Tata Motors in top gear, JLR to drive growth in FY24

• Analysts are bullish on Tata Motors thanks to robust performance by the car maker’s British subsidiary, Jaguar Land Rover.
• JLR expects its wholesale volumes to rise 25% in FY24, and its debt to reduce to £2 billion from the existing £3 billion.
• Tata Motors’ domestic businesses also delivered margin expansion, with its net debt falling to ₹6,200 crore in FY23, the lowest in 15 years.
• Robust performance across segments also helped the company declare its first dividend since FY16.

Tata Motors is driving in top gear, thanks to a strong performance by its British subsidiary Jaguar Land Rover (JLR) alongside robust execution across segments in its domestic business. It topped street estimates with a consolidated net profit of ₹5,408 crore in Q4 and analysts expect the momentum to continue in the new financial year aided by multiple tailwinds.

Tata Motors’ robust numbers in the March quarter were aided by JLR’s performance – the UK-based luxury car maker posted free cash flow of £815 million during the quarter. JLR accounts for 80% of Tata Motors’ consolidated revenue, so its strong performance has a large impact on Tata Motors’ performance.

In addition, Tata Motors’ domestic business also delivered an improvement in margins across segments, helping the company post its highest-ever consolidated revenue of ₹1.06 lakh crore in Q4, registering a growth of 35% on year.

“Tata Motors executed a strong show across key verticals in Q4 FY23 with commercial vehicles earnings before interest, taxes, depreciation and amortisation (EBITDA) margins crossing the 10% mark after 4 years and JLR delivering a strong £815 million free cash flow,” said the analysts at Motilal Oswal.

Tata Motors declared a dividend of ₹2 per ordinary share, its first since FY16. The Indian business’ net debt stood at ₹6,200 crore in FY23, which is the lowest in 15 years. The street also celebrated its earnings as its shares rose by 4% hitting a fresh 52-week high of ₹537 a piece before closing at ₹531.

The JLR boost

Analysts expect Tata Motors to gain more momentum going forward, thanks to JLR’s healthy order book, softening commodity prices and sustained free cash flow generation.

JLR’s volumes surged to 1.07 lakh units in Q4, rising by 20%. In a post-earnings call, the luxury car maker said that its current order book stands at 2 lakh units, and that the overall demand outlook remains healthy.

Of this, 1.5 lakh orders are for high-margin cars like the Range Rover, Range Rover Sport and Defender. The company has planned a ramp up of capacities during FY24, with capital expenditure budgeted at £3 billion, up from £2.35 billion in FY23.

Overall, JLR is targeting volumes of 4 lakh units in FY24 which is a growth of 25% when compared to FY23’s volumes of 3.21 lakh units.

Thanks to improving margins and volumes, JLR is aiming to reduce its debt to £2 billion from £3 billion during FY24, with a target of becoming net debt free in FY25.

Not just this, JLR is also the dominant industry player in the electric passenger vehicle space in its home market, UK, with a market share of over 80%.

“Demonstrated capability in newer technologies in the commercial vehicle space and pricing discipline across industry to aid aspiration of double-digit margins ahead,” said analysts at ICICI Direct.

Margins expand in domestic businesses too

Tata Motors’ commercial and passenger vehicle segments witnessed margin expansion in the March quarter – while the commercial vehicle segment delivered a 420 basis point margin expansion YoY to 10.1%, the passenger vehicle segment reported a 40 basis point increase to 7.3% in this period.

Going forward, the company expects to touch double-digit margins and a sustained free cash flow generation.

“Tata Motors should witness a healthy recovery as supply-side issues ease (for JLR) and commodity headwinds stabilise (for the India business),” said the analysts at Motilal Oswal.

Analysts bullish

Analysts are broadly bullish about Tata Motors’ growth prospects in FY24, thanks to lower input costs and JLR’s focus on capacity expansion as well as investments in the electric vehicle (EV) space.

“Firmer commitment towards EV by JLR with an accelerated investment plan of £15 billion spend over the next five years will be one of the key triggers for future price performance,” ICICI Direct said.

The brokerage added that it expects the company’s revenue to grow at a 20.1% compounded annual growth rate over FY23-25.

“It will benefit from the commercial vehicle upcycle and stable growth in passenger vehicles, company-specific volume/margin drivers, and a sharp improvement in free cash flow as well as reduction in net debt in both JLR and the India businesses,” the Motilal Oswal report said, explaining its bullish outlook.

Overall, brokerages affirmed their bullish outlook, raising their target prices to an average of ₹623, which is an upside of 17% from the current share price of ₹531.

$TATAMOTORS.NSEBig Breakout Possible Above 600Getting Ready for 4 Digits 💯

— (@saditya10p) May 15, 2023

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