Tata Motors Ltd experienced a significant decline in its stock prices during Monday’s trading session, driven by the release of a mixed set of financial results for the March 2024 quarter. The market reaction was swift and disappointed, as the company failed to meet Q4 estimates, compounded by a subdued outlook for its Jaguar Land Rover (JLR) segment. Despite reporting a remarkable 222 percent year-on-year surge in consolidated net profit, reaching Rs 17,407 crore, attributed to improved operating leverage, favorable commodity prices, and robust volume growth across various sectors, the revenue from operations saw only a modest 13 percent increase to Rs 1.2 lakh crore.
Although Tata Motors’ financial figures may seem promising at first glance, its Q4 results fell short of Street estimates concerning revenue and Ebitda performance. Analysts suggest that the peak performance for all Tata Motors businesses may have already been reached, projecting a more moderate growth trajectory in FY25 due to a high base. Cautious optimism prevails, especially with concerns over demand, leading to expectations of a weaker first half. Following the Q4 earnings disclosure, Tata Motors’ shares plummeted by over 9.22 percent to Rs 950.30 on Monday, resulting in a total market capitalization exceeding Rs 3.15 lakh crore for the day. Notably, the stock had closed at Rs 1046.85 in the previous trading session on Friday, marking a significant increase of over 100 percent from its 52-week lows.
Analysts at Kotak Institutional Equities highlighted that Tata Motors’ consolidated Ebitda fell below expectations, primarily due to the underperformance of its domestic commercial vehicle (CV) segment. However, the Ebitda of JLR and domestic passenger vehicle (PV) businesses aligned closely with projections. Despite these challenges, Tata Motors achieved a free cash flow of Rs 26,900 crore in FY24, leading to a significant reduction in consolidated net debt and remaining on track to achieve a net cash position by FY25. The outlook remains positive for FY2025-26, with steady performance expected from JLR, supported by improvements in product mix and cost management, alongside potential market share gains in the PV and CV segments, culminating in a net cash balance sheet by FY25.
Conversely, Motilal Oswal Financial Services cautioned about impending challenges that could hinder Tata Motors’ performance, particularly concerning JLR’s margin prospects amidst anticipated cost escalations and normalization of product mix, as well as a subdued outlook for the Indian business segment. Consequently, the brokerage firm revised its target price for Tata Motors to Rs 970 while maintaining a ‘neutral’ rating.
Furthermore, the Q4FY24 revenue and Ebitda growth of 13 percent and 33 percent YoY, respectively, slightly undershot estimates due to weaker-than-expected figures from the Indian CV and PV divisions. Additionally, Nuvama Institutional Equities highlighted a reduction in JLR’s order book from 1,48,000 units in December 2023 to 1,33,000 units in March 2024. Despite these challenges, Nuvama Institutional Equities expressed optimism about Tata Motors’ future performance, projecting a healthy outlook for FY2025-26, supported by consistent growth in the JLR business, enhanced product mix, cost efficiency measures, potential market share expansions in the PV and CV segments, and the attainment of a net cash position by FY25, with an ‘add’ rating and a fair value target of Rs 1,100.
Concerns persist regarding Tata Motors’ ability to navigate impending challenges, despite operationally sound results for Q4FY24, with Ebitda margins expanding by 30bp QoQ to 14.2 percent. Motilal Oswal Financial Services reiterated these concerns and downgraded Tata Motors to ‘neutral,’ citing uncertainties surrounding JLR’s margin improvement prospects and the Indian business segment’s subdued performance outlook. In contrast, JM Financial remained optimistic about Tata Motors’ prospects, citing expectations of increased marketing expenditures to bolster JLR’s order book, a flattish Ebit margin for FY25, and robust free cash flow generation supporting investments in electrification at JLR. JM Financial maintained a ‘buy’ rating with a target price of Rs 1,200.
Nomura downgraded Tata Motors’ stock to ‘neutral’ from ‘buy,’ despite raising the target price to Rs 1,141, citing concerns about demand risks for JLR and the commercial vehicle industry, despite anticipated growth in the passenger vehicle segment. As the stock approaches fair value territory after steady performance, Nomura emphasized the need for caution amidst market uncertainties.
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