Tata Motors shares tank 4.8% on Q2 miss, JLR’s recovery delays

• Tata Motors shares tanked 4.8% on Thursday, a day after the company missed analyst estimates despite narrowing its consolidated July-September net loss to ₹945 crore.
  
• Tata Motors’ British subsidiary JLR fell short of its sales target of 90,000 units due to the chip shortage, but said its orderbook stood at 2,05,000 units.
  
• JLR also cut its guidance for FY23 as it continues its attempts to sort out the semiconductor shortage problem.
  

Tata Motors shares tanked 4.8% on Thursday after the carmaker’s second-quarter revenue missed analyst estimates and as delays in the recovery of its subsidiary, Jaguar Land Rover (JLR), weighed on sentiments.

Tata Motors was the top loser in the benchmark Nifty50 index on Thursday, closing at ₹412 a share. The Nifty Auto index was also the top loser among sectoral indices, with a decline of 1.95%, while the broader Nifty50 index declined 0.7%.

The fall in Tata Motors’ shares comes a day after the company missed analyst estimates for the second quarter despite narrowing its consolidated net loss to ₹945 crore for July-September, from ₹4,442 crore a year ago. This is the company’s seventh consecutive quarter of net loss.

“Tata Motors’ Q2 FY23 performance was an all-round miss. Jaguar Land Rover continues to struggle with semiconductor shortages, which has been impacting its performance for the last five-to-six quarters,” said a report by Motilal Oswal.

According to analysts at ICICI Securities, the lag effect of commodity inflation impacted Tata Motors’ India business margins by 200 basis points sequentially.

Delayed recovery for JLR, but orderbook strong, says company

A delay in the recovery of Tata Motors’ British subsidiary JLR due to continuing chip shortages has resulted in the company scaling back its guidance for FY23.

In the earnings call on Wednesday, the company said JLR fell short of its sales target of 90,000 units due to the chip shortage – the luxury carmaker managed to sell only 75,000 units during the quarter.

However, the company said it was working on solving the supply issues – leading to improved visibility of future chip supplies.

“I think this chip supply is absolutely fundamental to understand. We have almost finalised all our long-term supply agreements but it is very clear that if you miss one, it's enough to create the problem that we have had,” the company said.

The luxury carmaker said that its order book stood at 2,05,000 units, with 72% of the orders being for the new Range Rover series.

“The ramp-up in JLR’s production is key as demand is strong, especially in its most profitable products of Range Rover, Range Rover-Sport and Defender,” said a Motilal Oswal report.

Although JLR said it was in advanced talks with chip makers to secure long-term supplies, the luxury carmaker cut its FY23 guidance anticipating a slower recovery. Its free cash flow guidance for FY23 has been changed to “breakeven”, from ~£1 billion guidance given earlier. It also changed its EBIT (earnings before interest and taxes) guidance to “positive” from 5% earlier.

Analysts maintain ‘buy’ rating despite JLR challenges

Despite the JLR challenges, analysts maintained their ‘buy’ ratings for Tata Motors due to improvements in its India business.

PB Balaji, the chief financial officer of Tata Motors Group said the domestic order book stood at 1,00,000 units and the company had no concerns about the build-up of inventory. During the earnings call, Balaji added that with the transition to BS VI Phase II coming up in April 2023, the company will roll out discounts to clear out its BS IV inventory.

“Despite the near-term pressures at JLR, we like Tata given the cyclical recovery and improved franchise in India, early leadership in India EVs, and JLR focus returning to higher-margin Land Rover models,” said a Jefferies report.


Source: Brokerage reports | Upside compared to closing price as on November 9, 2022

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