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Robust performance in a seasonally weak qtr; deleveraging on track

In 3QFY24, JLR reported EBITDAM of 16.2% was +70bps above JMFe. 130bps sequential margin improvement was led by favourable mix and higher operating leverage. India business (CV+PV) EBITDAM stood at 9.8%, 80bps above JMFe. Supply normalization aided JLR in reducing its order backlog to c.148k units. While the US market continues to be strong, demand environment in EU remain stable. Management indicated of higher marketing spends going forward to drive JLR’s order book. Focus is on achieving 10% EBIT margin by FY26 (vs. 8%+ in FY24) through better mix and higher operating leverage. Strong FCF generation is expected to support investments towards electrification at JLR and the company is on track to reduce net debt to <£1bn by FY24 end and turn net cash by FY25. TTMT’s EV portfolio is leading the domestic EV space. CV demand is expected to remain muted in the near-term. However, improving margins for both domestic CV and PV segments augurs well for overall profitability. Domestic business is also on track to turn net debt free. Maintain BUY with Mar’25 SOTP of INR 1,000 (standalone / JLR valued at 10x /2.5x EV/EBIDTA). Slowdown in key global markets remains a monitorable.

JLR –margin beats estimates: JLR reported revenue of £7.4bn (+22% YoY, +7.6% QoQ), 2% above JMfe, led by favourable model mix. Wholesale volume (ex-CJLR) grew 27% YoY to c.101k units (+4% QoQ). Normalisation of component supplies helped the company lower order backlog to 148k units (vs.168k units at 2Q end). EBITDA margin stood at 16.2% (+430bps YoY; +130bps QoQ), +70bps above JMFe. Margin beat was led by higher operating leverage and lower semiconductor costs partially offset by higher fixed marketing, admin cost and FX revaluation. FCF stood at positive £626mn for 3QFY24 (positive £1.4bn for 9MFY24). Share of electrified model stood at 76% during 3Q, with 12% share of BEVs & PHEVs. For the upcoming RR Electric c.16k+ customers have signed-up so far.

JLR – outlook: TTMT highlighted that supply constraints have largely normalised and the company remains on track to achieve its FY24 production guidance of c.400k+ units (vs. 321k units in FY23). Demand environment in US continuous to remain robust. EU market remains steady and the company remains watchful of any slowdown going ahead. Given the margin performance during 9MFY24 and expected increase in marketing spends (variable+fixed), the company expects EBIT margin in FY24 to be over 8%. FY24 FCF guidance stands at over ~£2bn. Current net debt stands at £1.6bn (vs. £3bn at FY23 end) and the company expects to turn net cash by FY25 (<£1bn at FY24 end).

India business – strong performance: Standalone revenue (pro forma of India CV + PV business) stood at INR 315.8bn (+15% YoY, +3% QoQ), 2% above JMFe. Standalone business reported a positive FCF of ~INR 6.3bn during 3QFY24 led by healthy operating performance. EBITDAM stood at – CV: 11.1% (+70bps QoQ; JMFe +140bps), PV: 6.6% (+10bps QoQ; JMFe -40bps).

India CV segment performance and outlook: CV segment EBITDA margin stood at 11.1% (+270bps YoY, +70bps QoQ). YoY improvement was led by better realisation (incl. lower discounts) and higher operating leverage. The management expects CV demand to decline by single-digit over next 2 quarters owing to high base (for 4Q) and upcoming general elections. Continued focus of GOI on infrastructure spends remains industry tailwind for medium-to-long term. Company’s focus will be on improving market share in SCV segment, driving higher realisation for overall CV business and scaling up e-CVs.

India PV segment performance and outlook: PV segment EBITDA came-in at 6.6% (- 30bps YoY, +10bps QoQ). Share of EV/CNG vehicles in total volumes stood at 12%/ 14% during 9MFY24. EBITDA margin for EV business (excl. product develop cost) has turned positive (+0.2%) during 3Q. Management indicated that 1) softening key RM prices (incl. battery cost), 2) higher operating leverage, and 3) PLI incentive is expected to support EV business margins going ahead. Near-to-medium term focus is on driving EV penetration by leveraging expanded range of products. With respect to ICE business, recently launched CNG variants are driving growth and the company’s focus is on maintaining market share through new models. The company indicated of healthy new launch pipeline (incl. refreshes) going forward. Production commenced at the new Sanand plant which is expected to drive volume ramp-up going ahead.

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