Tata Motors Q3 Preview: Net profit may fall 7%, margins likely to contract on negative operating leverage

Tata Motors' shares have tumbled almost 18 percent over the last three months.

Tata Motors, India's largest electric vehicle manufacturer, is set to release its earnings report for the third fiscal quarter of FY25 on January 29. Analysts expect an uptick in revenue, driven by a decent JLR performance and domestic passenger vehicle business. However, margins could come under pressure, a host of auto analysts say.

According to a Moneycontrol poll of five brokerage firms, the Nexon maker is anticipated to record a 6 percent year-on-year increase in revenue, reaching Rs 1,16,873 crore. However, the company's net profit is projected to fall over 7 percent to Rs 6,525 crore from Rs 7,028 crore in the same quarter of the previous fiscal year.

There is a serious divergence in the earnings estimates of different analysts polled by Moneycontrol, with the most optimistic estimate seeing a nine percent jump in net profit, while the most pessimistic projection predicts a 19 percent fall in Tata Motors' bottom-line.

What factors are driving Tata Motors' earnings?

Steady JLR Sales: Jaguar Land Rover volumes are expected to remain flat year-on-year, as weakness in the European and Chinese markets offsets steady sales momentum elsewhere.

Margin Contraction: Analysts expect EBITDA margin to decline to 13.7 percent from 13.9 year-on-year, due to rising discounts and negative operating leverage. However, on a sequential basis, margins are expected to improve due to cost efficiencies.

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Domestic Performance Boost: Growth in the Indian passenger vehicle and commercial vehicle businesses is expected to support the company’s overall performance. Analysts project an 8-11 percent year-on-year increase in consolidated revenue, aided by improved sales volumes and higher realizations in both segments.

What to look out for in the quarterly show?

Investors will closely track management commentary on JLR’s demand trends, particularly in the European and Chinese markets, and its margin trajectory. Any signs of sustained softness could impact future earnings. Tata Motors’ position as a leader in India’s EV market adds a layer of interest. Updates on the company’s EV bookings and production ramp-up will be keenly watched.

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Tata Motors shares closed at Rs 733, lower by almost 3 percent from the last close on the NSE on January 27. Tata Motors' stock price has corrected nearly 18 percent in the last three months.