The Nifty Auto Index is down nearly 28% from its highest level in September 2024. It’s not surprising what led to the fall. US tariff concerns, the slowdown in automobile demand, and a broader market correction. As a result, most automobile stocks have fallen sharply.
In the auto sector, Hero MotoCorp has suffered the most, with its stock price falling 37% in the last six months. Tata Motors too fell a sharp 33%, drastically reducing valuations. Notably, both companies are not only trading below their 10-year median valuation but also relative to their peers.
Is this an opportunity to add the stock to your watchlist? Let’s dig in and find out.
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Tata Motors is one of the leading automotive manufacturers in India, with a market capitalization of ₹2.46 trillion. The company manufactures commercial vehicles (CV)and passenger vehicles (PV), including compact, mid-size and utility vehicles.
The company also operates in the premium segment with its luxury brand, Jaguar Land Rover (JLR), which contributes 69% of its total revenue. It has a diversified presence across geographies, including Europe, the UK, the US, and China.
Tata Motors leads the CV segment in India with a market share of 39% (in FY24) and ranks second in the PV segment with a 13.9% market share. With its first-mover advantage, it also leads the electric vehicle (EV) segment, with 62% market share.
Notably, Tata Motors was a loss-making company with inconsistent revenue and profit growth till FY21. However, the company’s financials improved after the pandemic as demand for PVs surged, led by record-low interest rates and rising affordability.
Strong demand helped the company turn around its business. Tata Motors’ revenue grew at a 20% compound annual growth rate (CAGR) during FY21-24 to ₹4.4 trillion in FY24. On the other hand, it turned in a net profit of ₹2.7 billion in FY23, which increased to ₹318 billion in FY24.
The CV business contributed 18% (or ₹0.79 trillion) to total revenues, growing 11% year-on-year (YoY) in FY24. An uptick in demand, improved product mix, and price hikes drove average selling prices and revenue growth.
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