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JLR EBIT margin guidance lowered to 5-7% for FY26

Outlook marred by multiple headwinds

We attended Tata Motors’ (TTMT) virtual analyst meet for its JLR business. JLR continues to face several headwinds, such as tariff wars and resultant USD depreciation vs. GBP, uncertainty over EV transition, challenging market conditions in China, and rising warranty costs. As a result, management has lowered its EBIT margin guidance for FY26 to 5-7% from 10% earlier. It has also reduced its FCF guidance to nil from GBP1.8b earlier. TTMT has also indicated that it is working hard to improve efficiencies across the firm, with specific enterprise missions to drive the firm’s transformation amid headwinds. These initiatives could result in cost savings of GBP1.4b p.a. during 2HFY26 to FY27-28 and help TTMT to return to its earlier EBIT margin target of 10% over time. While our estimates were already lower than the consensus, we have reduced our FY26 EBIT margin assumption for JLR to 6% (earlier 6.9%), which has led to a 10% cut in our FY26 earnings estimates. We have maintained our FY27 estimates at this stage. Given the multiple headwinds highlighted above, we reiterate Neutral with FY27E SOTP-based TP of INR690.

Below are the key takeaways from the analyst meet:

JLR FY26 Guidance lowered due to multiple headwinds.

* Given the headwinds JLR is facing globally, management has lowered its EBIT margin guidance for FY26 to 5-7% from 10% (8.5% reported in FY25). This would entail a reduced revenue guidance of GBP28b (earlier >GBP30b).

* Management has also indicated that TTMT is working to improve efficiencies across the firm, with specific enterprise missions to drive the firm’s transformation amid headwinds. These initiatives should result in cost savings of GBP1.4b p.a. during 2HFY26 to FY27-28 and help TTMT return to its earlier target of 10% EBIT margin over time.

* As a result, the company has reduced its FCF guidance to nil from GBP1.8b earlier. Working capital is expected to be adverse in FY26.

* Investment guidance stands at GBP3.8b in FY26 (same as in FY25) and GBP18b during FY24-28 (same as prior guidance). Over 50% of this amount would be invested in engineering and the balance in battery and EDU facilities, tooling, etc. In terms of brands, about 15% of investments would be in Jaguar and the balance in Land Rover.

Key headwinds highlighted by management

* Uncertainty over tariffs

* Management hopes that the US and the UK seal a trade deal as announced by the two governments earlier. As part of the deal, auto exports to the US from the UK would attract a duty of ~10% for a quota of up to 100k vehicles.

* Given the sudden increase in tariffs, TTMT had temporarily stopped shipments to the US in Apr’25, which is likely to hurt its performance in 1QFY26. The company continues to assess pricing actions in the US after the new tariffs are effective.

* TTMT also hopes that there would be a trade deal between the US and European Union soon.

* China market continues to be challenging

* While China’s PV market grew 5% YoY in FY25, this was largely due to growth in the EV segment. However, the country’s premium market declined 15% YoY in FY25.

* Almost 4,400 dealers have shut shops in China in CY24, representing about 50% of total dealer network.

* China continues to see fierce competition, with 215 out of 1,000 models seeing price reduction in CY24.

* The sharp slowdown in the auto segment has been attributed to curtailment in financing, as new credit issued by banks fell 21% YoY in CY24.

* Against this backdrop, RR has remained the No 1 brand in the >RMB1m value SUV market.

* JLR looks to improve its performance in China in FY26 by driving product enhancements in best-selling RR and Defender models, improving brand awareness with improved modern luxury retail experience, and leveraging its local footprint to achieve complementary growth by launching new Freelander through Chery JV by 2HCY26.

* Impact of emission compliance

* Compliance-related costs have been rising for JLR.

* Management has indicated that it does not expect to pay fines in the UK as TTMT is moving to an electrified fleet in the coming years.

* In the US, JLR is ensuring emission compliance on the back of an optimal fleet mix and the purchase of credits from other OEMs even as the company continues to monitor evolving legislative changes.

* Even in Europe, TTMT continues to proactively monitor the mix by focusing on PHEVs and expects to be emission-compliant.

* Issue of rising warranty costs

* JLR saw a rise in warranty costs for its vehicles in FY25, which remains an ongoing headwind that the company would look to mitigate.

* TTMT is now using predictive analytic tools to improve forecasting accuracy. This will help it maintain availability of spares as per requirement and hence minimize customers’ downtime.

* It is also looking to improve the availability of JLR technicians to resolve complex issues at pace.

* Apart from the above-mentioned headwinds, USD weakness vs. GBP is expected to be another headwind. While TTMT is hedged for the near term, it is a risk to margins in the long term if it persists.

