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TTMT’s consol. 2Q results missed our estimates due to weakness in JLR (on temporary production constraints for RR driving the poor mix/lower margin). Guidance for JLR EBIT margin, though, has been raised to 8% for FY24 (6% earlier; 8% in 1H), as the production run-rate is likely to gradually improve in 3Q/4Q with normalizing mix and FCF of GBP1.25bn in 2H. We believe domestic CV volume will peak in FY24, but our margin outlook stays resilient, given pricing discipline/benign commodity prices. Also, two new SUV launches are expected to drive performance in the India PV business 1QFY25 onwards. TTMT reiterated guidance for deleveraging the balance sheet (BS), to be net-debtfree for India business by FY24-end and for JLR by FY25-end. We maintain BUY, with new SOTP-based TP of Rs760 (Rs750 earlier) and unchanged estimates.

Tata Motors: Financial Snapshot (Consolidated)

2Q miss due to weak JLR: Consolidated revenue grew strongly at 32% YoY/3% QoQ, mainly driven by JLR. EBITDA margin at 13% rose by 520bps YoY, but declined by 30bps QoQ. JLR’s FCF stood at GBP300mn vs GBP451mn in 1Q, as production guidance was lower. Both, India CV and PV businesses, logged sequential margin improvement, aided by softer commodity prices. Consol net automotive debt reduced by Rs30bn to Rs387bn.

Earnings Call KTAs: i) JLR: Expects 3Q/4Q production run-rate to gradually improve further; 2Q mix was impacted by the lower RR/RRS production; expects mix to improve 3Q onwards (~77% of the order book comprises of RR/RRS/Defender); guides to a sustained order-book run-down of 5k units/mth, from 168k (2Q-end) to 110k units by FY24-end/early-FY25 (pre-Covid levels); marketing spends to grow, and drive new bookings; however, material cost benefits to offset higher marketing costs; raises FY24 EBIT margin guidance to 8% (vs 6% earlier; 8% in 1H); maintains guidance of 10% EBIT by FY26; guides to Net Debt reducing to <GBP1mn by FY24-end, led by working capital benefits (on higher production during 2H). ii) India CV business: Expects double-digit growth in MHCVs in 3Q, but a flat 4Q (on a high base); expects double-digit CV margins to sustain; continues to focus on improving realizations (taken price hike in Oct to tackle some headwinds on commodities, i.e. steel); pricing discipline has largely sustained, barring a dip in May; SCV demand impacted by the steep cost hikes (on regulatory interventions). iii) India PV business: Product cycle better in 2H (with facelifts of major brands) and mid-size Curvv SUV launch in CY24, Sierra SUV launch in CY25; response to the new Nexon (incl. EV variant) has been strong, with 3-4mth waiting period; continues to aspire for double-digit margins for ICE-PVs; expects EV segment to expand with product launches across price-points/formats; expects EV-PV margins to improve further, with cell cost reduction, localization, cost-effective new generation and compact aggregates; no fund-raise plans for the EV business; received PLI approval for Tiago, ACE EV—approval expected for the new Nexon as well; expects PLI incentive in 4Q.

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