Buy Tata Motors; target of Rs 950: Emkay Global Financial

Emkay Global Financial's research report on Tata Motors

TTMT’s Q3 performance was below expectations driven by sequential ASP decline at JLR and standalone operations, as well as lower than expected margin expansion in JLR (JLR margin up by 244bps QoQ to 14.2%, consolidated margin stable at 11.5%). TTMT has marginally reduced FY25E JLR revenue guidance to £29bn (vs £30bn earlier, on general market challenges, especially in China), and maintained guidance on EBIT margin (~8.5%) and FCF (£1.3bn) while acknowledging the need for a strong Q4 to meet it (largely driven by higher production and usual seasonality-led strong cash generation in Q4). India CV outlook is improving amid green shoots in underlying metrics like fleet utilization levels, freight rates, and financing. Encouragingly, the India electric PV business turned EBITDA-positive (10%/1.7% margin with/without PLI); TTMT expects sequential improvement in both, CVs and PVs in Q4. We believe that while global demand uncertainties persist, JLR’s focus on mix and profitability would help the broad-based improvement to continue (we build-in ~£1bn FCF and net-cash balance sheet in FY25E).

Outlook

We also expect the CV momentum to improve albeit gradually, amid slower than expected pick up in government infra/capex spends. We trim our EPS estimates by ~2.5% largely due to the Q3 margin miss; we maintain BUY with unchanged SoTP-based TP of Rs950.