On a day when benchmark indices saw volatility, Tata Motors’ share price increased by about 3% in morning trading on Monday, making it one of the top gainers among the Nifty 50 firms. Although Jaguar Land Rover’s margin weakness was the main cause of Tata Motors’ weak Q2 performance, analysts predict that the second half of FY25 will see an improvement as JLR’s margin issues subside.
The price of Tata Motors’ stock opened Monday at ₹801 on the NSE, somewhat below its closing price of ₹800.95. The price of Tata Motors’ stock fell to ₹792 but then rose to ₹829, representing gains of over 3%.
Tata Motors Q2 performance
The Tata Group company reported an 11% year-over-year (YoY) drop in consolidated net profit to ₹3,343 crore for the quarter ending in September 2024 (Q2 FY25) as opposed to ₹3,764 crore for the same period the previous year.
While profits before interest, tax, depreciation, and amortization (EBITDA) decreased 16% year over year from ₹13,767 crore to ₹11,567 crore, the EBITDA dropped 230 basis points to 11.4% due to a challenging external environment.
According to analysts, the Jaguar Land Rover margin miss was the cause of the margin weakness. In its quarterly presentation, Tata Motors stated that transitory supply bottlenecks had an impact on Q2 performance. Full-year projection remained intact at about £30 billion in revenue, an EBIT margin of ≥8.5%, and positive net cash.
Analyst views
According to Jefferies India Pvt Ltd, Tata Motors’ Q2 EBITDA dropped 15% year over year and was 9% worse than Jefferies’ projections due to a reduced JLR margin. Even though JLR is dealing with challenging macro conditions in China and Europe, delayed shipments and a limited supply of aluminium also had an effect on 2Q. JLR kept its FY25 margin estimate and anticipates a substantially improved 2H. The demand for PV and CV in India has also decreased, although Jefferies reports that CV profitability is holding up well.
According to analysts, JLR’s global peers have likewise reported a decline in volume for CY2024. The high base and slowdown in road development activity may also continue to affect the volume of commercial vehicles sold in India.
Due to poor volume growth at JLR (-3% CAGR) and the India Commercial Vehicle business (flat CAGR), Nuvama Institutional Equities is projecting a 2% revenue CAGR (compound annual growth rate) during FY24–27 as opposed to a 21% CAGR over FY21–24. According to Nuvama, JLR’s volume drop will be driven by order book exhaustion, the cessation of “Jaguar” models, the high base, and sluggish demand across regions.
Motilal Oswal Financial Services said that “while there is no doubt that Tata Motors delivered a robust performance across its key segments in FY24, there are clear headwinds ahead that could hurt its performance. Motilal Oswal has lowered our Ebida estimates for Tata Motors by 3% and 7% respectively for FY25/ and FY26 to factor in weakness in JLR business.”
