TATA Group is one of India’s largest conglomerates, comprising 30 companies across ten verticals. The group operates in over 100 countries across six continents.
Tata Sons is the principal investment holding company and promoter of Tata Companies. The group imprints are found in a wide range of sectors. As of July 31, 2023, there are 29 publicly traded Tata companies with a total market value of $300 billion (INR 24 trillion).
J.P. Morgan is one of the oldest financial services companies, serving corporations and individuals in more than 100 countries with $2.6 trillion in assets under management. J.P. Morgan has four lines of business: investment banking, commercial banking, asset management, and financial transaction processing.
J.P. Morgan Securities LLC operates as an investment management company. The company offers wealth planning, education funding, research, securities, brokerage solutions, consulting programmes, and portfolio management services. J.P. Morgan Securities serves customers worldwide.
Here are two Tata Group stocks downgraded by JP Morgan with a potential downside of up to 24%.
Tata Elxsi and Tata Technologies are two Engineering Research and Development (ER&D) firms. Tata Elxsi stands out as a top-tier ER&D service provider in various sectors such as automotive, medical devices, and telecommunications.
JP Morgan expresses optimism towards engineering, research, and development (ER&D) firms, asserting that they are surpassing IT companies, as indicated by a 1,100/800 basis on organic growth over the past one to four years.
Tata Technologies Ltd
Tata Technologies, a subsidiary of Tata Motors, has been a pioneer in the automotive and aerospace segments, providing industry-leading engineering research and design services (ER&D) that offer end-to-end solutions across the value chain with a focus on manufacturing-led verticals.
JP Morgan gave an underweight rating on Tata Technologies Ltd. with a target price of ₹800 per share, representing a downside of 24 percent from Thursday’s trading price of ₹1,045 per share.
The company experienced a notable increase in its annual profits, with a 15% growth in revenue, climbing from ₹1,124 crore in Q3FY23 to ₹1,289 crore in Q3FY24. At the same time, its net earnings rose by 15%, jumping from ₹148 crore to ₹170 crore during this timeframe. Concurrently, Tata Technologies Ltd. shares have dropped by 22% over the past five months.
The brokerage has a negative stance on Tata Technologies because of its heavy reliance on a small number of clients. Additionally, it mentioned difficulties for Tata Tech in expanding its customer base beyond major clients, along with concerns about inflated valuations.
Tata Technologies, the top five clients, contributes 60.49% of overall revenue which includes Jaguar Land Rover, Tata Motors and VinFast.Tata Technologies generated about 88 percent of its revenues from the auto vertical in the first half of the ongoing financial year.
The brokerage noted that there is limited evidence of expanding non-anchor clients and forecasts modest earnings growth of 16% between FY24-FY26, contrasting with its competitors. Additionally, the brokerage views the valuation as overly high at 53 times the one-year forward price/equity ratio.
In 2023, a significant portion of Tata Technologies’ revenue came from India, constituting 29.76% of its total sales. Europe contributed 22.83%, North America contributed 21.44%, and the remaining regions contributed 25.97%.
Tata Elxsi Ltd
Tata Elxsi is a design specialist focused on software and digital engineering services. The company caters to the transport and automotive sectors. But it has a more diversified focus. It serves a variety of industries including automotive, broadcast and communications, consumer electronics, healthcare, and transportation.
JP Morgan gave an underweight rating on Tata Elxsi Ltd. with a target price of ₹6,000 per share, representing a downside of 22 percent from Thursday’s trading price of ₹7,638 per share.
Tata Elxsi Ltd. shares experienced a 24 percent increase over the past 12 months, followed by a 4 percent gain in the last six months.
The revenue increased by 12%, climbing from ₹818 crore in Q3 FY23 to ₹914 crore in Q3 FY24. At the same time, its net earnings rose by 6%, advancing from ₹195 crore to ₹206 crore during this timeframe.
The company’s profit margin decreased from 29.9 percent in Q2 to 29.5 percent in Q3, indicating a decline in profitability.
Tata Elxsi’s sales are primarily generated from various regions worldwide, with the United States contributing 42%, Europe following closely with 34%, India with 17%, and the remaining portion coming from other global regions.
Written by Omkar Chitnis
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