Nomura initiates coverage on Tata Motors CV, predicts 22% upside potential on CV cycle recovery

Synopsis

Nomura initiates coverage on Tata Motors Commercial Vehicles (TMCV) with a 'Buy' rating and a Rs 481 target price, anticipating a 22% upside. The brokerage believes TMCV is poised to benefit from an upcoming upcycle in the Indian MHCV segment, driven by favorable economic conditions and strategic global expansion through the Iveco acquisition.

Global brokerage firm Nomura has initiated coverage on Tata Motors Commercial Vehicles (TMCV) with a ‘Buy’ rating and a target price of Rs 481, implying an upside potential of 22% from current market levels, believing that the company is well-positioned to benefit from the upcoming upcycle in the Indian medium and heavy commercial vehicle (MHCV) segment.

The brokerage firm highlighted that this upcycle will be aided by favourable economic conditions, GST-led affordability, and strategic global expansion through its recent acquisition of Iveco’s truck business.

Nomura expects the Indian MHCV industry to witness a sharp recovery after years of modest growth, estimating year-on-year volume growth of 8% to 10% in FY26 and FY27. This momentum is likely to be driven by factors such as rising freight rates, increased profitability for fleet operators, and an ageing fleet base with an average vehicle age of 10 years.

Regulatory changes and expected price hikes may also trigger pre-buying activity during FY27–FY28. With a dominant 46% market share in the domestic MHCV space in FY25, Tata Motors’ commercial vehicle division is seen as a major beneficiary of this demand revival.

The brokerage highlighted that TMCV’s acquisition of the trucks business of Iveco for EUR 3.8 billion is currently passing through a downcycle but is expected to see growth revival starting FY27.

Nomura values TMCV on a sum-of-the-parts (SOTP) basis, assigning a 12x EV/EBITDA multiple for its India CV business and 4x for the newly acquired Iveco unit, which has a lower scale and margins.

However, it noted that the synergy benefits between the two, across supply chains, product development, and geographic markets, could lead to higher value accretion in the medium term.

The brokerage firm expects EBITDA margins for TMCV to expand to 12%–13% over FY26 to FY28 and sees further upside to estimates. The firm’s earnings projections for TMCV are ahead of consensus, with EPS growth pegged at 12% for FY27 and 11% for FY28.

It also noted that the ongoing ramp-up of India’s dedicated freight corridor is unlikely to significantly impact road-based MHCV demand, as a large portion of the commercial vehicle freight base, particularly non-bulk cargo, will continue to depend on trucking.

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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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