On October 29, 2024, Tata Motors’ stock saw a steep drop, plunging nearly 6% to hit an intraday low of ₹826.05. The stock ultimately closed at ₹843.05 on the Bombay Stock Exchange (BSE), down by ₹35.65 or 4.06%, and its market capitalization stood at approximately ₹3,10,326 crore. This decline came despite a generally positive market sentiment driven by the Dhanteras festival, with the Nifty Auto index falling 1.6% as a whole. Other major auto stocks like Bajaj Auto, Hero MotoCorp, Maruti Suzuki, and Mahindra & Mahindra also saw declines of 1% to 4.5%.
The drop in Tata Motors shares can be attributed to lower-than-anticipated demand during the festive season. According to the Federation of Automobile Dealers Associations (FADA), while personal vehicle sales increased by 18.81% in September 2024, this growth was down compared to the previous year, highlighting weaker demand. Additionally, high inventory levels, estimated at 7.9 lakh vehicles worth roughly ₹79,000 crore, have led dealers to offer extensive discounts and promotions to stimulate sales. SMIFS Limited reported that overall demand in the passenger vehicle segment remains constrained, expecting flat performance this festive season compared to last year. Inventory control measures have also impacted wholesale numbers as Tata Motors works to reduce stockpiles.
Despite these short-term pressures, Tata Motors has continued to perform well in the long term, as evidenced by its price-to-equity ratio of 30.55x and a strong return on equity of 33.69%. Sharekhan maintains a “Buy” rating on Tata Motors, with a target price of ₹1,319, due to anticipated improvements in the company’s Jaguar Land Rover (JLR) division, passenger vehicle, and commercial vehicle businesses. Key reasons for this optimism include:
- Expected Recovery at JLR: Tata Motors anticipates a strong rebound in JLR production and wholesale volumes in the second half of FY2025, with guidance for an 8.5% EBIT margin in FY2025.
- Market-Specific Challenges: Recent margin cuts by global players like BMW are seen as isolated issues specific to those companies, not reflecting broader industry concerns.
- Growth in Domestic Market: Tata Motors’ new models have received positive feedback, particularly the Curvv and Nexon CNG, with solid sales in petrol and electric vehicles.
A noteworthy development for investors is Tata Motors’ planned 1:2 stock split and potential demerger into two separate publicly traded entities. One will focus on the Commercial Vehicles (CV) segment, while the other will cover Passenger Vehicles (PV), including the JLR and Electric Vehicle (EV) divisions. This strategic move aims to unlock value and streamline the company’s operations across different segments.
Tata Motors’ Board of Directors is scheduled to meet on November 8, 2024, to discuss and approve the company’s financial results for Q2 and H1 of FY2025. This update, along with a potential recovery in market demand, will be crucial for the company as it navigates current challenges and positions itself for future growth.
Disclaimer: This content is for informational purposes only and should not be considered financial advice. Investing in stocks involves risk, and past performance is not indicative of future results. Always conduct your own research or consult a financial advisor before making investment decisions.
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