Tata Motors has recently experienced a dramatic stock decline, making headlines as it has fallen 44% from its 52-week high of Rs 1,179 recorded in July 2024. Now trading at Rs 661.75, the automobile giant has wiped out approximately Rs 2 lakh crore from its market capitalization, solidifying its position as the worst-performing stock within the Nifty 50 index.
The steep drop has left investors wondering if the worst is behind them or if there’s more pain on the horizon. The primary culprits behind this fall are linked to slumping Jaguar Land Rover (JLR) sales, particularly in key markets like China and the UK. Adding to these challenges, looming concerns about potential US import tariffs on European vehicles have exacerbated investor anxiety.
According to analysts at CLSA, JLR’s stock is currently valued at just 1.2x the estimated EV/EBITDA for FY27, significantly below its historical multiple of 2.5x. They noted, “The market has already priced in expectations of a 10% decline in volume, with EBIT margins expected to slip below 8%.” Such evaluations highlight the uncertain market conditions Tata Motors faces. Most recently, the share price rallied closely to the 52-week low of Rs 660.10, marking a substantial depreciation year-to-date, at nearly 12%.
The auto industry as a whole is confronting various pressures, but Tata Motors seems to be feeling the heat even more intensely. Analysts have pointed out the rising competition, particularly from electric vehicle (EV) manufacturers, and have raised concerns about the knocking on traditional heavy commercial vehicle (HCV) sales. For example, analysts from BNP Paribas have suggested short-term challenges and indicated the stock’s enduring weakness may persist through 2025.
Tata Motors is currently engaged in strategic changes, including a significant demerger plan aimed at separating its Commercial Vehicle business from its Passenger Vehicle segment. The demerger is scheduled for October this year and is expected to create two independent entities. An appealing aspect for shareholders is the allocation of one renaming share of TMLCV for each share they hold, which has been seen positively by some analysts.
Adding to investor sentiment, CLSA has recently upgraded its position on Tata Motors to 'High Conviction Outperform' with a target price of Rs 930, indicating potential upside. The firm is optimistic about the long-term transformation of JLR, especially with upcoming EV launches, such as the Range Rover EV set for FY26. Such foresight emphasizes the potential for restoring market confidence.
Despite these supportive arguments, short-term headwinds are undeniable. The carmaker's performance has prompted discussions about whether it’s time to “buy the dip.” Some analysts have suggested strong support levels around Rs 630-Rs 640, recommending cautious accumulation for long-term investors ready to weather the current volatility.
Interestingly, Tesla’s anticipated entry to the Indian market has sparked concerns among local manufacturers, including Tata Motors, about increased competition. Notably, analysts from Nomura have downplayed Tesla's impact, asserting, “While Tesla may attract some buyers, Indian EV players should still dominate the mass market.”
With various factors at play, it remains to be seen how Tata Motors navigates these turbulent waters. Recent reports show total vehicle dispatches declined by 7% year-on-year to 80,304 units, indicating slower growth across the sector. JLR’s free cash flow is expected to improve by reaching GBP 1.7 billion by FY27, which could instill some optimism among shareholders.
While the immediate future appears tumultuous due to several economic headwinds, many analysts maintain the notion of carefully considering Tata Motors as part of long-term investment portfolios, especially with the potential for recovery if JLR and domestic demand improve.
The consensus among analysts suggests Tata Motors still retains considerable upside potential. With targets hovering around Rs 930 from CLSA and Rs 935 from BNP Paribas, the stock is seen as being poised for correction if JLR manages to establish stronger hold and consumer demand picks up. For patience investors, now might just present an opportunity to enter this iconic Tata company at near historic lows.