Tata Motors vs Tata Steel: Which Tata Group stock should you prefer in the long term?

Tata Group, established by Jamsetji Tata in 1868, stands as one of India's largest conglomerates, encompassing 30 companies across ten diverse sectors. Headquartered in India, Tata Group operates globally, with a presence in over 100 countries spanning six continents. In the fiscal year 2023-24, the combined revenue of Tata Companies surpassed $165 billion. As of March 31, 2024, its 26 publicly listed enterprises collectively boasted a market capitalization exceeding $365 billion.

Let's explore which Tata Group stock, between Tata Motors and Tata Steel, presents superior long-term investment prospects.

Stock Price Trend

Both the Tata Stocks have given similar returns this year so far. While Tata Motors has gained over 28 percent, Tata Steel has advanced over 26 percent in this period.

In the current calendar year till date, both Tata Motors and Tata Steel have given positive returns in 5 of the 6 completed months. Tata Motors jumped over 7 percent in June after falling 8.4 percent in May. However, it was positive for the first four months of 2024, adding 1.5 percent in April, 4.5 percent in March, 7.4 percent in February and 13.4 percent in January.

Tata Steel, on the other hand, rose 4 percent in June, extending gains for the fifth straight month. It advanced 1.33 percent in May, 6 percent in April, 10.6 percent in March and 3.6 percent in February. Before that, it lost 2.6 percent in January 2024.

Meanwhile, in the last 1 year, Tata Motors has given better returns. It has surged 67 percent versus an over 56 percent rise in Tata Steel.

On the back of strong overall market sentiment and investor confidence, both Tata Motors and Tata Steel hit their record highs this year. Tata Motors hit its new high of ₹1,065.60 in March 2024 and hit its 52-week low of ₹588.50 in July 2023. Currently trading at ₹999, the scrip is just 6 percent away from its peak and has surged around 70 percent from its year low.

Moreover, Tata Steel touched its record high of ₹184.60 last month. Currently trading at ₹176.25, it is just 4.5 percent away from that peak. However, it has jumped over 58 percent from its 52-week low of ₹111.3, hit in July 2023.

In the long term, in 3 years as well, Tata Motors has emerged as the winner. It has soared over 216 percent while Tata Steel has gained 51 percent.

Earnings

In the March quarter, Tata Motors achieved a remarkable 222 percent increase in net profit, reaching ₹17,407.2 crore, up from ₹5,400 crore the previous year. This impressive growth surpassed D-Street estimates, driven by a significant tax credit and strong performance across all automotive segments, especially the sales of SUVs from its British luxury car unit, Jaguar Land Rover (JLR). The company's total revenue from operations for Q4FY24 rose by 14.3 percent to ₹1.2 lakh crore, compared to ₹1.05 lakh crore in the same period last year. On the operational front, Tata Motors' EBITDA increased by 33 percent to ₹17,035 crore, up from ₹12,810 crore the previous year, with the EBITDA margin improving by 210 basis points to 14.2 percent from 12.1 percent.

On the other hand, Tata Steel reported a 64.8 percent YoY drop in consolidated net profit, falling to ₹554.6 crore in the March quarter from ₹1,566 crore the previous year. Revenue from operations decreased by 6.8 percent YoY to ₹58,687.3 crore in Q4FY24, down from ₹62,961 crore in the same period last year. EBITDA also declined 8.6 percent YoY to ₹6,600.7 crore in the quarter under review, compared to ₹7,219 crore last year, with the margin slipping 20 basis points YoY to 11.3 percent from 11.5 percent.

Which Tata Group stock should you pick for the long term?

Apurva Sheth, Head of Market Perspectives & Research, SAMCO Securities prefers Tata Motors over Tata Steel

Out of the two our preferred pick will be Tata Motors simply because the value addition that it does is far more than Tata Steel. The scope for developing premium products in Tata Motors is far greater than Tata Steel. This is also supported by the fact that the ROCE of Tata Motors is in the range of 20 percent while that of Tata Steel is 7 percent. Steel is a highly cyclical business compared to Auto which is semi cyclical. Thus, out of the two Tata Motors is the preferred choice for the long term.

Vaibhav Jain, Head of Content and Education, Share.Market also favours Tata Motors over Tata Steel.

Both stocks remain the jewels in Tata's empire and have rewarded its shareholders over the past year. However, picking between the two from a long-term perspective warrants nuanced analysis through the factor lens.

To begin with, both stocks exhibit very high Momentum scores due to their strong recent stock performance. Analysts also maintain a positive sentiment towards both, reflected in their high Sentiment scores. Also, as part of the Nifty 50, they offer low-volatility options, making them appealing to conservative investors. These similarities underscore their robustness in the short term.

However, distinctions arise in other areas. The recent surge in Tata Steel's stock price has adversely affected its Value, placing it in the bottom quintile of our investment universe. In contrast, despite past returns, Tata Motors remains a compelling Value pick, residing in the top quintile.

From a Quality perspective, Tata Motors also has an edge. This could be attributed to their differing business models. Tata Steel, being part of the commodity sector, tends to have more volatile margins and higher leverage, which impacts its perceived Quality.

In summary, while both stocks are strong short-term picks due to their Momentum, Sentiment, and Low Volatility scores, Tata Motors takes the lead for long-term investors, offering better Value and Quality.

Atul Parakh, CEO of Bigul believes both are strong long-term opportunities.

Both Tata Motors and Tata Steel present compelling long-term investment opportunities. Tata Motors shows promise with its focus on electric vehicles and recovery in automotive demand. Tata Steel benefits from infrastructure growth and potential export opportunities.

Investment Outlook

Tata Motors:

Positive Indicators: Tata Motors' strong revenue and profit growth, driven by JLR's performance, positions it well for future growth. The company's focus on expanding its portfolio of electric and luxury vehicles further enhances its long-term prospects.

Growth Potential: Continued innovation and market expansion, especially in the electric vehicle segment, offer significant growth opportunities for investors.

Tata Steel:

Challenges: Tata Steel's recent decline in profits and revenue reflects the broader challenges facing the steel industry. However, its long-term potential remains solid due to ongoing infrastructure projects and demand for steel in emerging markets.

Resilience: The company's ability to navigate market fluctuations and maintain a strong presence in key markets underlines its potential for recovery and growth.

In conclusion, while both Tata Motors and Tata Steel present strong short-term prospects, Tata Motors stands out for its better value and quality metrics, making it a favorable choice for investors looking at the long term.

Investors should consider their risk tolerance, market trends, and sector-specific dynamics when deciding between these two Tata Group stocks. Diversifying investments across both stocks could also be a prudent strategy to capitalize on their respective strengths.

Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.