Tata Motors is driving in top gear, thanks to a strong performance by its British subsidiary Jaguar Land Rover (JLR) alongside robust execution across segments in its domestic business. It topped street estimates with a consolidated net profit of ₹5,408 crore in Q4 and analysts expect the momentum to continue in the new financial year aided by multiple tailwinds.
Tata Motors’ robust numbers in the March quarter were aided by JLR’s performance – the UK-based luxury car maker posted free cash flow of £815 million during the quarter. JLR accounts for 80% of Tata Motors’ consolidated revenue, so its strong performance has a large impact on Tata Motors’ performance.
In addition, Tata Motors’ domestic business also delivered an improvement in margins across segments, helping the company post its highest-ever consolidated revenue of ₹1.06 lakh crore in Q4, registering a growth of 35% on year.
“Tata Motors executed a strong show across key verticals in Q4 FY23 with commercial vehicles earnings before interest, taxes, depreciation and amortisation (EBITDA) margins crossing the 10% mark after 4 years and JLR delivering a strong £815 million free cash flow,” said the analysts at Motilal Oswal.
Tata Motors declared a dividend of ₹2 per ordinary share, its first since FY16. The Indian business’ net debt stood at ₹6,200 crore in FY23, which is the lowest in 15 years. The street also celebrated its earnings as its shares rose by 4% hitting a fresh 52-week high of ₹537 a piece before closing at ₹531.
The JLR boost
Analysts expect Tata Motors to gain more momentum going forward, thanks to JLR’s healthy order book, softening commodity prices and sustained free cash flow generation.
JLR’s volumes surged to 1.07 lakh units in Q4, rising by 20%. In a post-earnings call, the luxury car maker said that its current order book stands at 2 lakh units, and that the overall demand outlook remains healthy.
Of this, 1.5 lakh orders are for high-margin cars like the Range Rover, Range Rover Sport and Defender. The company has planned a ramp up of capacities during FY24, with capital expenditure budgeted at £3 billion, up from £2.35 billion in FY23.
Overall, JLR is targeting volumes of 4 lakh units in FY24 which is a growth of 25% when compared to FY23’s volumes of 3.21 lakh units.
Thanks to improving margins and volumes, JLR is aiming to reduce its debt to £2 billion from £3 billion during FY24, with a target of becoming net debt free in FY25.
Not just this, JLR is also the dominant industry player in the electric passenger vehicle space in its home market, UK, with a market share of over 80%.
“Demonstrated capability in newer technologies in the commercial vehicle space and pricing discipline across industry to aid aspiration of double-digit margins ahead,” said analysts at ICICI Direct.
Margins expand in domestic businesses too
Tata Motors’ commercial and passenger vehicle segments witnessed margin expansion in the March quarter – while the commercial vehicle segment delivered a 420 basis point margin expansion YoY to 10.1%, the passenger vehicle segment reported a 40 basis point increase to 7.3% in this period.