Tata Motors is expected to show smart recovery for Q3FY22 on sequential basis with easing concerns of semiconductor and strong volume growth, though year-on-year (YoY) performance is likely to remain weak.
The automaker will announce its financial results for the quarter ended 31 December 2021 today.
Analysts largely expect the company to post loss of more than Rs 2,200 crore for the quarter ended December 2021 as chip shortage issue hit Jaguar Land Rover business, against profit of Rs 2,906.5 crore in the corresponding period last fiscal and loss of Rs 4,441.6 crore in September 2021 quarter.
Revenue on consolidated basis is likely to fall to single digit but sequentially may see double-digit growth with recovery in volumes, while operating income may fall significantly YoY, but sequentially could grow in double-digit for the December 2021 quarter.
Tata Motors shares have rallied 49 percent since the beginning of October 2021, outperforming sharply not only Nifty50 (that was down 3 percent) but also Nifty Auto index (that gained 8.4 percent), thanks to increase demand for commercial vehicle segment and easing of semiconductor crisis for JLR.
"We expect JLR revenues (ex-China JV) to decline by 25 percent YoY in Q3FY22," said Kotak Institutional Equities.
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The brokerage expects EBITDA margin to improve by 210 bps QoQ to 9.4 percent due to operating leverage benefit and cost-mitigation measures. "As a result, we expect JLR EBIT margin to come in at negative 1.2 percent in Q3FY22."
Overall JLR retail volumes declined 37.6 percent YoY and 13.6 percent QoQ to 80,126 units in October-December quarter.
Jaguar Land Rover on January 12 had said its retail sales for the three-month period to December 31, 2021 continued to be constrained by the global semiconductor shortage, though the company started to see some improvement in chip supply and wholesale volumes compared to the preceding quarter.
"Underlying demand for Jaguar Land Rover products remains strong and the company has proactively managed semiconductor supplies to maximise production of higher margin products," it added.
On sequential basis, Prabhudas Lilladher says JLR revenue could grow 16 percent as volumes are expected to improve with semiconductor issue gradually easing out. "Margin is expected at 9.7 percent versus 7.3 percent QoQ."
On standalone basis, which is largely a domestic business, both brokerages (Kotak and Prabhudas Lilladher) expect revenue to grow by 18 percent QoQ owing to strong growth in volumes (15 percent). The 3 percent sequential increase in average selling price is also likely to support topline.
Overall, "we expect EBITDA margin to improve to 4.1 percent in Q3FY22 from 2.2 percent in Q2FY22 led by (1) operating leverage benefits and (2) cost mitigation, partly offset by raw material headwinds," said Kotak.
Prabhudas Lilladher remained positive on Tata Motors given its (1) assertive stance on electric vehicle ecosystem, (2) the passenger vehicle business with its SUV focused approach and new product pipeline is set to gain market share and (3) commercial vehicle benefitting from cyclical upturn.
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