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Tata Motors, a leading global automotive manufacturer, recently reported its financial results for the second quarter of fiscal year 2025 (Q2FY25). The company's consolidated revenue for the quarter declined by 3.5% year-on-year (YoY), falling short of both consensus and Prabhudas Lilladher's estimates by 2% and 6%, respectively. The decline in revenue was attributed to a drop in volumes across various segments, including commercial vehicles (CV), passenger vehicles (PV), and Jaguar Land Rover (JLR).
The company experienced a significant reduction in volume across its operations. CV sales fell by 15.4% YoY, while PV sales declined by 5.9% YoY. JLR volume also witnessed a contraction of 9.8% YoY. This decline in volume, coupled with production disruptions in the JLR business, resulted in a 15% YoY decrease in EBITDA. The EBITDA margin contracted by 155 basis points YoY, reaching 11.5%. The weak operational performance, particularly in the JLR segment, led to an 11% YoY decrease in profit after tax (PAT).
Despite the weak operational performance, especially in the JLR business, the management remains optimistic about achieving an EBIT margin of 8.5% or higher and a 10% EBIT margin in fiscal year 2026 (FY26). Regarding the CV and PV businesses, the company acknowledges near-term challenges that may impact volume growth. However, they maintain a positive outlook on the long-term growth prospects of these segments. Based on the weaker-than-anticipated Q2FY25 performance, Prabhudas Lilladher has adjusted its estimates downwards by 7-11% to reflect the impact of the slowdown across all business verticals.
The research firm anticipates modest growth in JLR volume due to challenges in key markets like China and Europe, where competitive pressure and demand slowdown are prevalent. The competitive intensity and sluggish EV adoption are expected to impact the PV business. The CV business could benefit from a demand revival in the second half of FY25 and an upcycle from FY26. Considering these factors, Prabhudas Lilladher has revised its rating for Tata Motors from 'Accumulate' to 'Hold', with a revised SoTP-based target price of Rs847 (down from Rs1,172).
In conclusion, Tata Motors' Q2FY25 results were characterized by a decline in revenue and EBITDA, driven by volume contraction and production challenges. The company faces a challenging environment with competitive pressures and demand slowdown in key markets. While management maintains a long-term optimistic outlook, the immediate prospects remain uncertain. Prabhudas Lilladher's revised rating reflects the cautious outlook on the company's future performance.
Source: Hold Tata Motors target of Rs 847 Prabhudas Lilladher