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Tata Motors experienced a significant downturn on January 30th, 2024, following the release of its disappointing Q3 financial results and a subsequent reduction in its FY25 guidance for Jaguar Land Rover (JLR). The company's shares plummeted by 6.8%, closing at Rs 701.40 on the BSE, a stark contrast to the anticipated performance. This decline reflects investor concern over the company's financial health and future prospects. The Q3 profit exhibited a 22% year-on-year (YoY) decrease, falling to Rs 5,451 crore, significantly below market projections of Rs 6,791 crore. While revenue from operations saw a modest 3% YoY increase to Rs 1.13 lakh crore, the profit shortfall overshadowed this positive development. The downward revision of the FY25 revenue target for JLR from GBP 30 billion to GBP 29 billion further exacerbated investor anxiety. The projected return on capital employed (ROCE) also decreased from 22% to 20%, highlighting the challenges faced by the company's flagship luxury car division.
The underwhelming performance triggered a wave of diverse reactions from major brokerages. Jefferies, for instance, downgraded Tata Motors to 'Underperform' from 'Buy,' simultaneously slashing its target price from Rs 930 to Rs 660. This marked the brokerage's first downgrade on the stock in 3.5 years, indicating a significant shift in their outlook. The justification for this drastic change centered around several key factors: weakened JLR demand in crucial markets like China and Europe, escalating customer acquisition costs, and a rise in warranty expenses. The Indian market also presented its own set of headwinds, with slowing demand in both commercial vehicles (CV) and passenger vehicles (PV) sectors, intensified by growing competition in the burgeoning electric vehicle (EV) space. Despite these concerns, Jefferies anticipates a seasonally stronger Q4 FY25.
Other brokerages offered a more nuanced perspective. Nuvama, while maintaining a 'reduce' rating, lowered its target price to Rs 720 from Rs 750, citing Q3 EBITDA misses in both JLR and the Indian CV division. The firm projected a muted 2% compound annual growth rate (CAGR) for JLR's revenue and EBITDA over FY25-27E, with JLR volumes expected to contract by 4% CAGR due to order book exhaustion, model discontinuation, and regional demand weakness. The Indian CV division is anticipated to grow at a mere 1% CAGR due to factors such as moderate road construction spending and a high base. In contrast, Kotak Institutional Equities retained an 'add' rating, setting a target price of Rs 825. They acknowledged the weaker-than-expected EBITDA, but highlighted the better-than-expected growth in the domestic PV business and the relatively strong EBIT margin for JLR, despite lower-than-expected free cash flow generation. They remain optimistic about gradual improvement in demand across all segments.
Elara Capital expressed the most bullish sentiment, reiterating its 'buy' rating with a target price of Rs 909. They attributed the lower average selling price (ASP) in Q3 to higher vehicle manufacturing expenses (VME) and reduced contribution from China. However, they forecast that JLR will continue to outpace ICE market growth in China through CY25-26 due to its specialized portfolio strategy. They also noted the improvement in EBITDA margins for both the CV and PV segments, highlighting cost-saving measures and the positive impact of the Production Linked Incentive (PLI) scheme. The diverse opinions of these reputable brokerages highlight the uncertainty surrounding Tata Motors' future performance and underscore the importance of conducting thorough due diligence before making any investment decisions. The mixed signals from these analyses paint a complex picture of the company's prospects, making it crucial for investors to carefully weigh the risks and rewards involved.
The contrasting viewpoints presented by these financial institutions demonstrate the inherent complexities and uncertainties associated with stock market investments. The significant drop in Tata Motors' share price following the Q3 results and guidance revision underscores the volatile nature of the market and the importance of careful risk management. While some analysts remain optimistic about the company's long-term potential, others express significant concerns regarding near-term challenges and the sustainability of its growth trajectory. The differing target prices, ranging from Rs 660 to Rs 909, further emphasize the wide spectrum of predictions and the potential for significant gains or losses depending on the market's reaction to future developments. Investors should carefully consider these differing perspectives and incorporate them into their overall investment strategies.
Several factors contributed to the decline in Tata Motors' share price. The weaker-than-expected Q3 results, coupled with the downward revision of JLR's guidance, significantly impacted investor confidence. The challenges faced by JLR in key international markets, such as China and Europe, added to the concerns. Increased competition in the domestic Indian market, particularly in the rapidly growing EV segment, further dampened investor sentiment. The rising costs associated with customer acquisition and warranty expenses also played a role in the negative outlook. While the company maintained its EBIT margin target and free cash flow target, these assurances were not enough to offset the negative impact of the weak Q3 results and revised guidance. The situation underscores the importance of ongoing monitoring of market trends and financial performance for investors in the automotive sector.
Source: Tata Motors shares under pressure after Q3 miss, guidance cut. What should investors do?