Buy Tata Motors Ltd For Target Rs. 750 by Emkay Global Financial Services Ltd
TTMT’s Q4 consolidated revenue/EBITDA fell 3.7/37% to Rs1,044bn/97.2bn, below estimates. EBITDAM fell 460bps QoQ to 9.3%, led by unfavorable operational parameters. JLR’s FCF was a negative £758mn, on seasonally weak (-£616mn) WC, lower production, and tariff impact. India CV margin was resilient at 12.1% (12.2% in Q4FY25) on better mix and ASPs. India PV margin fell to 3.9% (Q4FY25: 7.7%) on operating deleverage and commodity inflation. JLR sustained its guidance of 5-7% EBITM, near-zero FCF (on improving volume mix, ASPs, and cost optimization), amid mixed demand (on expected lines - US relatively solid; UK gradually improving; MENA doing well; EU and China struggling). JLR expects a gradual demand recovery in FY26. India CV to sustain double-digit margin and drive volumes (3-5% industry growth guidance) amid improving demand outlook and stable ASPs. India PV targets 3-4% EBITDAM rise in 2-3 quarters on a better model mix, operating leverage, and improved realizations. Over the last 5Y, JLR has significantly strengthened its business profile (largely resilient volumes, high profitability), balance sheet (net-cash), to withstand near-term challenges (JLR has undertaken enterprise missions which will save £1.4bn pa). We retain BUY, with an SoTP-based TP of Rs750.
Soft consolidated revenue and margin performance; CV margins resilient
Consolidated revenue/EBITDA fell 3.7/37% to Rs1,044bn/97.2bn (below consensus), with EBITDAM down 460bps QoQ to 9.3%, led by unfavorable operational parameters. JLR’s revenue rose 1.7% YoY despite the 11% volume dip as ASPs rose 9% QoQ to £75.7k (77% power brands’ share). India CV EBITDA was resilient at 12.1% (despite 13% volume dip on better realizations and material cost-savings). PV EBITDAM fell by 380bps QoQ to 3.9%. JLR’s FCF at -£758mn was dragged by the seasonally weak (-£616mn) WC. JLR paid £448mn to TTMT; TTMT’s SA other income includes Rs49bn in dividend.
Earnings call KTAs
1) JLR: Amid mixed demand (on tariff uncertainties), JLR sustained its FY26 guidance of 5-7% EBITM (10% in the long term) with near-zero FCF and expects demand to gradually recover. US/UK are stable despite tariff issues; China is seeing a setback due to the lower threshold in luxury tax (JLR’s volumes are above limit); EU demand was impacted by small business owner uncertainties. Assuming 15% reduction in duties (from 27.5%), TTMT anticipates a £500-600mn impact in FY26 (£400mn in perpetuity; largely tackled via pricing). The improving model mix (power brands’ share at 77% in Q1) is expected to improve ASPs. 2) CVs: The mgmt highlighted healthy utilization levels, fleet operator profitability despite the dip in volumes due to early monsoons. TTMT’s MHCV portfolio has transitioned to comply with AC cabin norms. TTMT aims to drive volumes (3-5% growth in FY26 industry guidance), retain market share, and sustain ASPs. It expects a better Q2 (on the low base) amid normalizing monsoons and the festive season. 3) PVs: Potential price hikes in H2; a better model mix and operating leverage to lift margin by 3–4% in 2–3 quarters. Sierra launch likely in H2; new Altroz/Tiago see strong response; uptick visible in E-PV market share. Harrier EV to aid volumes from Q2 (eyes 40% E-PV share); Q1 margin impact of <50bps led by discounts; Rs7bn PLI is expected in FY26.
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