Jaguar Land Rover’s (JLR’s) margins is expected to improve by FY24 and drive a significant reduction in Tata Motors’ debt levels, according to Nomura.
Following an interaction with the company management, at the Nomura’s Virtual India Corporate Day, the analysts wrote that the company is focusing on improving cash-flow generation to reduce its net debt.
The brokerage forecasts that JLR’s margins will improve to 14.1 per cent in FY24 from 10.3 per cent in FY23 and will be the key driver for the auto major’s debt to fall by 60 per cent by FY25. The analysts expect Tata Motors’ debt to fall to Rs 230 billion (Rs 60 per share) in FY25 from Rs 575 billion (Rs 150 per share) currently.
The management shared how the high interest-rate environment has not made a big impact on the order JLR book yet, though there is some pressure being felt in the lower-end passenger vehicle (PV) models.
JLR volumes are expected to rise marginally by 2 per cent to 367,000 units in FY23 and then jump by 28 per cent to 4,70,000 units in FY24.
“Demand remains robust and the order book remains strong… According to management, premium cars do have better resilience to market conditions which has resulted in a steady rise in order book,” stated the report.
Nomura has maintained their buy call on Tata Motors and a target price of Rs 508. Currently, they estimate that the stock is trading at 4.3x FY24EV/EBITDA. The stock is trading at Rs 422, falling by 0.19 per cent from its previous close.
Also read: JLR's sales jump 33% in UK market, Tata Motors stock climbs
At the interaction, the management shared how different verticals were performing.
“Management highlighted that demand remains strong across JLR, commercial vehicle (CV) and passenger vehicle (PV) businesses. It has started witnessing a softening of demand in its PV business with dealer inventory increasing. JLR's order book remains at healthy levels with steady improvements,” the report noted.
CV demand remains strong thanks to infrastructure investments and the segment saw a pre-buying trend, with consumers trying to stay ahead of the new emission norms that will come into place from April 1, 2023. Management believes that 1QFY24F CV volumes can be impacted due to the pre-buying in 4QFY23F, but expects this to stabilize from 2QFY24F onwards, the report stated.
