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Strong beat; JLR targets to cut net debt by GBP2b in FY24

* TATA Motors (TTMT)’s 4QFY23 result was a strong beat across businesses resulting in consol. PAT of INR56b (v/s est. of INR27b). Consol. net debt (auto) reduced INR138b QoQ to INR437b. With expected JLR wholesales of ~400k in FY24, management is targeting >6% EBIT margin, FCF of GBP2b and to reduce net debt to

* We upgrade our consol. EPS by 13%/6% for FY24E/25E to factor in: a) JLR’s volume ramp up as well as moderation in certain costs, and b) margin improvements in India businesses. Reiterate BUY with a Mar’25 SOTP-based TP of INR590.

Margin improvements continue across all the key businesses

* Consolidated business: Consol. revenue grew 35% YoY in 4QFY23 to INR1,059b (v/s est. INR975b). EBITDA rose 46.5% YoY to INR128b (v/s est. INR113b). Adj. PAT stood at INR56.2b (v/s loss of INR3.2b in 4QFY22; est. of INR27b). Automotive FCF was positive at INR113b (+43% YoY), driven by JLR’s FCF of GBP815m (v/s +GBP340m in 4QFY22). Net debt (Auto) reduced INR138b QoQ to INR437b. FY23 revenue/EBITDA grew 24%/28% YoY and adj. PAT stood at INR8.2b (v/s loss of INR108b in FY22).

* JLR – EBIT margin expands to 6.5%: JLR’s volumes grew 24% YoY (+19% QoQ) to 94.7k (v/s est. 84.5k units). Net realizations improved 20% YoY/fell 1% QoQ to GBP75k/unit (v/s est. GBP77.9k). EBITDA margin improved 200bp YoY (+270bp QoQ) to 14.6% (v/s est. 12.9%). JLR’s adj PAT was at GBP263m (v/s est. GBP179m/loss of GBP17m in 4QFY22).

* Tata CV business – EBITDA margin at a 17-quarter high of 10.2%: India CV business’ realizations improved 18% YoY (+3% QoQ) to INR1.83m (v/s est. INR1.81m). EBITDA margin rose 400bp YoY (+170bp QoQ) to 10.2% (v/s est. 10.3%) driven by better mix, higher realizations, cost efficiency measures and commodity cost savings.

* Tata PV business – FY23 EBITDA margin for ICE/EV at 8.1%/(-4.6%): Realizations improved 5% YoY (flat QoQ) to INR892k (v/s est. INR894k) in 4QFY23. EBITDA margin rose 30bp YoY/QoQ to 7.3% (v/s est. 6.7%).

Highlights from the management commentary

* JLR expects gradual improvements in chip supply to continue during FY24. It is likely to achieve EBIT margin of over 6% in FY24 (v/s 2.4% in FY23). It has guided for a capex of GBP3b (v/s GBP2.35b in FY23), FCF of GBP2b (v/s GBP0.52b in FY23) and net debt of

* JLR wholesales are likely to be ~400k units in FY24 with 1HFY24 wholesales runrate to be similar to 4Q level of ~95k/qtr. As production improves, it expects ~5,000 units/month reduction in the current order book of 200k units in 1HFY24.

* CV outlook: Management expects single-digit growth in FY24 CV volumes for the industry, with 1QFY24 to witness a decline due to pre-buying in 4QFY23. It is aiming for higher realizations and cost savings that would drive double-digit EBITDA margin in FY24.

* PV outlook: Management expects domestic PV industry to grow 5-7% in FY24 due to a high base effect, rising interest rates, inflation, and the cost impact from regulatory norms. It aims to reach double-digit EBITDA in the coming years and sustain positive free cash flows

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