Tata Motors will continue its turnaround story this fiscal year, according to analysts. They believe this growth will be driven by its India business, improving product mix and pricing actions, Jaguar Land Rover (JLR)’s healthy performance along with a reduction in its net debt and increase in free cash flow.
Kumar Rakesh, Analyst – IT & Auto of BNP Paribas maintained a Buy rating with a target of Rs 655 on the stock. He pointed out that, “JLR’s FY24 guidance of 400,000+ unit volume, 6%+ EBIT margin and 2 billion pound + FCF, although optimistic, is reassuring. With all the drivers aligned, we see TTMT entering a phase of a strong volume growth, margin expansion and FCF generation.”
“FY23 was a good year for the company driven by multiple new product launches, infra push by the government, a strong demand environment and positive recovery of the CV passenger set. This has led the company to end India business net debt at the lowest levels in 15 years along with all-time high revenue, PAT & EBITDA. This has aided the company to declare dividends for the first time since 2016,” said Rohan Mehta, Founder and Portfolio Manager, Turtle Wealth.
Elara Securities’ Jay Kale added that, “While revenue improved 50 per cent, year-on-year, net realization surged 21 per cent YoY but dipped 1.1 per cent QoQ, owing to reducing China contribution on-quarter. However, margins were favorably impacted because of improving UK contribution.”
Tata Motors demonstrated capability in newer technologies in the CV space and pricing discipline across the industry to “aid aspiration of double-digit margins ahead”. It also maintained a dominant position in the domestic electric PV space with an 80 per cent market share and also showed commitment towards EV with JLR’s plans to put in more bucks on it over the next five years. “We expect a healthy 20.1 per cent revenue CAGR over FY23-25E driven by a 10 per cent total volume CAGR amid healthy wholesale visibility on the JLR front,” said Basudeb Banerjee, Analyst, ICICI Securities. However in terms of PV, the management expects near-term demand in PVs to be flat because of a high base effect and the advance buying in Q4FY23 to avoid the price hike due to BS6 phase II norms.
Further, as chip supply continues to improve, JLR increased production and delivered healthy results in the quarter along with a reduction in its net debt and an increase in free cash flow, said Dhruv Mudaraddi, Research Analyst, Stoxbox. Also, CV demand outlook in the near-term remains optimistic owing to the government’s continued thrust on infrastructure development despite challenges like rising fuel prices and interest rates. “The CV segment posted growth in revenue and margins improved despite wholesales being down, implying that the demand-pull strategy has started to yield results as profits and market shares improved sequentially,” he added.
While the company is hopeful of further improvement in the chip supply and demand environment, Himanshu K Singh, Research Analyst, Prabhudas Lilladher said, “Q1FY23 volumes could see decline due to pre-buying in Q4FY23 and should grow Q2FY24 onwards, helped by record infrastructure spending plus being a pre-election year.” In the PV segment, Tata Motors sees growth rate moderating to 5-7 per cent for FY2024 and returning to double digits in FY2025, it sees the entry level segment underperforming during the year,” he added.