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Tata motors reports subdued Q1FY23 performance, with unchanged long term guidance!

ICICIdirect Research 28 Jul 2022 DISCLAIMER

What's Buzzing: 

Tata Motors (TML) reported muted performance in Q1FY23 with EBITDA margins and PAT coming much lower than our estimates. EBITDA margins declined ~650 bps QoQ at 8.2% - a key negative surprise for the quarter. It was primarily driven by operational underperformance at JLR.      

Context: 

Consolidated total operating income for the quarter came in at ₹ 71,935 crore, down 8.3% QoQ. Reported EBITDA for Q1FY23 stood at ₹ 5,872 crore with corresponding EBITDA margins at 8.2%. QoQ decline in margin performance was primarily on account of rise in other expense which rose 440 bps QoQ with gross margins declining by ~180 bps QoQ. India CV business reported EBITDA margins of 5.5% (down 40 bps QoQ) while the same in India PV business stood at 6.1% (down 80 bps QoQ) and at JLR stood at 6.3% (down ~630 bps QoQ). Consolidated loss after tax stood at Rs 5,007 crore for Q1FY23. 

Perspective: 

Tata Motors (TML) is the third largest auto OEM in domestic PV space (market share at 12.2% as of FY22) & market leader in the domestic CV space (market share at 44.6% as of FY22). It also has its presence in global luxury car market through Jaguar Land Rover (JLR). JLR aim’s to deliver strong improvements in EBIT and free cash flows from Q2 onwards to get to near net auto debt free by FY24. The company stands committed to its long term EBIT margin guidance of >=10% by FY26. TML is leading the charge on the electrification front domestically, with its Nexon EV the best-selling electric PV with TML’s market share pegged at ~88% in Q1FY23. Furthermore, the company has launched Nexon EV Max (long range version of Nexon EV) & various concept EV's ("Curvv" and "Avinya"). Its overseas subsidiary i.e. JLR is set to embrace the global EV trend with Jaguar set to be an all-electric brand by 2025 and Land Rover set to introduce 6 new electric models in the next 5 years. Key monitorables for the company going forward would be easing of semi-conductor supply side issues and consequent revival of sales volume at JLR, competitive product launches on the EV front, robust cash-flow generation and consequent retirement of automotive debt on B/S.

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