Monday’s trading session for Tata Motors Ltd witnessed significant turbulence after the company unveiled its financial results for the March 2024 quarter on Friday.
Despite an impressive 222% year-on-year surge in consolidated net profit, reaching an astounding Rs 17,407 crore, market sentiments soured as the company fell short of Street estimates. This mixed performance, coupled with a weaker guidance for its subsidiary, Jaguar Land Rover (JLR), triggered a knee-jerk reaction in the stock market, sparking a debate among analysts and investors regarding Tata Motors’ future trajectory.
Financial Insights into Q4
Tata Motors’ consolidated revenue from operations climbed by 13% to Rs 1.2 lakh crore, buoyed by improved operating leverage, favorable commodity prices, and robust volume growth across various segments. However, the company’s Q4 results missed expectations, particularly on the revenue and EBITDA fronts.
The domestic commercial vehicle (CV) business underperformed, leading to a slight disappointment in consolidated EBITDA, despite JLR and domestic passenger vehicle (PV) divisions meeting expectations. Nevertheless, the company showcased strong financial discipline by generating a Free Cash Flow (FCF) of Rs 26,900 crore in FY24, significantly reducing its net debt and aiming for a net cash balance sheet by FY25.
Market Response and Analyst Recommendations
The market reacted on Monday to Tata Motors’ Q4 performance, with its stock plummeting over 9.22% to Rs 950.30 on Monday.
Analysts from various institutions offered diverse perspectives and recommendations in response to these developments. Kotak Institutional Equities remained cautiously optimistic, foreseeing steady performance in FY2025-26 driven by JLR’s operational improvements and market share gains in both the PV and CV segments. However, Motilal Oswal Financial Services downgraded Tata Motors to ‘neutral’, citing concerns over JLR’s margin prospects and a subdued outlook for its India business.
Hold or sell Tata Motors stock?
Nomura recently downgraded Tata Motors to a ‘neutral’ rating from ‘buy’, citing potential demand risks for Jaguar Land Rover (JLR) and an expected moderation in commercial vehicle growth. Despite this downgrade, Nomura raised its target price to Rs 1,141, indicating confidence in Tata Motors’ steady performance and fair valuation. Similarly, Morgan Stanley adjusted its rating to ‘equal weight’ from ‘overweight’, while increasing the target price to Rs 1,100, suggesting that robust adoption of electric vehicles (EVs) could offer significant upside potential in FY25. Meanwhile, Citi expressed cautious optimism regarding Tata Motors’ outlook but opted to suspend its rating temporarily.
In contrast, brokerage firm Motilal Oswal revised its EPS estimates downward for FY25/FY26, anticipating challenges ahead, particularly margin pressures at JLR due to escalating costs and investments in EV technology. Maintaining a ‘neutral’ rating, Motilal Oswal also lowered the target price to Rs 955. Conversely, Kotak Equities maintained an ‘add’ rating on Tata Motors, foreseeing a promising performance in FY2025-26 driven by the stability of JLR’s operations, anticipated market share gains, and a robust balance sheet.
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Considering the varying assessments from brokerage firms and Tata Motors’ guarded optimism regarding its future prospects, the decision to hold or sell Tata Motors shares ultimately hinges on an investor’s risk appetite and investment strategy.
It’s noteworthy that Tata Motors‘ stock emerged as the top performer on the Nifty50 in 2023, registering impressive gains of over 81% within the year and soaring by more than 47% in the past six months alone. Despite this, the stock has witnessed a modest increase of over 21% since the onset of 2024. However, it could encounter some short-term weakness due to forecasts for FY25 and the prevailing volatility on Dalal Street.
Despite the challenges ahead, some analysts maintain a bullish stance on Tata Motors. JM Financial reiterated a ‘buy’ rating, anticipating growth in domestic PV sales and improving margins in both PV and CV segments. However, concerns linger over rising cost pressures for JLR, normalization of product mix, and challenges in the Indian CV market. Nomura downgraded the stock to ‘neutral’ but acknowledged its fair value, while JPMorgan maintained an ‘overweight’ rating with a raised target price.
Tata Motors‘ Q4FY24 results have ignited a robust debate among market participants and analysts, reflecting the nuanced dynamics of its performance and future prospects. While the company has demonstrated commendable profit growth and strides towards debt reduction, challenges lie ahead in navigating uncertainties surrounding JLR and the Indian automotive market. Investors will closely monitor Tata Motors’ strategies and execution in the coming quarters to gauge its ability to sustain and build upon its financial momentum, amidst evolving market conditions and industry challenges.
