Nomura has lowered its target price for the Tata Motors commercial vehicle division to Rs 511 from Rs 554. While the brokerage sees strong demand in mining and e-commerce, it warns that high commodity costs will likely delay the recovery of profit margins. Investors should note that the firm expects lower operating margins through fiscal years 2027 to 2029.
Brokerage firm Nomura has adjusted its outlook for Tata Motors’ commercial vehicle business, lowering the target price to Rs 511 from Rs 554. The revision highlights a challenging balance for the company: while demand for trucks and commercial transport remains strong, rising input costs are putting significant pressure on the bottom line. Nomura noted that despite a 29% upside potential, margin recovery is expected to be slower than previously anticipated.
The core of this revision lies in profitability estimates. The brokerage has lowered its EBITDA margin projections—a measure of operational profitability—for the fiscal years 2027 through 2029 by 100 to 140 basis points. The new estimates suggest margins will land at 11.8% for FY27, 12.5% for FY28, and 13.1% for FY29. The main culprit for this shift is the persistent rise in commodity prices, which the company is struggling to fully offset, even with price increases.
Despite the margin concerns, the demand side of the commercial vehicle sector presents a brighter picture. Nomura has significantly raised its growth forecast for medium and heavy commercial vehicles (MHCV) for FY27, moving the estimate to 15% from the previous 8%. This optimism is driven by consistent activity in e-commerce logistics and the mining sector, as well as a necessary replacement cycle as older trucks are phased out of the national fleet. The data shows that vehicle utilization rates—a key indicator of how much the fleet is being used—continued to improve throughout the second quarter, providing some support to the business.
Tata Motors is also aggressively pushing its electric vehicle (EV) transition in the commercial segment. Sales volumes in the EV category jumped 143% during the second quarter. Currently, electric vehicles account for about 12% of the company's small commercial vehicle sales mix. Management is targeting a reach of 20% by the end of the current fiscal year. These EVs are gaining traction partly because they benefit from government production-linked incentive schemes, which help the company protect margins compared to traditional diesel-powered engines.
To combat inflation, the company implemented a price hike of 1% to 2% in October. However, the brokerage pointed out that the ability of the company to pass these costs to transporters remains a risk factor. Transporters are dealing with their own profitability pressures, largely due to high fuel costs and rising interest rates. Nomura also lowered the company's enterprise value-to-EBITDA multiple from 12 to 11, citing concerns over higher risk-free interest rates and potential oil price volatility.
The key monitorable for investors going forward will be the company’s ability to manage costs. While demand growth appears resilient, profitability will depend on whether the company can successfully pass on raw material inflation to customers without hurting sales volume. Investors may also track the pace of the EV segment expansion and whether it can consistently act as a buffer against margin pressure in the core diesel business.