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Strong beat led by JLR and CV business; PV disappoint

Proposal to cancel DVR shares by offering ordinary shares

* TATA Motors (TTMT) significantly beat our estimates in 1QFY24, led by JLR and CV businesses. Consol. adj. PAT stood at INR37b (est. INR18b). Consol. net debt (auto) declined QoQ by INR20b to INR417b. With JLR wholesales expected at ~400k in FY24 and favorable mix, JLR should easily beat >6% EBIT margin guidance. India businesses focus on margin expansion as volume growth is likely to moderate in FY24.

* We upgrade our FY24E/25E consol. EPS by 28%/11% to factor in: a) JLR’s moderation in certain costs and higher R&D capitalization, b) margin improvements in India CV business, c) lower margins for the India PV business, and d) scheme of arrangement of cancellation of DVR shares w.e.f FY24. Retain BUY with a Sep’25E SOTP-based TP of INR750.

Strong beat in margins for JLR and CVs, India PV margins decline

* Consolidated business: Consol. revenue grew 42% YoY in 1QFY24 to INR1,022b (est. INR1003b). EBITDA jumped 3.3x YoY to INR136b (est. INR111b). Adj. PAT stood at INR37.2b (vs. loss of INR65b in 1QFY23; est. of INR18b).

* Consol. Automotive FCF in 1Q was at INR25b (vs. outflow of INR98b in 1QFY23), led by JLR FCF of GBP451m. India businesses saw FCF outflow of INR19.7b. Net debt (Auto) was down INR20b QoQ at INR417b.

* JLR – EBIT margin expands to 8.6%: JLR’s volumes grew 29% YoY (flat QoQ) to 106.25k units (est. 107.1k). Net realization improved 21% YoY/ fell 1% QoQ to GBP74k per unit (est. GBP75.8k). EBITDA margin rose 9.6pp YoY (+150bp QoQ) to 16.3% (est. 12.5%), led by a favorable mix, higher capitalization of R&D and higher production. JLR’s adj PAT stood at GBP323m (est. GBP181m; loss of GBP389m in 1QFY23). 1Q FCF was at GBP451m, the highest FCF for 1Q, and cumulative FCF over the last three quarters was GBP1.8b.

* Tata CV business – EBITDA margin at 9.4%: India CV business’s realization improved 5% YoY (-8% QoQ) to INR1.65m (est. INR1.7m). EBITDA margin rose 400bp YoY (-80bp QoQ) to 9.4% (est. 6.7%), driven by a better mix and lower discounts.

* Tata PV business – Mix brings down margins: Realization improved 2% YoY (+1% QoQ) to INR914k (est. INR912k) in 1QFY24. EBITDA margin declined 90bp YoY (-200bp QoQ) to 5.3% (est. 8%), hit by a higher mix of EVs and higher fixed expenses due to the Ford plant acquisition. 

Highlights from the management commentary

* JLR outlook: 2Q production and cashflow are expected to be lower than 1Q due to the annual summer plant shutdown. However, wholesales and profitability (EBIT margin of 6.5%-7.5%) are expected to be more in line with recent quarters. It will review EBIT margin guidance (6%) post 2QFY24, as it would like to get more clarity on the operating environment.

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