 "JLR's disappointing September quarter update drags Tata Motors share 4%")
Tata Motors share price: Automobile behemoth Tata Motors’ share faced downward pressure, falling as much as 3.68 per cent to hit an intraday low of Rs 893.90 per share on October 08, 2024.
The decline in Tata Motors share price today came on the back of disappointing sales figures for Jaguar Land Rover (JLR) in the September quarter (Q2FY25).
Jaguar Land Rover's retail sales, including the Chery Jaguar Land Rover joint venture in China, decreased 3 per cent, totaling 103,108 units in Q2FY25 compared to the same period last year (Q2FY24).
Additionally, JLR's production was limited to 86,000 units, reflecting a 7 per cent drop year-over-year, primarily due to supply chain disruptions affecting high-grade aluminium, a critical component for many automotive manufacturers.
Similarly, wholesale volumes, excluding the China JV, also saw a major decline, plummeting 10 per cent to 87,303 units in Q2FY25 compared to the previous year, again linked to the restricted aluminium supplies.
Moreover, approximately 6,500 vehicles were temporarily held for quality control checks in the UK and Europe, which will be wholesaled in the second half of the year.
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“We expect both production and wholesale volumes to pick up strongly in the second half of the financial year as the aluminium supply situation normalises,” Tata Motors said. It further revealed that JLR will report full financial results for Q2 FY25 in early November.
Analysts view
Analysts at Motilal Oswal anticipate continued pressure on JLR's margins through FY24-FY26. Key factors contributing to this outlook, analysts believe, include rising cost pressures from investments in demand generation, a normalising sales mix, and the ramp-up of electric vehicle (EV) production, which is expected to be margin-dilutive.
Additionally, the Indian operations of Tata Motors, encompassing both commercial vehicles (CV) and passenger vehicles (PV), are experiencing a slowdown in demand.
Analysts have projected flat margins for the Indian business throughout the forecast period. Despite a strong performance in FY24, these challenges may hinder Tata Motors' growth moving forward, they added.
On the valuation front, Tata Motors stock is valued at 16x/13x FY25E/FY26E consolidated earnings per share (EPS) and 6x/5x enterprise value/earning before interest, tax, depreciation and amortisation (EV/Ebitda).
Given these factors, Motilal Oswal has reiterated a ‘Neutral’ rating on the stock. Tata Motors share price target has been fixed at Rs 990 based on a Sum-of-the-Parts (SOTP) valuation method, projected for June 2026.
Meanwhile, analysts at global brokerage firm Nomura forecast that in FY25, JLR’s volumes are expected to remain stable, but a favourable product mix should drive a 3 per cent increase in revenue. This is anticipated to positively impact margins as well, with the company aiming for an Ebit margin of at least 8.5 per cent in FY25, over 10 per cent by FY26, and reaching 15 per cent in the medium term.
Nomura also predicted that the aluminium supply situation will stabilise in the second half of FY25, which will further boost wholesale volumes.
Their estimates indicated that Tata Motors will shift from a net debt of Rs 186 billion (approximately Rs 50 per share) in Q1 to a net cash position of Rs 145 per share by FY27.
Currently, the stock trades at about 4.2x FY27 EV/Ebitda, which analysts consider attractive. Thus, Nomura maintained its ‘Buy’ rating with a sum-of-the-parts target price of Rs 1,303.
At 9:44 AM, Tata Motors share was trading 2.45 per cent lower at Rs 905.35 per share. In comparison, BSE Sensex was trading 0.05 per cent higher at 81,090.72 levels.