Tata Motors shares: JLR cuts FCF guidance; price targets see downward revisions

Against an expectation of 25-42 per cent jump in net profit, Tata Motors Ltd reported a 11 per cent drop in the bottom line for the September quarter. Sales were down 3.5 per cent YoY, largely in line with Street expectations. The weak quarter saw Ebitda margin contracting 320 basis points YoY at JLR on account of earlier guided production challenges. The India CV and PV business reported largely resilient profitability despite demand challenges.

Analysts noted that while JLR maintained its FY25 EBIT margin guidance of 8.5 per cent, it reduced its free cash flow (FCF) guidance from 1.8 billion British pounds to 1.3 billion British pounds due to high capex. 

InCred Equities said: "JLR’s Q2 Ebitda margin collapse of 320 bps YoY on just a 6 per cent YoY dip in net sales disappoints. Despite a superior product mix, weak ASP (down 4 per cent QoQ), easing gross margin and rising variable marketing expenses are areas of concern. The management blames supply challenges and quality issues for weak Q2 and expects to meet its full-year EBIT margin guidance," it said.

Considering the weak global demand, Chinese competition and guidance cuts by other premium car makers, InCred Equities cut its Ebitda estimates for Tata Motors by 8-14 per cent for FY25F-27. 

BNP Paribas said JLR maintained its FY25 revenue (GBP30 billion) and EBIT margin (8.5 per cent) guidance in contrast to German peers, but it cut FCF guidance to GBP1.3 billion from GBP1.8 billion, highlighting heavy investments. 

The management was cautiously optimistic, expecting H2FY25 to be better than H1FY25 for all segments  while noting any incremental weakness in China as a key risk, BNP Paribas said.

"While JLR expects significant improvement in 2H, acknowledging macro challenges (particularly in China/Europe) and higher-than-anticipated capex on ICE models, the company reduced its FCF guidance to GBP 1.3 billion from GBP 1.8 billion earlier. With significantly reduced break-even levels, strong product portfolio, and focus on cash flows over the past few years, JLR is well placed amid the uncertain global environment," Emkay Global said. 

The brokerage trimmed its FY25-27 EPS estimates by 4-5 per cent due to a miss on Q2 margins and flattish JLR volumes. It retained 'Buy' with a downward revision in target price to to Rs 1,000 from Rs 1,175 earlier, reflecting a lower India CV multiple akin to Ashok Leyland and Ebitda cut in JLR.

Tata Motors shares have gained 1.64 per cent in 2024 so far against 28.22 per cent rise in the BSE Auto index during the same period. The scrip is up 23 per cent in the past one year.

In view of the concerns expressed by many global OEMs, JLR maintaining guidance is a key positive, Nomura India said. JLR’s performance across markets has been better than peers, it said. The brokerage, however, has cut its target price to Rs 990, as reduced consolidated Ebitda estimates by 5-9 per cent for FY25-27.

Nuvama said Tata Motors Q2FY25 Ebitda was 22 per cent below its estimates, mainly due to revenue miss and higher discounts and marketing spends in JLR. Baking in lower revenue and margin assumption in JLR and India CV/PV divisions, it cut its FY25–27 Ebitda estimates by 10–20 per cent.

We expect revenue/Ebitda CAGR of nil/4 per cent over FY24–27 versus 21 per cent/25 per cent over FY21–24. In JLR sales, we build in minus 3 per cent CAGR over FY24–27E on order book rundown and weak demand across regions. In India CV sales, we expect a flat CAGR due to moderate infra spends and competition from railways," Nuvama said wile suggested a target price of Rs 767 from Rs 1,010 earlier.     

Sagar Shetty, Research Analyst at StoxBox said Tata Motors exhibited weak financial performance during the quarter, falling short of the estimates on all counts. The performance was largely hampered by the weak performance of the JLR segment due to the supply constraint during the quarter. The overall slowdown in the PV and CV segment in the domestic market and seasonality effects also contributed to the decline, it said.

"With the onset of the second half of the financial year, the company’s prospects look rather green, with JLR witnessing recovery in its wholesale as the supply challenges ease and resuming construction activity post-monsoon, which will likely drive demand for CVs going ahead. However, the company continues to remain cautious of the demand outlook in the PV segment," he noted.

Tata Motors aims to drive growth in PVs based on new launches while keeping inventory levels in check. 

"We believe the company will be able to leverage its multi-powertrain strategy to benefit from the shifts in industry powertrain preference. Thus, we remain positive on the medium-term growth aspects of the company. The management’s comments on the demand outlook across segments will be key," Shetty said.

MOFSL said there are clear headwinds ahead that could hurt Tata Motors performance. The brokerage has lowered its Ebitda estimates for Tata Motors by 3 per cent for FY25 and 7 per cent for FY26 to factor in weakness in JLR business.

"The stock trades at 15 times FY25E/FY26E consolidated EPS and 6.5 times/5.5 times EV/Ebitda. We eeiterate Neutral with September 2026E SOTP-based target price of Rs 840," it said.