July 20, 2024
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Business Stocks

Tata Motors Faces Stock Decline Amid Mixed Q4 Results

Tata Motors

Shares of Tata Motors Ltd experienced a significant decline during Monday’s trading session following the release of a mixed set of financial results for the March 2024 quarter. The immediate market response reflected disappointment as the automotive giant fell short of Q4 estimates, coupled with a subdued outlook for its Jaguar Land Rover (JLR) segment. Despite Tata Motors reporting a remarkable 222 percent year-on-year surge in consolidated net profit, amounting to Rs 17,407 crore, attributed to enhanced operating leverage, favorable commodity prices, and robust volume growth across various sectors, the revenue from operations increased by only 13 percent to Rs 1.2 lakh crore.

While Tata Motors’ financial figures may seem impressive at first glance, its Q4 results failed to meet Street estimates in terms of revenue and Ebitda performance. Market analysts suggest that the peak performance for all Tata Motors businesses might have already passed, forecasting a more moderate growth trajectory in FY25 due to a high base. There is a cautious optimism prevailing, especially with expectations of a weaker first half due to concerns over demand. Following the Q4 earnings announcement, Tata Motors’ shares plummeted 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 preceding trading session on Friday, marking a substantial increase of over 100 percent from its 52-week lows.

Analysts at Kotak Institutional Equities highlighted that Tata Motors’ consolidated Ebitda fell below expectations, primarily influenced by the underperformance of its domestic commercial vehicle (CV) segment. However, the Ebitda of JLR and domestic passenger vehicle (PV) businesses aligned closely with projections. Kotak also noted that 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 an improvement in product mix and cost management initiatives, alongside potential market share gains in the PV and CV segments, culminating in a net cash balance sheet by FY25.

On the other hand, Motilal Oswal Financial Services cautioned about impending challenges that could impede 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. In light of these factors, 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.

While Tata Motors delivered operationally sound results for Q4FY24, with Ebitda margins expanding by 30bp QoQ to 14.2 percent, concerns persist regarding the company’s ability to navigate impending challenges. 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. However, 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.

In contrast, 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.

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