Amidst Wednesday’s trading session, the shares of automobile manufacturer Tata Motors witnessed a notable descent of 7% during the initial trading phase, subsequent to the management’s anticipation of a sluggish growth trajectory in FY25. Tata Motors’ stock value plummeted by 8.26%, touching an intraday nadir of Rs 960.10 on the NSE.
The automotive giant Tata Motors disclosed a consolidated net profit of Rs 17,529 crore for the quarter culminating on March 31, 2024, marking a significant 46% surge compared to the preceding year’s net earnings of Rs 12,033 crore. This notably surpassed the financial analysts’ projections of Rs 6,255 crore. The revenue for the quarter amounted to Rs 1.20 lakh crore, showcasing a 13.3% year-on-year (YoY) expansion, albeit marginally falling short of the analysts’ estimated Rs 1.21 lakh crore.
In the final quarter of FY24, the earnings before interest, taxes, depreciation, and amortization (EBITDA) soared to Rs 17,900 crore, witnessing a substantial 26.6% YoY escalation, while the EBIT reached Rs 11,000 crore, showcasing a robust performance across all three automotive verticals.
The pre-tax profit amounted to Rs 9,500 crore, and the net automotive debt experienced a further descent to Rs 16,000 crore.
Analytical Assessments on Tata Motors
Motilal Oswal’s Take on Tata Motors
Motilal Oswal’s recent report entails the reclassification of Tata Motors (TTMT) to Neutral from BUY, primarily citing apprehensions concerning stagnant JLR margins and a bleak outlook for the Indian market. These concerns are in tandem with the prevailing market sentiments, as TTMT encounters imminent challenges despite its commendable performance across pivotal sectors in FY24.
Motilal Oswal reiterates a Neutral stance on Tata Motors, with a sum-of-the-parts (SOTP)-based target valuation of Rs 955 for FY26E, reduced from Rs 970 previously. The report has revised its earnings per share (EPS) estimates downwards by 3% for FY25 and 5% for FY26. Presently, Tata Motors’ stock is trading at 18x/15.6x FY25E/FY26E consolidated EPS and 6.2x/5.3x EV/EBITDA.
Motilal Oswal’s latest forecast on Tata Motors envisages consistent margins for Jaguar Land Rover (JLR) from FY24 to FY26, predicated on multiple factors, including escalating cost pressures due to augmented investments in demand generation, a normalized product mix, and the anticipated margin erosion stemming from the electric vehicle (EV) expansion. Furthermore, the report underscores a moderation in demand across both commercial vehicles (CV) and passenger vehicles (PV) within Tata Motors’ Indian operations. Motilal Oswal anticipates static margins for the Indian sector throughout the forecast period.
JM Financial’s Perspective on Tata Motors
JM Financial maintains a favorable outlook on Tata Motors, with a projected sum-of-the-parts (SOTP) valuation of Rs 1,200, extrapolating the standalone business and JLR at 12x and 3.0x EV/EBITDA, respectively. However, the report underscores the deceleration in critical global markets as a key aspect necessitating monitoring.
According to JM Financial’s report on Tata Motors, in the fourth quarter of FY24, Jaguar Land Rover (JLR) registered an EBITDA of 16.3%, marking a 170 basis points YoY upswing, propelled by heightened operational leverage and diminished raw material costs. Conversely, the Indian business segment, encompassing both commercial vehicles (CV) and passenger vehicles (PV), achieved an EBITDA of 10.5%, surpassing JM Financial’s projections by 50 basis points. The normalization of supplies aided JLR in ameliorating its order backlog to approximately 133,000 units.
Despite the resilient performance in the US market, the demand dynamics in the EU have exhibited signs of deceleration. The management intends to augment marketing expenditures to augment JLR’s order pipeline. For FY25, a static EBIT margin is envisaged. The company foresees robust free cash flow generation to bolster investments in JLR’s electrification endeavors, targeting a net cash position by FY25 (£0.7bn presently).
Within the domestic PV segment, growth prospects hinge on forthcoming product launches and capacity expansion initiatives. Moreover, an upturn in domestic CV demand is anticipated from the second quarter onwards. The enhanced margins in both the domestic CV and PV segments are viewed favorably, with the net cash position in the Indian automotive sphere imparting a sense of reassurance.
