Sell Tata Motors Passenger Vehicles Ltd for the Target Rs.312 by Motilal Oswal Financial Services Ltd
FY27 EBIT guidance at 4%; no guidance given for FY28 Multiple headwinds ahead
We attended JLR’s Annual Investor Day held online today, where management outlined its FY27 guidance, including:
1) GBP26b in revenue, implying a 13% YoY growth
2) an EBIT margin of 4%, rising 400bp YoY, 3) OCF break-even vs a GBP2.3b loss in FY26
4) capex of GBP3.7b, broadly stable YoY.
To achieve these targets, management plans to focus on:
1) Healthy volume growth, with increased emphasis on North America,
2) Its partnership with Stellantis to develop Defender for the US market,
3) Increasing propulsion flexibility across its end markets through a broader range of MHEV, HEV, PHEV, and BEV options across the Range Rover, Defender, and Discovery brands in line with customer demand, while Jaguar will remain uniquely electric
4) Enterprise Missions initiatives aimed at driving cost savings of GBP1.7b and reducing break-even volumes to 300k units pa over the next two years.
However, JLR continues to face headwinds from:
1) Ongoing tariff pressures
2) Persistent challenges in the China market
3) Inflationary pressures. Further, a 4% EBIT margin guidance still translates into only a high single-digit EBITDA margin for FY27E. The absence of FY28 guidance also points to limited earnings visibility in future. Given the persistent challenges at JLR, we reiterate our Sell rating on TMPV with a TP of INR312 per share.
No guidance provided for FY28
Management has provided FY27 guidance of:
1) GBP26b in revenue, implying a 13% YoY growth
2) EBIT margin of 4%, rising 400bp YoY
3) OCF break-even vs a loss of GBP2.3b in FY26
4) Capex of GBP3.7b, broadly stable YoY. The absence of FY28 guidance points to limited earnings visibility for future
New launches and focus on North America to drive growth
JLR has identified North America as a key growth opportunity, given that:
1) It is the second-largest luxury market, with annual sales of 13.7m units, of which 44% comprise vehicles priced at >USD50k/unit
2) JLR already enjoys a strong brand presence and an established network in the region. Other key growth drivers include five new launches over the next 18 months, comprising EV variants of RR and RR Sport, the Jaguar Type 01 EV, and new products on the EMA platform. Further, JLR has tied up with Stellantis to deliver new Defender products specifically designed for the US market.
Focus on quality and technology
JLR aims for first-time-right quality as a key lever to strengthen customer trust, loyalty, and repeat purchases, while driving cost savings (warranty) and margin expansion in the long run. The company is relentlessly testing its EVs to ensure uncompromised quality and performance. It will continue to invest in multiple propulsion systems to address varying customer preferences across regions and engage with global partners to deliver software-defined vehicles and nextgeneration automated driving solutions.
Valuation and view
Given the significant challenges at JLR and the continued geopolitical uncertainty, we reiterate our Sell rating on the stock with a SoTP-based TP of INR312 per share (based on FY28E). We value JLR and the India PV business at 2x and 13x EV/EBITDA, respectively.
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