Tata Motors has become the worst-performing stock on the Nifty 50 index, with its shares plummeting by 44% from a peak of Rs 1,179 in July 2024 to Rs 661.75. This sharp decline has wiped out Rs 1.9 lakh crore in market capitalization.
The slump is attributed to weak demand for its UK-based subsidiary, Jaguar Land Rover (JLR), particularly in key markets such as China, the UK, and the EU.
There are growing concerns about potential US import tariffs on European-made cars, which could further impact JLR’s prospects. Tata Motors is facing challenges from softening sales in the medium & heavy commercial vehicle (M&HCV) sector and increasing competition in the passenger vehicle (PV) and electric vehicle (EV) markets, according to ET report.
As the stock struggles to find a bottom, investors are left wondering whether the worst is over or if more downside is expected.
Why Tata Motor is losing M-Cap
A combination of global and domestic challenges has caused a loss of investor confidence in Tata Motors. JLR’s weak demand in China, the UK, and the EU, coupled with the looming risk of US import tariffs on European-made cars, has added uncertainty to its outlook.
Analysts at CLSA highlight that JLR is currently trading at a significant discount to its historical valuation, with a 1.2x FY27 estimated EV/EBITDA multiple compared to its historical average of 2.5x. This suggests that the market has already priced in a 10% decline in volumes for FY26, along with an EBIT margin drop to below 8%. CLSA believes that the current pessimism is overdone and sees this correction as a potential buying opportunity for long-term investors.
BNP Paribas maintains a more cautious outlook, keeping an ‘Outperform’ rating with a target price of Rs 935. The brokerage acknowledges that Tata Motors is currently in a consolidation phase and may remain subdued throughout 2025, lacking near-term catalysts for growth.
Rising competition
The entry of Tesla into the Indian market has raised concerns about the competitive landscape for domestic automakers, including Tata Motors. However, analysts are not overly worried, noting that Tesla’s expected pricing of over Rs 4 lakh will limit its direct competition with Indian EV makers. While Tesla’s brand and technology may appeal to some consumers, analysts are confident that domestic players like Tata Motors will continue to dominate the mass-market EV segment.
Is there hope for a recovery?
CLSA has recently upgraded the stock to a ‘High Conviction Outperform,’ citing attractive valuations and the potential for a cyclical recovery. The firm has set a 12-month target price of Rs 930, implying a 40% upside from current levels. Analysts also highlight JLR’s pivot to becoming a modern luxury brand, which could lead to margin expansion and improved free cash flow (FCF) in the long term. The launch of the Range Rover EV in FY26 is expected to boost volumes, although it may come with short-term cost pressures.
Tata Motors’ FCF yield is expected to improve, with JLR’s FCF projected to reach GBP 1.7 billion in FY27, up from under GBP 1 billion currently. The company is also on track to become net cash positive by FY26.
Should investors consider buying the dip?
The 44% market cap erosion has certainly rattled investors, but analysts believe that most of the negative factors have already been priced in. The steep correction presents a potential opportunity for long-term investors, especially considering the improving financials and the possibility of a JLR recovery. While short-term volatility may persist due to macroeconomic challenges, Tata Motors remains a compelling investment for those willing to ride out the rough patch. With target prices of Rs 930 from CLSA and Rs 935 from BNP Paribas, the stock could offer substantial upside if JLR’s recovery and domestic demand improve in the coming quarters.
(Disclaimer: The opinions, analyses and recommendations expressed herein are those of brokerage and do not reflect the views of The Times of India. Always consult with a qualified investment advisor or financial planner before making any investment decisions.)
