Tata Motors: What makes BNP Paribas optimistic about a 21% gain, contrasting the cautious stance of other financial analysts?
BNP Paribas Remains Bullish on Tata Motors Amidst Market Caution
In contrast to the market's cautious stance, BNP Paribas remains optimistic about Tata Motors, the Indian automotive major. The French investment bank believes that the recent stock price correction has already factored in the major risks, presenting an attractive valuation opportunity with about 21% upside potential.
BNP Paribas views the stock's recent correction as more than pricing in risks, suggesting limited downside from current levels. The brokerage highlights three specific factors driving this optimism:
- Risk Pricing: The bank views the stock's recent correction as more than pricing in risks, suggesting limited downside from current levels.
- Jaguar Land Rover (JLR) Margin Recovery: Though Q1 JLR margins were hit by tariffs (about 380 basis points), BNP Paribas expects some tariff-related costs to revert in coming quarters, facilitating margin improvement. The brokerage models tariff impacts within a 80-250 bps hit in FY26 and medium-term costs of £400 million (120 bps), aligning with their estimates.
- Gradual Demand Recovery: Despite demand falling short of management expectations in Q1, BNP Paribas anticipates JLR wholesale dispatches will gradually recover, supporting the revenue outlook.
These factors contribute to BNP Paribas's bullish outlook on Tata Motors, despite other brokerages like Jefferies maintaining more conservative targets. BNP Paribas's positive stance hinges on valuation attractiveness post-correction, anticipated tariff normalization, and expected demand recovery at JLR, which they consider underappreciated by the market.
However, it's important to note that BNP Paribas did not provide a new price target or rating for Tata Motors in this paragraph. The bank has an Outperform rating on Tata Motors, which is significantly higher than some other brokerage houses like Jefferies, with targets closer to Rs 550 levels.
Despite a disappointing Q1, Tata Motors soared 3% on the back of a better mix and realisation at JLR, which helped the company's consolidated revenue beat estimates. The automotive major's CV gross margin improved by 190 bps QoQ due to better realisations and lower material cost. However, the EBITDA margin for Tata Motors missed estimates, impacted by tariffs and weak volume across business verticals.
Looking ahead, BNP Paribas expects JLR's profitability to improve in subsequent quarters as tariffs are expected to reduce. The bank estimates Tata Motors' global CV revenue to be lower than expected by 5 bps. Tata Motors is targeting to get back to double-digit EBITDA margin in the PV business, and the company expects the domestic CV business sales volume to grow in mid single digits.
The price target for Tata Motors at Rs 765 per share implies a 21% upside from current levels, reflecting BNP Paribas's continued confidence in the company's prospects. As the market continues to evaluate Tata Motors' performance, BNP Paribas's bullish stance provides a positive outlook for the company's future.
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