Buy Tata Motors Ltd For Target Rs. 909 By Elara Capital Ltd
JLR EBIT margin guidance retained for FY25
Tata Motors’ (TTMT IN) Q3 consolidated EBITDA margin contracted by 243bps YoY and 47bps QoQ to 11.5%. JLR’s EBIT margin improved by 38bps YoY and 410bps QoQ to 9.1% in Q3 owing to higher volumes QoQ. As expected, higher VME and lower China contribution impacted ASP in Q3 (China imports ASP is ~50% higher than the company average). Recall, in our latest China thematic, ‘China energizing seismic shifts’, we discussed increased headwinds for legacy OEMs in China, which are likely to hit JLR ASP. However, JLR has and is likely to outperform ICE market growth through CY25- 26 in China owing to niche portfolio strategy. Despite lower dispatches for CV, EBITDA margin improved 124bps YoY to 12.4% in Q3, led by savings cost control measures and PLI benefit of 90bps. PV EBITDA margin also improved by 118bps YoY to 7.8%. However, adjusted for PLI benefits of 150bps in Q3, margins of 6.3% were in line with our estimates. We reiterate Buy with SoTP-TP retained at INR 909
JLR – FY25 EBIT margin guidance unchanged, revenue guidance pared:
JLR retained its earlier EBIT margin guidance of >=8.5% in FY25, which implies Q4E EBIT margin ~10%. The management sees this as achievable, given that Q4 is a seasonally strong quarter and lower D&A expenses should help further. However, it is cautious on global demand in the near term, especially as China demand faces headwinds due to increased competition (although the impact is lower for imported higher end of the market and lower than peers). The company has maintained an FCF target of GBP 1.3mn in FY25E. That said, JLR expects VME (variable marketing expenses) to remain elevated, which is an industry-wide phenomenon, albeit remaining below Covid levels. Net automotive debt for TTMT stood at INR 192bn versus INR 220bn in H1. JLR’s ROCE for 12-month rolling stood at comfortable 19.6%, up 50bps YoY. Capex guidance for FY25E is marginally increased by GBP 100mn to GBP 3.8bn.
CV growth flat in Q4; optimistic on EV demand:
The management expects Q4 MHCV growth to be flat on a high base, which will be an improvement from Q3 levels. Buses continue to see strong demand. That said, TTMT expects some recovery in CV demand in FY26, given favorable base of FY25, along with higher infrastructure spending and government capex expectations. On the PV front, robust Q3 retails helped reduce inventory, which now stands at <25 days. TTMT expects industry to end FY25 with a growth of 2-4%, which could see some recovery in FY26, growing by 6-7%.
Maintain Buy with a TP of INR 909:
JLR continues to see challenges in global markets, especially in China. JLR’s China volume contribute ~21% to sales (13% ex CJLR), which is relatively lower compared with peers (at 20-40%). While JLR EBIT margin at 9% in Q3FY25 was led by depreciation decrease, its guidance for net debt zero for FY25 was maintained, which is a positive. While JLR’s near-term Q4FY25 EBIT margin outlook is 10%+, the guidance for FY26 EBIT margin at 10% will be reviewed in JLR’s Investor Day (in Q1FY26). We had recently cut earnings for TTMT in our thematic and hence maintain our TP at INR 909.
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SEBI Registration number is INH000000933
