Tata Motors sinks on weak JLR margin, analysts say buy

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26 Aug, 2025 12:21

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Moneycontrol Bureau

Shares of Tata Motors tumbled over 8% on Wednesday morning as weak margins at its luxury Jaguar Land Rover unit, despite strong sales growth, left investors disappointed.

"Tata Motors' margins have been volatile between quarters. Q4 JLR margins slipped to 14.6% versus 17% reported in Q3 and 13.7% in Q4 FY11. The reasons for drop in margins include employee ramp up for both R&D and higher production, weaker product mix and year end house keeping expenditures," said Sachin Gupta and Ashish Poddar of Edelweiss Securities.

Overall, Tata Motors fourth quarter consolidated net profit more than doubled year-on-year to Rs 6,234 crore as continued strong growth at luxury Jaguar Land Rover unit coupled with an exceptional gain helped cushion domestic speed bumps.

The company had tax credit of Rs 1,826 crore in Jan-March in its subsidiary company. Tata Motors' profit before exceptional items and tax surged 68% to Rs 4,596 crore in the quarter.

Its consolidated revenue for the fourth quarter was up 44% to Rs 50,908 crore.

Analysts on average were expecting a net profit of Rs 4,200 crore on revenue of Rs 50,400 crore, according to a CNBC-TV18 poll.

JLR also raised its capital expenditure plan for this year to GBP 2 billion from GBP 1.5 billion, which will be invested in new products and capacities, according to JLR's CEO Ralf Speth.

Margins apart, investors are also concerned a likely slowdown in China could hurt JLR's sales there, even as demand in Europe remains uncertain due to the debt crisis. Speth said on Tuesday, that markets like China, India, Russia and South America are expected to drive growth going ahead.  JLR has inked a joint venture with Chery Automobile to make cars in China.

Gupta and Poddar of Edelweiss say demand continues to be robust and the company is well on track to meet its guidance of 3.60-3.80 lakh volume sales in the current financial year.

Brokerage KimEng too says there is not much to worry about at this point of time.

"From its peak in early 2012, the Tata Motors stock is down 14%, largely pricing in the damage from possible downgrade in Europe/China," it says.

"Given the sequentially weak margin and increased capex guidance, the stock may correct by up to 10% in near term. However, strong volume growth, weak rupee and inexpensive valuation make outlook favourable," the Edelweiss analysts say.

Edelweiss has a "buy" rating on Tata Motors with a target price of Rs 334 on the stock. KimEng too maintains a "buy" with a target price of Rs 335.

While JLR margins were under pressure, its a different picture in its domestic operations. Here EBITDA (earnings before interest, taxes, depreciation and amortization) margin improved to 9.5% from 8.9% a year ago, even as standalone net profit declined to Rs 565 crore from Rs 573 crore.

A pickup in passenger vehicle sales in the quarter lowered losses from the division, helping margins, analysts said.

Angel Broking also recommends investors "accumulate" Tata Motors, and has a target price of Rs 312 on the stock.

Here are some analysts comments on Tata Motors:

Antique: Sharp downgrades in JLR margins are bound to follow – a function of water over heightened expectations after a spectacular Q3, where Indian GAAP JLR margins were at 20.1% (street was incorrectly extrapolating this number). Post downgrades, we believe that the more rational expectations of JLR margins would only be good for the stock. Structural positives (on both volumes & margins) remain intact. Rating: Buy. Target: Rs 314.

Karvy Stock Broking: We believe that Tata Motors' JLR volumes are well on track on account of increasing geographies as well as expanding the dealer network - particularly in China - where the Company's aims to increase its network from existing 70 dealers to over 100 dealer touch points over next one year. Rating: Buy.

Morgan Stanley: We expect stock performance to be range bound as the earnings cycle is slowing after two years of upgrades, product cycle is muted relative to FY12 and industry growth is moderating. After two years of earnings upgrades, we are cutting earnings for Tata Motors by 14%/3% over FY13/14 on weaker margins in JLR. Rating cut to equal-weight from overweight. Target: Rs 291.

Prabhudas Lilladher: Adjusted for GBP 217 million tax credit, JLR profit stood at GBP 422 million, versus GBP 440 million in Q3. This in our view, is a big disappointment given that volumes for the quarter were up 11%  sequentially and currency impact was minimal. We believe there would be near-term pressure on the shares and the monthly volumes would be the key to the stock price performance. Rating: Accumulate. Target: Rs 296.

At 11:25 hrs, Tata Motors shares were down near 9% at Rs 251.20 on NSE.

Nachiket Kelkar
nachiket.kelkar@moneycontrol.com