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Tata Motors logos (REUTERS)
Tata Motors logos (REUTERS)

Tata Motors: India biz recovery to accelerate, but JLR revival key

  • The company aims to gain PV market share, maintain CV biz lead and be net debt-free by FY24
  • Timely execution of measures would translate into improved standalone performance

At its annual investor day, the management of Tata Motors Ltd shared an update and outlook for two of its India-facing business segments. The management’s comments were largely a re-iteration of its three-year goals. It aims to gain market share in passenger vehicles (PV), maintain leadership in commercial vehicles (CV), improve profitability and become net debt-free at consolidated level by FY24.

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The Tata Motors stock surged 6% to close at 324 on the NSE on Tuesday. Although the management did not share anything majorly different in terms of targets, ongoing efforts to transform its India business are a positive, analysts said.

Road to recovery
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Road to recovery

It aims to boost market share in the PV segment from around 8% currently through new launches and network expansion. Ebitda of this segment is expected to hit a high-single digit in the next three years. Ebitda— a measure of profitability—stands for earnings before interest, taxes, depreciation and amortization, In the December quarter of FY21, PV segment Ebitda stood at 3.8%. Ebitda of the commercial vehicles segment is expected to touch double-digit in the next three years from around 8% in Q3FY21. Tata Motors is upbeat on the demand outlook for both these segments and is looking at a slew of competitive launches.

Timely execution of measures would translate into improved standalone performance of the company. Analysts at domestic brokerage Prabhudas Lilladher expect Tata Motors’ standalone margins to improve from around 3% estimated in FY21 to nearly 9.2% by FY23.

That said, there are some near-term downside risks. Increasing commodity pressures could weigh on the company’s gross margins. To offset their impact, the management said it is working on cost savings, product-mix premiumization and price increases. It should be noted that Tata Motors has enforced price hikes in the second half of FY21 and the management has hinted at further hikes.

While cost inflation is a worry for the entire automobile sector, for Tata Motors investors there is company-specific overhang to deal with. The company’s Jaguar Land Rover (JLR) operations remain a pain point. Investors would reckon that JLR volumes have been under pressure since FY19, marred by several headwinds. For Tata Motors’ consolidated earnings performance to improve, JLR’s revival is the key. But some analysts do not see this happening in a hurry.

Analysts at domestic brokerage house Kotak Institutional Equities are sceptical of recovery in volumes in the JLR business. Foreign brokerage house Goldman Sachs is of the view that implied JLR valuation multiple at current market price is higher than for German premium manufacturers. Both the brokerages have retained their sell rating on Tata Motors, concerned by JLR’s performance.

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