Tata Motors robust Q4 FY24 results, with net profit more than tripling year-on-year, was welcomed by a section of the Street but were met with scepticism from others, who questioned if the demand momentum will continue. Tata Motors stock fell nearly 10 percent at open on May 13 to Rs 950.
The company posted a staggering 222 percent year-on-year growth in its consolidated net profit at Rs 17,407 crore, helped by improved operating leverage, favourable commodity prices, and strong volume growth across various segments. Its revenue from operations increased 13 percent to Rs 1.2 lakh crore.
A slew of brokerages issued mixed calls on the stock of the country's leading electric vehicle manufacturer.
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Tata Motors free cash flow improves, debt falls
JPMorgan is bullish on the stock with an 'overweight' rating, raising the target price to Rs 1,115, implying an upside of 13 percent from the current price. Analysts said that Q4 was in line with expectations, but the free cash flow (FCF) surpassed both estimates and guidance. Jaguar Land Rover's (JLR) fourth-quarter FCF of GBP 892 million is particularly noteworthy. Management has reiterated its commitment to achieving a net cash-positive position in JLR and on a consolidated basis by the end of FY25.
Jefferies issued a 'buy' call with a raised target price of Rs 1,250 per share. Additionally, the company's net automotive debt dropped by 45 percent quarter-on-quarter to its lowest level in six years. Despite some concerns regarding industry demand in India, Jefferies maintains a positive outlook on Tata Motors. They highlight the company's strong position in the business cycle at JLR and anticipate a significant product launch in India's passenger vehicle segment in the second half of FY25.
Tata Motors, JLR face demand risk
On the other hand, Nomura downgraded the stock to 'neutral' from buy as it predicts that JLR can potentially face a demand risk. "PVs to grow ahead of the industry and CV growth can moderate," the international brokerage said in a report.
The company anticipates a sluggish start to FY25, citing an expected dip in local passenger vehicle (PV) demand amidst ongoing elections. "We see that the industry will moderate and grow less than 5 percent, given that the pent-up demand has exhausted, the channel inventory is high and in the first quarter, we will face certain factors like that of elections to dampen the demand for temporary for quarter one," Shailesh Chandra, managing director of Tata Motors' passenger vehicle said in a post-result earnings call.
Morgan Stanley has also downgraded the stock to equal-weight from overweight suggesting that 'banner year limits incremental upside'. Sharp EV pickup-led turnaround in FY25 would be a key upside risk to track.
JLR’s EV ramp-up may hit Tata Motors margins
Motilal Oswal reiterates its neutral stance on the company. The brokerage believes that "JLR's EV ramp up is likely to be margin dilutive,” it said, adding that even in the Indian market, both the CV and PV segments are seeing a moderation in demand. While there is no doubt that the auto giant has delivered an extremely robust performance across its key segments in FY24, there are clear headwinds ahead that could hurt its performance, it added.
Despite the subdued outlook for overall passenger vehicle demand, Tata Motors says that the premium luxury segment is poised to maintain resilience. In April, PV sales inched up by a modest 4 percent month-on-month to reach 3,35,123 units, as per data from the Federation of Automobile Dealers Associations (FADA).
The wholly-owned subsidiary of the company, Jaguar Land Rover (JLR), had a robust quarter yet again. JLR witnessed a remarkable surge in revenue, reaching 7.9 billion pounds, reflecting an 11 percent rise compared to the fourth quarter of FY23.
Tata Motors was the best performer on the Nifty in 2023, gaining over 100 percent.
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