* Global OEMs are also facing an issue involving ADAS systems. US-based ADAS systems are not allowed in China, and the US has barred China-based ADAS systems in the country. This would mean double engineering costs for global OEMs like JLR; hence, development costs may rise if this issue continues.

JLR actions to offset these headwinds

* Management has indicated that TTMT is working on specific enterprise missions to drive transformation within the organization that will help to offset the above-mentioned headwinds. These include:

* Urgent impact measures related to tackling the impact of tariffs, emission compliance, reduction in warranty costs, etc.

* High value: TTMT aims to improve cost efficiencies and has set a target of achieving a double-digit reduction in structural costs in FY26. It wants to improve MLA profitability (maximizing value from this mix). The company is looking to reduce costs in manufacturing and freight and focusing on improving its performance in China on the back of initiatives highlighted above.

* Unlock potential: The company is enhancing its brand positioning for all future products, including BEVs, across all brands and is focusing on unlocking value from accessory sales.

* Game changing: TTMT aims to create strong brands after its BEV launches. It will focus on digital initiatives to optimize the total cost of ownership for value delivery. The company is looking to improve customer loyalty by delivering the best experience and reducing the turnaround time for issues. The company has achieved global NPS of 94, 12% global reduction in the number of customers with open issues, and 3% reduction in order cancellations.

* These would help the company deliver savings to the tune of GBP1.4b p.a. during 2HFY26 to FY27-28. These initiatives would help TTMT get back to its earlier target of 10% EBIT margin over time.

JLR looking at BEV transition as an opportunity to gain share

* There is a rising uncertainty about BEV transition in key global regions. This has given JLR an opportunity to focus on its BEV launches and build strong capabilities in BEV.

* However, most other peers seem to have gone for aggressive product launching without capability building, as per management.

* Hence, JLR expects the BEV transition to be an opportunity to gain share as customers, who were never considering JLR, are now showing interest in the brand’s exciting EV unveils.

Milestones of its top brands

Range Rover (RR)

* It enjoys brand equity of 101 and has entered into Interband’s top 100 global brands list.

* While the order intake for RR increased 15% YoY in FY25, the same for RRS increased 34% YoY in FY25.

* TTMT has launched special editions of RR variants, which have seen huge success: 1) Born of the Sand Edition in MENA region (priced at USD400k), 2) 10 years of SV edition in China priced at USD615k, 3) Masara edition in India priced at USD680k.

* The RR Electric now enjoys a waitlist of over 60k units.

Defender

* The brand equity for Defender has improved to 82 from an avg level of 78 over four quarters.

* Despite being in its sixth year, this model has posted record-high sales in FY25.

* The order intake on the model rose 3% in FY25, which was ahead of its estimates and decent given that it had minimal marketing spends.

* The Defender Octa enjoys an order book of 3k units. A limited edition of this variant was sold at GBP165k, highlighting that this brand’s positioning can be elevated.

Discovery

* Brand equity was stable at 74.

* Its order intake declined 5% YoY, which was decent considering the weak endmarket demand.

* Around 30% of Discovery clients are female customers and over 50% of them own pets.

Jaguar

* The new Type 00 reveal has created a huge excitement in social media.

* This new product is expected to attract younger customers compared to the erstwhile ICE variant, which attracted relatively elder customers.

* In the US, which is one of its key markets, TTMT has seen a 23% increase in awareness for Jaguar as a luxury brand. It has seen a 20% increase in customers seeing “Jaguar” as a brand worth paying for more.

Update on partnerships

* JLR management believes right partnerships are key to navigating the ongoing disruptive trends in the global automotive industry.

* It has partnered with NVIDIA for autonomous driving and AI, and its nextgeneration products would come with NVIDIA-based software capabilities.

* JLR, Dow and Adient have partnered for the use of recycled materials in automotive seats, which is an industry-first initiative.

* The company’s EV battery plant in the UK in partnership with Agratas is expected to be operational by 2027.

* JLR has partnered with Tata Communications to deliver global connectivity for JLR’s next-gen vehicles.

Valuation and view

* Considering the headwinds TTMT is facing, management has lowered its EBIT margin guidance for FY26 to 5-7% from 10% earlier. As a result, it has reduced its FCF guidance to nil from GBP1.8b earlier. Management has also indicated that TTMT is working to improve efficiencies across the firm, with specific enterprise missions to drive the firm’s transformation amid headwinds. These initiatives should result in cost savings of GBP1.4b p.a. during 2HFY26 to FY27-28 and help TTMT to return to its earlier target of 10% EBIT margin over time.

* While our estimates were already lower than the consensus, we have reduced our FY26 EBIT margin estimate for JLR to 6% (from 6.9%), which has led to a 10% cut in our FY26 earnings estimates. We have maintained our FY27 estimates at this stage.

* For the lack of any triggers, we reiterate Neutral with FY27E SOTP-based TP of INR690.

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