Tata Motors hits new high, surges 7% on robust December quarter results

The auto major's Q3 net profit beat analyst estimates, growing by 137 per cent YoY to Rs 7,025 crore on favourable volumes, reduced costs on component sourcing with easing semiconductor chip supplies.

Shares of Tata Motors hit a new high of Rs 942, as they surged 7 per cent on the BSE in Monday’s intra-day trade after the company’s third quarter net profit beat analyst estimates, growing by 137 per cent year on year (Y-o-Y) to Rs 7,025 crore on favourable volumes, reduced costs on component sourcing with easing semiconductor chip supplies. The auto major’s revenue from operations went up 25 per cent Y-o-Y.

Shares of Tata Motors DVR too hit a new high of Rs 636.50, and rallied 9 per cent on the BSE. In comparison, the S&P BSE Sensex was down 0.08 per cent at 72,028 at 09:20 am.

Tata Motor’s consolidated Ebitda came in at Rs 15,800 crore, up 60.6 per cent with a resulting ebitda margin of 14.3 per cent. On a sequential basis, Profit after tax (PAT) surged 86.6 per cent and revenues grew by 5 per cent.

As for the Jaguar Land Rover (JLR) business, it posted a record third-quarter revenue of 7.4 billion pounds with its highest quarterly profit before tax since Q4FY17 of 627 million pounds during the quarter. JLR's free cash flow was 626 million pounds in Q3FY24 and 1.4 billion pounds for the year to date YTDFY24. Net debt reduced to 1.6 billion pounds.

The management remains positive on all three auto businesses i.e. JLR, Commercial Vehicles (CV) and Passenger Vehicles (PV). They expect the performance to further improve in Q4 on account of seasonality, new launches and improving supplies at JLR. The company achieved net debt reduction of Rs 9,500 crore in Q3 and confident of achieving their deleveraging plans.

JLR is on track to achieve its profitability and cashflow targets. The EBIT margin for FY24 is expected to be over 8 per cent and the management said it continues to expect operating cashflow to support net debt of less than 1 billion pounds by the end of FY24 and positive net cash in FY25.

As regards to CV business, going forward, the management expects demand to improve in Q4FY24 across most segments due to the Government's continuing thrust on infrastructure development, the promising growth outlook of the economy and the company's demand-pull initiatives.

The recently launched Punch.ev has garnered strong interest and will scale up electric vehicle (EV) volumes further. The management said it remains focused to achieve double digit Ebitda margins in PV, grow margins in EV and deliver market-beating growth.

Meanwhile, the rating agency CRISIL believes that in a global slowdown, the impact may be limited on JLR volumes given strong order backlog, healthy demand and JLR’s premium positioning.

With high operating leverage and on the back of significant reduction in cost and breakeven levels, JLR’s reported operating margins improved to around 16 per cent in first nine months of fiscal 2024 against 11.3 per cent in fiscal 2023 and is expected to remain healthy at above 15 per cent in fiscal 2024.

CRISIL estimates annual cash accrual at Rs 45,000-47,000 crore over the medium term, adequate to meet yearly debt repayment of Rs 13,000-18,000 crore. As of March 2023, consolidated cash & equivalents stood at around Rs 50,000 crore besides undrawn bank lines of about Rs 15,200 crore at JLR.

Further, the domestic fund-based bank limit remains moderately utilized. Capex including research & development expenses of around Rs 22,000-27,000 crore each for fiscals 2024 and 2025 is expected to be funded through internal accrual, cash balance. Additionally, liquidity remains supported by strong financial flexibility, being a part of the Tata group, the rating agency said in rationale.

Motilal Oswal Financial Services said that Tata Motors should witness a healthy recovery as supply-side issues ebb (for JLR) and commodity headwinds stabilize (for the India business). The next leg of growth will be driven by JLR, as the brokerage firm expects EBIT margin to reach ~9.9 per cent by FY26, in line with the management’s guidance. While the India CV and PV businesses would see some moderation in growth in FY25E, the focus shifts to margin expansion led earnings growth, which is likely to sustain, it added.