its current level.
This article first appeared on Invezz.com
