Tata Motors Q3 Review: Brokerages Remain Positive Despite Demand Concern
Tata Motors' Q3 profit doubled, but concerns over JLR growth and moderating volume outlook led to downgrade by Nuvama.
Tata Motors Ltd.'s consolidated net profit jumped more than double in the third quarter, continuing its profit streak for the fifth consecutive session.
Despite concerns like luxury car demand contraction, lower-than-expected growth in India, and a spike in commodity prices, brokerage remains positive while increasing the target price.
Tata Motors Q3 Earnings FY24 (Consolidated, YoY)
Revenue rose 25% to Rs 1.11 lakh crore (Bloomberg estimate: Rs 1,08,517 crore).
Ebitda increased 59% to Rs 15,333 crore (Bloomberg estimate: Rs 14,778 crore).
Margin expanded to 13.86% versus 10.89% (Bloomberg estimate: 13.6%).
Net profit up 138% to Rs 7,025 crore (Bloomberg estimate: Rs 4,557 crore).
Jefferies and Macquarie keep Tata Motors as their top preference in the Indian four-wheeler original equipment manufacturers list despite demand concerns.
Taking in to consideration the limited upside potential and a moderating volume outlook, Nuvama has downgraded Tata Motors to Hold with an increase in target price of Rs 960. It also sees delayed dispatches in China due to the Red Sea route issue as a point of concern.
On the other hand, Emkay maintains positive outlook with a continued 'Add' and an updated target price of Rs 925.
It believes that the strong mix and healthy profitability would help meet the deleveraging target. Emkay also expects domestic CVs to peak in FY24.
Here is what the brokerages are saying:
Jefferies
Jefferies rates Tata Motors a 'Buy' and raises price target to Rs 1,100 from the earlier Rs 950.
It raises FY24-26 EPS by 7-11% on the back of lower India CV volumes but highest estimate for JLR.
The brokerage expects FY26 Ebitda to be 2.3x of FY23.
It also expects the EPS to rise to a new high of Rs 82.
The brokerage said it remains preferred buy among four-wheeler OEMs.
"JLR is seeing some headwinds from increasing customer acquisition cost and Red Sea issues but is benefiting from the ramp-up of recently expanded RR/RR-Sport capacity and easing chip acquisition costs," the brokerage said.
Jefferies said that while it is positive on India's capex led economy cycle it has cut the truck industry growth and it also sees demand concerns in PVs.
While the management is cautions of demand in India, Jefferies said it has a strong pipeline of launches in this year.
Macquarie Equity Research
Rates Tata Motors as 'Outperform' and raises price target To Rs 1,028 from the earlier Rs 921 due to solid delivery on growth and deleveraging.
"TTMT is our top pick in the India Mobility space," Macquarie said in its note.
The brokerage raised FY24 and FY25 Ebitda by 3% each on better margins for JLR and the domestic CV business.
Macquarie said the margins have improved across segments.
While the JLR margins improved 150 bps quarter-on-quarter to 8.7% helped by superior products and geographical mix, CV margins improved on better product mix and cost optimization.
The domestic margins have improved on steady volume and stable commodity prices noted the brokerage.
Nuvama Research:
Downgrades to hold with an increase target price of Rs 960 from the earlier Rs 910, due to limited upside potential and a moderating volume outlook.
Raises FY24–26E Ebitda by 7–8% on the back of better margins.
JLR mix could turn adverse post a benign third quarter model mix and favorable geographic mix.
Freight costs can increase and delay in dispatches due to Red Sea route disruption.
Expects employee expenses to increase 11% in the next two years on the back of the conclusion of wage agreement.
JLR volume growth and India CV business growth could lower to low single-digits, increasing the costs amidst greater market spends in global as well as domestic markets.
Launch of EVs in JLR/India CV to keep up the pressure on margins in initial years.
Key risks include luxury-car demand contraction, lower-than expected growth in India, failure of new launches in EVs, spike in commodity prices and adverse currency movements.
Emkay
Maintains 'add' rating with an updated target price of Rs 925 from Rs 900 earlier.
Raises FY24/25/26 EPS by 3%/5%/8% on the back of strong Q3 earnings and lower JLR tax rate assumption.
Believes that the strong mix and healthy profitability would help meet the deleveraging target.
Expects upcoming model launches to aid outperformance amid weakening industry outlook.
Expects domestic CVs to peak in FY24, with margin expectations remaining resilient on pricing discipline.
