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

ICICIdirect Research 10 Nov 2022 DISCLAIMER

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. 


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.

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