Tata Motors on Tuesday said TPG Rise Climate along with co-investor ADQ will invest Rs 7500 crore in tranches over a period of 18 months for an 11-15 per cent stake in Tata Motor’s EVCo, a new subsidiary.
Following the development, brokerages raised their price targets to as high as Rs 565, a 35 per cent upside from last close. The stock also moved in tandem with the rise in targets. As of 10.08 am, the stock was up 16 per cent at Rs 486 on BSE.
“TPG’s $1 billion investment values Tata’s India EV business at $6.7-9.1 billion. This provides a big value boost for an otherwise underappreciated opportunity and the balance sheet strength to drive portfolio electrification,” said analysts at Jefferies.
They said the stock also offers multiple other catalysts: demand revival and market share gains in Indian trucks/ PVs and upcoming launch of next-gen RR/RR-Sport models at Jaguar Land Rover.
Tata Motors Group global wholesales in Q2 FY22, including Jaguar Land Rover, were at 2,51,689 units, higher by 24 per cent, as compared to Q2FY21. Global wholesales of all Tata Motors’ commercial vehicles and Tata Daewoo range were at 89,055 units, higher by 57 per cent.
The EV industry in India is in a nascent stage. They form just 0.4 per cent of total passenger vehicle sales. In the last fiscal, Tata Motors had 71 per cent market share in the India EV market and sold about 4200 units.
Tata Motors EVCo will invest in excess of Rs 16,000 crore over the next five years in products, platforms, drive trains, dedicated EV manufacturing, charging infrastructure and advanced technologies.
The company has three existing models on sale and has plans to launch seven more in the next five years, noted Morgan Stanley. The company expects in the next five years, one fifth of its revenue will come from its EV business.
“The EVCo currently has sales of up to Rs 600 crore and its contribution margins are similar to the PV business and should reach Ebitda breakeven next year. The EVCo will be an asset light business as it starts using existing Tata Motors infrastructure,” said analysts at Morgan Stanley.
The broker just last week came out with a report that triggered a massive rally in Tata Motors shares. It argued that the next leg of revenue growth will come from domestic business rather than JLR. It has set a price target at Rs 448, which the counter has already surpassed.
Nomura said the capital raise provides credibility to EV investments and makes them confident of an investment-led growth path. “At an EV volume assumption of 96000 units in FY24, implied valuation stands at 5x FY24F EV/Sales (in line with our global EV comp) or Rs 152 per share for the new firm,” it said.
The Japanese brokerage house upgraded Tata Motors to ‘buy’ from ‘neutral’. It also raised target price to Rs 547.
HSBC, which set a 12-month target at Rs 550 from Rs 340 earlier, said lack of competition may continue to benefit Tata Motors EV business.
