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In 1QFY24, JLR reported EBITDAM of 16.3% (+990bps YoY, +170bps QoQ), +130bps above JMFe. Adj. EBITDAM (adj. for higher inventory) stood at c.15.3%. Sequential improvement was largely led by better mix. India business (CV+PV) EBITDAM stood at 7.9%, broadly in-line with JMFe. TTMT expects chip supplies to gradually improve through FY24. Management has maintained FY24 production guidance of c.400k+ units at JLR and indicated of upside risk to 6% EBIT margin guidance led by favourable mix, softening RM cost (during 2H) and higher operating leverage. Global retail demand remains healthy with strong order backlog. Strong FCF generation is expected to support higher investments towards electrification at JLR.  Tata Motors’ EV portfolio is leading the domestic EV space.  Improving margins for both domestic CV and PV segments augurs well for the overall profitability of the company. The company targets to turn net debt free by FY25. Maintain BUY with Jun’24 SOTP of INR 730 (standalone / JLR valued at 10x /2.5x EV/EBIDTA). Slowdown in key global markets remains a risk to our estimates.  

* JLR –margin beats estimates: JLR reported revenue of £6.9bn (+57% YoY, -3% QoQ), 2% below JMfe, primarily due to lower than expected realisation growth. Wholesale volume (ex-CJLR) grew 30% YoY to c.93.3k units (-1.5% QoQ) led by receding supply challenges. Order book continues to remain strong at 185k units (200k units at 4Q end) driven by Range Rover, Range Rover Sport and Defender models. EBITDA margin stood at 16.3% (+990bps YoY; +170bps QoQ), +130bps above JMFe. Sequential improvement in margins was led by better mix and higher closing inventory (c.100bps positive impact). FCF stood at positive £451mn for 1QFY24 (positive £521mn for FY23). Share of electrified model stood at 74% during 1Q, with 13% share of BEVs & PHEVs.  

* JLR – outlook: TTMT highlighted that chip supply is expected to improve gradually during FY24 owing to recent LT agreement with chip suppliers. And, the company has maintained its FY24 production guidance of c.400k+ units (vs. 321k units in FY23). Given the margin performance during 1Q and expected softening in commodity prices (partially offset by higher VME), the company indicated of upward revision in FY24 EBIT margin guidance (c.6%) during 2H. FY24 FCF guidance stands at ~£2bn. Current net debt stands at £2.5bn (vs.£3bn at FY23 end) and the company expects to turn net cash by FY25. Overall, the management remains optimistic on demand environment despite near-term uncertainties and expects a moderate inflationary environment in the near-term. For 2Q, production and cashflow is expected to be lower due to planned 2 weeks shutdown but wholesales and profitability is expected to be in-line with recent trends.

* India business – margin broadly in-line: Standalone revenue (pro forma of India CV + PV business) stood at INR 287bn (+8.5% YoY, -11% QoQ), 4% above JMFe. Standalone business reported a negative FCF of ~INR 20bn during 1QFY24 primarily due by higher working capital. EBITDAM stood at – CV: 9.4% (-70bps QoQ; JMFe +160bps), PV: 5.3% (+200bps QoQ; JMFe -220bps).  

* India CV segment performance and outlook: CV segment EBITDA margin stood at 9.4% (+390bps YoY, -70bps QoQ). YoY improvement was led by better realisation and higher operating leverage. The management expects industry growth to be led by Buses and MHCV segment during FY24. Demand in 2QFY24 is expected to remain soft due to seasonality (expected to improve QoQ). The tailwinds for CV segment are a) improving transporter’s sentiment index and b) GoI infrastructure thrust. The company indicated of continued focus on driving profitable growth. Softening RM prices are also expected to drive margins going ahead. Company’s focus will be on higher retail sales and recovering retail market share through value-selling BS6 phase 2 compliant products.

* India PV segment performance and outlook: PV segment EBITDA came-in at 5.3% (200bpsQoQ). Sequential decline was due to IPL related marketing spends. Share of EV/CNG vehicles in total volumes stood at 14%/8% during 1QFY24. Management indicated that 1) reducing battery price and other RM costs, 2) higher operating leverage, 3) higher localisation and 4) PLI incentive (likely from 2HFY24) is expected to support margin for EV business going ahead.  The company indicated its PV order book remains strong and the company has gained market share in hatchbacks (now No.2 player) led by multi-powertrain strategy. Both, Altroz CNG and Tiago EV has been received well. The company indicated of healthy new launch (incl. refreshes) pipeline during FY24. 

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