IGI Logo

Strong PAT beat driven by JLR/PV business

JLR raises FY24 EBIT margin target to ~8% from 6%

* TATA Motors (TTMT)’s 2QFY24 results significantly beat our estimates as consol. EBITDA/PAT came in at INR137.2b/INR38.6b (est. INR130.2b/ INR28.9b). The 2Q performance was driven by better-than-expect PAT in JLR/PV businesses. Its CV business was in line. Consol. net debt (auto) declined further by INR30b QoQ to INR387b.

* We upgrade our FY24E/FY25E consol. EPS by 6%/3.5% to factor in higher-than-estimated capitalization of R&D at JLR, partially offset by volume/margin cuts in both CV/PV businesses. Reiterate BUY with a Dec’25E SOTP-based TP of INR750.

Sequential dip in EBITDA margins for JLR; CV/PV improve

* Consolidated business: Consol. revenue grew 32% YoY to INR1,051.3b in 2Q (est. INR1044.7b). EBITDA jumped 121.5% YoY to INR137.2b (est. INR130b). Adj. PAT stood at INR38.6b (est. INR28.9b) vs. a loss of INR12.6b in 2QFY23. Automotive FCF stood at INR39b (up 3.9x YoY), driven by JLR’s FCF of GBP300m (vs. outflow of GBP15m in 2QFY23). Net debt (Auto) declined INR30b QoQ to INR387b. For 1HFY24, its revenue/EBITDA/adj. PAT grew 37%/2.9x/LTP YoY.

* JLR – EBIT margin expands to 7.3%: JLR’s volumes grew 29% YoY (+4% QoQ) to 96.8k units (est. 92.5k). Net realizations remained flat YoY (-4% QoQ) at GBP70.8k per unit (est. GBP74.4k). A sequential decline in ASP was mainly due to a constraint in production of RR/RR Sport. EBITDA margin improved 460bp YoY (-140bp QoQ) to 14.9% (est. 14.5%). JLR’s adj. PAT came in at GBP272m (est. GBP98m loss).

* Tata CV business – EBITDA margin at 10.4%: CV volumes grew 6% YoY (+20.5% QoQ), while realizations improved 15% YoY to INR1.89m (est. INR1.9m). EBITDA margin rose 530bp YoY to 10.4% (est. 10.8%), driven by a better mix, higher realizations, cost efficiency measures and commodity cost savings.

* Tata PV business – 2Q ICE EBITDA margins at 9.2%, EV margins at -5% (vs. -9.7% in 1Q): Volumes declined 3% YoY as its bestselling models like Nexon, Harrier and Safari were undergoing a mid-cycle refresh. Realizations remained flat YoY at INR880.9k (est. INR925k) in 2Q. EBITDA margin rose 70bp YoY to 6.4% (est. 6.7%).

Highlights from the management commentary

* JLR: The order book has come off sharply as supplies improved. It aims to bring it down to the pre-Covid level of ~110k units. The order book remained strong with over 168,000 client orders, with RR, RR Sport and Defender accounting for 77% of the order book.

* JLR’s EBIT margin target for FY24 has been increased to ~8% from 6%+. The company continues to expect FCF of over GBP2b in FY24 and expects to reduce net debt to less than GBP1bn by the end of FY24. Investments are expected to go up in 2H for the planned capex and new investments.

* CV outlook: The management expects double-digit growth in 3Q, while 4Q is expected to be flat or see marginal growth due to a high base of previous year. The company is not seeing any drop in pricing discipline in MHCVs. It took a price hike on 1st Oct’23 to offset an expected steel price hike. The last price hike was in Sep’22.

* PV outlook: The management expects the domestic PV industry to grow in a single digit in FY24 due to a high base of last year. Expects strong volume for TTMT in 2H. The management has indicated 30% volume growth for TTMT since the start of Navratri. EV/CNG penetration stood at 13%/14% in 1HFY24.

Valuation and view

* TTMT should witness a healthy recovery as supply-side issues ease (for JLR) and commodity headwinds stabilize (for the India business). It will benefit from: a) the CV uptrend and stable growth in PVs, b) company-specific volume/margin drivers, and c) a sharp improvement in FCF as well as a reduction in net debt in both JLR and India businesses.

* The stock trades at 14.3x each on FY24E/FY25E consolidate P/E and 4.7x/3.9x EV/EBITDA. Reiterate BUY with a Dec’25E SOTP-based TP of INR750.

For More Motilal Oswal Securities Ltd Disclaimer http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html

SEBI Registration number is INH000000412