Shares of auto major Tata Motors on Friday fell around 4.7 per cent to the day’s low of Rs 1,090 on BSE after as margins in the passenger vehicles segment came in lower than expected in the Q1 results.
The share decline followed management’s commentary indicating subdued global demand for the remainder of the fiscal year. Nonetheless, brokerages were largely optimistic about the automaker, with the CV segment and Jaguar Land Rover (JLR) surpassing market expectations.
Jefferies issued a ‘buy’ recommendation for Tata Motors, raising the target price to Rs 1,330 per share, citing stronger-than-anticipated EBITDA in the India CV segment. Nomura also maintained a bullish stance, setting a target price of Rs 1,303 per share due to JLR’s impressive performance in challenging market conditions.
In the domestic market, Tata Motors’ CV revenues grew by 5.1 per cent year-on-year to Rs 17,800 crore, while EBIT margins improved by 240 basis points to 8.9 percent, benefiting from better realizations and material cost savings.
JLR’s revenue grew by 5.4 per cent during April-June to GBP 7.3 billion, with EBIT margins of 8.9 percent, up 30 basis points driven by favorable volume, mix, and material cost improvements.
Global brokerage firm UBS, which maintained a sell call on the stock with a target price of Rs 825, noted that while the commercial vehicles (CV) business was strong, passenger vehicles (PV) were weak, and JLR mixed.
Apart from risks from subdued global demand and margin headwinds at JLR, recent supplier-based constraint may pose as an incremental headwind in the near term, analysts say.
“This, coupled with demand moderation in its India CV and PV
businesses, raises concerns about Tata Motors’ ability to sustain the current level of profitability going forward,” Motilal Oswal said.
The brokerage expects JLR margins to see limited expansion over FY24-26, given rising cost pressure as it invests in demand generation, normalizing mix, and EV ramp-up, which is likely to be margin dilutive.
Nuvama is building in a 6 per cent revenue CAGR over FY24–27E versus a 21 per cent CAGR over FY21–24, owing to muted volume growth for JLR (1 per cent CAGR) and the India CV division (1 per cent CAGR).
“JLR’s order book has reduced from 133,000 units in Mar-24 to 104,000 units in Jun-24. This exhaustion in order book coupled with a high base should lead to single-digit growth in FY25E. JLR’s peer Mercedes recently indicated flat volume outlook for CY24 while Audi indicated flat-to-lower volume expectation for CY24. Furthermore, we expect a muted performance in the India CV division owing to competition from Railways (DFC), slowdown in infra spends and a high base,” the brokerage said.
Nuvama has a reduced rating on Tata Motors with a target price of Rs 1,144.
Overall, Tata Motors reported a 74 per cent YoY jump in its Q1FY25 consolidated net profit to Rs 5,566 crore from Rs 3,203 crore, while revenue from operations rose by 5.7 per cent YoY to Rs 1,07,316 crore.
The Indian automaker’s consolidated EBITDA increased by 19 per cent YoY to Rs 15,785 crore, and the operating margin expanded to 14.6 per cent from 12.9 per cent in the same period last year.
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