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Muted show, guides for backend volume recovery at JLR for FY23 - Tata Motors Q2 Review


What's Buzzing
Tata Motors' (TML) reported a muted performance in Q2FY23 with the company reporting a loss at the PAT level amounting to Rs 945 crore. In the conference call, the management guided for securing supplies for semi-conductors but volume recovery at JLR is expected to be gradual in nature with real sequential volume growth expected in Q4FY23. It also lowered the profitability as well as FCF guidance at JLR for FY23E.
Context
Consolidated total operating income for the quarter came in at Rs 79,611 crore, up 10.7% QoQ. Reported EBITDA for Q2FY23 was at Rs 8,718 crore with corresponding EBITDA margins at 11%. QoQ rise in margin performance was on account of savings realised under all costs heads, however was still short of expectations due to miss in volumes at JLR and consequent decline in expected operating leverage benefits. India CV business reported EBITDA margins of 5% (down 50 bps QoQ) while the same in India PV business at 5.4% (down 70 bps QoQ) and at JLR was at 10.3%.
Our Perspective
Tata Motors (TML) is the prominent auto OEM in India with leadership position in the CV space and among top three players in the PV domain. It also has a presence in the global luxury car market through Jaguar Land Rover (JLR). With pricing, gross margins and operating leverage gains at its CV business, it aspires to clock double digit EBITDA margins in this domain. In the PV space, however, with peak capacity utilisation at play, near term tailwinds are seen in terms of gross margin expansion due to decline in key commodity prices. JLR, on the other hand, aims to deliver positive EBIT margins and breakeven FCF for FY23E vs. the earlier guidance of 5% EBIT margins and £1 billion of FCF. Its net automotive debt target (near zero) by FY24E also seems to be difficult to achieve at this juncture. On the electrification front, TML is leading the charge with >80% market share in PV space domestically amid Nexon EV as its most popular product and launch of most affordable offering i.e. Tiago EV. Furthermore, the company has showcased various concept EVs like "Curvv" and "Avinya", which will be launched in due course of time. Its overseas subsidiary i.e. JLR is also set to embrace the global EV trend with Jaguar set to be an all-electric brand by 2025 and Land Rover set to introduce six new electric models in the next five years. Key monitorables for the company, going forward, would be revival of sales volume at JLR, robust cash flow generation (CFO, FCF) and consequent retirement of automotive debt on b/s.
Disclaimer – I ICICI Securities Ltd. ( I-Sec). Registered office of I-Sec is at ICICI Securities Ltd. - ICICI Venture House, Appasaheb Marathe Marg, Prabhadevi, Mumbai - 400 025, India, Tel No : 022 - 6807 7100. I-Sec is acting as a distributor to solicit bond related products. All disputes with respect to the distribution activity, would not have access to Exchange investor redressal forum or Arbitration mechanism. The contents herein above shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon. Investments in securities market are subject to market risks, read all the related documents carefully before investing. The contents herein mentioned are solely for informational and educational purpose.
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