Home / Markets / Mark To Market /  Tata Motors skids on muted Q2 show in India biz, weak outlook in JLR

Tata Motors Ltd’s shares dropped over 5% in Thursday’s morning trade on the NSE as the automaker saw weak margins in its India business in the September quarter (Q2FY23). The company noted that margins were mainly impacted by commodity inflation and forex headwinds.

Ebitda (earnings before interest, tax, depreciation and amortization) margin in the commercial vehicle business fell by 50 basis points (bps) sequentially to 5%. One basis point is 0.01%. Ebitda margin in the passenger vehicle fell by 70bps to 5.4%. There was also a one-off expense in the passenger vehicle (PV) business, which had an impact on the margin to the tune of 50 bps.

While there were some bright spots in the performance of its UK-based subsidiary, Jaguar Land Rover Automation PLC (JLR), the overall show was nothing to write home about. The vertical continued to be plagued by chip shortage and as such it could not reach its targeted sales volume of 90,000 units in Q2.

JLR sold 75,000 units but a favourable mix aided the Ebitda margin, which rose to 10.3%, up by 400bps sequentially. There was improvement in the production ramp-up of New Range Rover and New Range Rover Sport. Moreover, JLR turned positive at the Ebit (earnings before interest and tax) level.

Overall, consolidated Ebitda margin rose by 336bps to 7.8%.

The company maintains that the demand environment is strong for JLR. Order book rose slightly to 205,000 units from 200,000 units at the end of Q1. With new chip supply agreements in place, the semiconductor crisis would ease going forward. As such, JLR expects wholesale volumes in H2 to be over 160,000 higher than 147,000 units seen in H1. Even so, it expects to be free cash flow neutral in FY23 versus a positive guidance earlier.

“Factoring much lower than expected JLR volume in FY23E, we decrease our revenue/Ebitda estimates by 6%/21% for FY23E, while we broadly maintain it for FY24E," said analysts at Reliance Securities in a report on 9 November.

Demand outlook in Tata Motors’ PV and CV business are also robust. The electric vehicle (EV) segment will see an additional boost from the launch of Tiago EV. “India business though impacted temporarily, is largely set to reach the targeted 10% Ebitda margin level in coming quarters with margin tailwinds coming in place," said analysts at ICICI Securities in a report on 10 November.

To be sure, a meaningful turnaround in the JLR business would aid investor sentiments for the Tata Motors stock, which is down by nearly by 23% from its 52-week high.


Vineetha Sampath

Vineetha Sampath is a chartered accountant and is experienced in the field of research analysis. She joined Mint's Mark to Market team recently and this is her first stint in journalism.
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