Target: ₹513
CMP: ₹426.50
With the business downcycle playing out well through six quarters (Apr 2024 to Jul 2025), the Goods and Services Tax (GST) rate cut in Sep 20025 has sharply improved small transporters’ business economics, thereby triggering a business cycle revival for new truck demand.
GST cut savings in the cost of tyres, lubricants and spare parts, we believe, can help boost small truck transporters’ cash flow and vehicle price drop to yield lower payback benefit, as it will be retained in the reverse charge mechanism of the GST regime. Medium-term drivers like easing interest rates and IIP to help sustain demand recovery till FY28.
Tata Motors or TML’s market share loss following the recent downturn in commercial vehicle (CV) demand has been more pronounced in less than 16t trucks. With demand revival likely to be driven by small transporters for small- and medium-size trucks, with its wide product portfolio and strong brand recall, it has good scope to regain market share.
Considering the early part of cyclical demand recovery, we assign EV/EBITDA multiple of 12.5×1-year forward for CV standalone EBITDA (12 per cent discount to Ashok Leyland), leading to CV business value of ₹489/share. Subsidiaries are valued at ₹25/share, post 20 per cent holding company discount, most of it coming from Tata Capital. We assign an Add rating to the stock with a target price of ₹513.
Downside risks: Global challenges delaying the acquired IVECO industrial division’s turnaround and weakness in domestic truck demand