Market Disappointment: Tata Motors Stock Dips Following Q4
Tata Motors Ltd witnessed a significant downturn in its shares during Monday’s trading session, prompted by the release of a mixed bag of financial results for the March 2024 quarter. The market response was swift and disappointed, as the company fell short of Q4 estimates, compounded by a subdued outlook for its Jaguar Land Rover (JLR) segment. Despite reporting a staggering 222 percent year-on-year surge in consolidated net profit, reaching Rs 17,407 crore, attributed to enhanced operating leverage, favorable commodity prices, and robust volume growth across various sectors, the revenue from operations only saw a 13 percent increase to Rs 1.2 lakh crore.
While Tata Motors’ financials may appear commendable initially, its Q4 results failed to meet Street estimates concerning revenue and Ebitda performance. Analysts suggest that the zenith of performance for all Tata Motors businesses might have already been reached, projecting a more moderate growth trajectory in FY25 due to a high base. Cautious optimism prevails, especially with concerns over demand, leading to expectations of a weaker first half. Following the Q4 earnings disclosure, Tata Motors’ shares nosedived by over 9.22 percent to Rs 950.30 on Monday, resulting in a total market capitalization exceeding Rs 3.15 lakh crore for the day. Notably, the stock had closed at Rs 1046.85 in the previous trading session on Friday, marking a substantial increase of over 100 percent from its 52-week lows.
Kotak Institutional Equities analysts pointed out that Tata Motors’ consolidated Ebitda fell short of expectations, primarily due to the underperformance of its domestic commercial vehicle (CV) segment. However, the Ebitda of JLR and domestic passenger vehicle (PV) businesses aligned closely with projections. Despite the challenges, Tata Motors achieved a free cash flow of Rs 26,900 crore in FY24, leading to a significant reduction in consolidated net debt and remaining on track to achieve a net cash position by FY25. The outlook remains positive for FY2025-26, with steady performance expected from JLR, supported by improvements in product mix and cost management, alongside potential market share gains in the PV and CV segments, culminating in a net cash balance sheet by FY25.
Conversely, Motilal Oswal Financial Services cautioned about impending challenges that could hinder Tata Motors’ performance, particularly concerning JLR’s margin prospects amidst anticipated cost escalations and normalization of product mix, as well as a subdued outlook for the Indian business segment. Consequently, the brokerage firm revised its target price for Tata Motors to Rs 970 while maintaining a ‘neutral’ rating.
Furthermore, the Q4FY24 revenue and Ebitda growth of 13 percent and 33 percent YoY, respectively, slightly undershot estimates due to weaker-than-expected figures from the Indian CV and PV divisions. Additionally, Nuvama Institutional Equities highlighted a reduction in JLR’s order book from 1,48,000 units in December 2023 to 1,33,000 units in March 2024. Despite these challenges, Nuvama Institutional Equities expressed optimism about Tata Motors’ future performance, projecting a healthy outlook for FY2025-26, supported by consistent growth in the JLR business, enhanced product mix, cost efficiency measures, potential market share expansions in the PV and CV segments, and the attainment of a net cash position by FY25, with an ‘add’ rating and a fair value target of Rs 1,100.
Concerns persist regarding Tata Motors’ ability to navigate impending challenges, despite operationally sound results for Q4FY24, with Ebitda margins expanding by 30bp QoQ to 14.2 percent. Motilal Oswal Financial Services reiterated these concerns and downgraded Tata Motors to ‘neutral,’ citing uncertainties surrounding JLR’s margin improvement prospects and the Indian business segment’s subdued performance outlook. In contrast, JM Financial remained optimistic about Tata Motors’ prospects, citing expectations of increased marketing expenditures to bolster JLR’s order book, a flattish Ebit margin for FY25, and robust free cash flow generation supporting investments in electrification at JLR. JM Financial maintained a ‘buy’ rating with a target price of Rs 1,200.
Nomura downgraded Tata Motors’ stock to ‘neutral’ from ‘buy,’ despite raising the target price to Rs 1,141, citing concerns about demand risks for JLR and the commercial vehicle industry, despite anticipated growth in the passenger vehicle segment. As the stock approaches fair value territory after steady performance, Nomura emphasized the need for caution amidst market uncertainties.
Follow for more.
