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TTMT’s Q3 results were healthy with JLR/CV/ICE-PV margins rising 127bps/~70bps/~20bps QoQ to 16.2%/11.1%/9.4%. JLR’s FY24E EBIT margin guidance has been raised to over 8% (on expected lines vs. 8% earlier). We believe strong mix (despite some normalization from Q3) and healthy profitability would help meet the deleveraging target (maintains net cash guidance for JLR by FY25E). In PVs, we expect upcoming model launches to aid outperformance amid weakening industry outlook with competition launches now largely behind. We believe domestic CVs will peak in FY24, though margin expectations remain resilient on pricing discipline. We raise FY24E/25E/26E EPS by 3%/5%/8% (on Q3 beat, lower JLR tax rate assumption) and maintain ADD with new SOTP-based TP of Rs925 (vs. Rs900 earlier).

Healthy margin expansion across operations in Q3

Consolidated revenue was higher by 25% YoY at Rs1,106bn (largely in-line). EBITDA margin increased by 86bps QoQ to 13.9%; sequential improvement was driven by lower RM cost (down ~190bps QoQ) amid 127bps QoQ improvement in JLR’s EBITDA margin to 16.2% and 75bps QoQ uptick in standalone margin to 11.4%. Consolidated automotive FCF stood at Rs64bn (equivalent to Rs64bn achieved in H1), while net automotive debt reduced further to Rs292bn (Rs387bn as of Q2FY24). JLR’s FCF stood at GBP626mn in Q3FY24 vs. GBP751mn in H1; net debt now stands reduced to GBP1.6bn.

Earnings call KTAs

i) JLR: Order book stands at ~150K units (Q3 exit); expects run-down to 110K units going ahead (~19K reduction in Q3); the mix would normalize in the coming quarters on further ramp up in production; monitoring the evolution of the Red Sea issue – the situation is manageable at the moment; Electric Range Rover could be introduced in 12M – currently it has 16K customers on the wait list; expects marketing spends to rise going ahead (2.5% in Q3), though they would remain lower than earlier highs; there may be some inflation in wages, but no major cost headwinds are seen in raw material or energy; EBIT guidance for FY24E now stands at over 8% (vs. 8% earlier); retained 10% EBIT margin guidance for FY26; continues to expect less than GBP1bn net debt in FY24E and net cash status by FY25E. ii) India PVs: Industry growth is expected to moderate to sub-5% next year on a high base; turn in commodities flagged as potential risk; TTMT aims to maintain its market share (second largest player on retail basis) in ICE and drive EV penetration to >15% vs. 12% now; aims for double-digit margins in ICE PVs soon (9.4% in Q3) with improvement in E-PVs (near breakeven in Q3 pre-R&D spends); Sanand plant (acquired from Ford) to reach full utilization over the next 2-3 years; Curvv EV to be introduced in Q2FY25 with ICE launch 3-4 months later, Harrier EV planned in CY24. iii) India CVs: Tepid outlook till Q1FY25 with YoY growth seen returning in Q2/H2 on economic growth, infra spends; aiming to sustain double-digit margins in CVs.

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