Tata Motors reported weak earnings for the December quarter, exacerbated by a sharp slowdown in its luxury Jaguar-Land Rover business, margin contraction and cautious demand outlook for for key markets like China. Reflecting the management’s concerns over near-term demand and growth prospects, brokerages have remained cautious, with several revising their price targets downward.
The widespread caution on the Street also soured investor sentiment, dragging the stock as much as 9 percent on January 30. At 11.34 am, shares of Tata Motors were trading at Rs 704.50 on the NSE, off its 14-month low of Rs 683.20 that it touched earlier in the session.
Tata Motors reported a 22 percent on-year drop in its consolidated net profit to Rs 5,451 crore for Q3 FY25. The weak performance was attributed to margin pressures and sluggish Jaguar Land Rover (JLR) volumes, despite a sequential recovery. Revenue rose a mere 2.7 percent to Rs 1,13,575 crore, driven by a modest uptick in overall sales. A Moneycontrol poll of analysts had predicted Tata Motors' revenue at Rs 1,16,873 crore and net profit at Rs 6,525 crore, meaning that the automaker's actual numbers lagged the estimates on both accounts.
EBITDA margins also took a hit and contracted by 60 basis points to 13.7 percent in Q3, reflecting cost pressures and a less favorable mix.
More concerning was the management's cautious outlook on overall demand, particularly in China, and a 3 percent reduction in its FY25 JLR target revenue.
In light of this caution, brokerage firm Jefferies downgraded Tata Motors after 3.5 years, assigning it an ‘underperform’ rating and slashing its price target to Rs 660.
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While the firm expects better seasonality to somewhat aid the company's earnings in Q4, it still cut its FY25-27 EBITDA estimates by 7-11 percent and earnings-per-stock by 5-10 percent to factor in the weak numbers.
On similar grounds, Nuvama Institutional Equities cut its FY25 EBITDA target for Tata Motors by 4 percent, forecasting a muted revenue and EBITDA compound annual growth rate (CAGR) of just 2 percent for FY25–27. "For JLR, we expect volume contraction due to order book exhaustion, discontinuation of ‘Jaguar’ models and subdued demand across regions," Nuvama said.
Furthermore, the firm expects Tata Motors' India commercial vehicle (CV) division to turn in a muted performance (1 percen CAGR) owing to moderate road construction spends and a high base. Baking these headwinds, Nuvama has also cut its price target for the stock by 4 percent to Rs 720, as it retained its 'reduce' call on Tata Motors.
Morgan Stanley also held on to its 'equal-weight' call on the stock with a price target of Rs 853. The brokerage was also disappointed with the Tata Motors' reduced FY25 revenue and RoCE (return on capital employed) guidance for JLR.
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