Tata Motors plunges over 8% on moderate FY25 growth outlook: Find out why brokerages are concerned?

Tata Motors' share price declined by 8.26%, hitting an intraday low of Rs 960.10 on the NSE. (Photo: Reuters)

In Wednesday’s trading session, shares of car maker Tata Motors experienced a sharp decline of 7% during the opening trade after the management expected slower growth in FY25. The share price of Tata Motors fell by 8.26% to reach an intraday low of Rs 960.10 on the NSE.

Auto major Tata Motors reported a consolidated net profit of Rs 17,529 crore for the quarter ended March 31, 2024, marking a 46% increase compared to the net profit of Rs 12,033 crore reported in the same period last year.

The company exceeded Street expectations of Rs 6,255 crore. Revenue for the quarter reached Rs 1.20 lakh crore, representing a 13.3% year-on-year (YoY) growth but slightly missing Street’s estimates of Rs 1.21 lakh crore.

In Q4FY24, earnings before interest, taxes, depreciation, and amortization (EBITDA) stood at Rs 17,900 crore, up 26.6% YoY, while EBIT reached Rs 11,000 crore, with all three auto businesses demonstrating strong performance.

Also ReadEquity inflows into MFs fall 16.4% MoM

The profit before tax (PBT) amounted to Rs 9,500 crore, and the net automotive debt decreased further to Rs 16,000 crore.

Brokerages on Tata Motors 

Motilal Oswal on Tata Motors 

The report highlights Motilal Oswal’s recent downgrade of Tata Motors (TTMT) to Neutral from BUY, citing concerns over stagnant JLR margins and a weak outlook for the India business. These concerns align with the current market trends, as TTMT faces impending headwinds despite its robust performance across key segments in FY24.

Motilal Oswal reiterates a Neutral rating on Tata Motors, with a FY26E sum-of-the-parts (SOTP)-based target price of Rs 955, down from Rs 970 previously.

The report has adjusted its earnings per share (EPS) estimates downward by 3% for FY25 and 5% for FY26. Tata Motors’ stock is currently trading at 18x/15.6x FY25E/FY26E consolidated EPS and 6.2x/5.3x EV/EBITDA.

Motilal Oswal’s latest report on Tata Motors forecasts stable margins for Jaguar Land Rover (JLR) from FY24 to FY26. This expectation is based on several factors, including rising cost pressures due to increased investment in demand generation, a normalizing product mix, and the margin dilution expected from the electric vehicle (EV) ramp-up.

Also ReadIndegene sees stellar debut, lists at 45% premium; Read to know other details

Additionally, the report notes a moderation in demand for both commercial vehicles (CV) and passenger vehicles (PV) in Tata Motors’ India business. Motilal Oswal has factored in flat margins for the India business over the forecast period.

JM Financials on Tata Motors

JM Financial maintains a BUY rating on Tata Motors with a March 2025 sum-of-the-parts (SOTP) valuation of Rs 1,200, valuing the standalone business and JLR at 12x and 3.0x EV/EBITDA respectively. However, the report highlights the slowdown in key global markets as a point of monitoring.

According to a report by JM Financials on Tata Motors, in the fourth quarter of FY24, Jaguar Land Rover (JLR) reported an EBITDA of 16.3%, marking a 170 basis points year-on-year improvement driven by higher operating leverage and lower raw material costs.

Meanwhile, the India business, including commercial vehicles (CV) and passenger vehicles (PV), achieved an EBITDA of 10.5%, surpassing JM Financials’ expectations by 50 basis points. Supply normalization aided JLR in reducing its order backlog to approximately 133,000 units.

Although the US market remains robust, the demand environment in the EU has slowed down. Management plans to increase marketing spends to boost JLR’s order book. For FY25, the EBIT margin is anticipated to remain flat.

The company expects strong free cash flow generation to support investments in JLR’s electrification efforts, aiming to achieve a net cash position by FY25 (£0.7bn currently).

In the domestic PV segment, growth is expected to be driven by new launches and capacity ramp-up. Additionally, domestic CV demand is forecasted to pick up from the second quarter. Improving margins in both domestic CV and PV segments are viewed positively, with the net cash position in the Indian auto business providing comfort.

(Disclaimer: Views, recommendations, opinions expressed are personal and do not reflect the official position or policy of Financial Express Online. Readers are advised to consult qualified financial advisors before making any investment decisions. Reproducing this content without permission is prohibited.)