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Tata Motors Q2 Review: Analysts Cut Earnings Estimates On Slower Output Ramp-Up At JLR

Analysts Cut Estimates On Slower Output Ramp-Up At JLR

<div class="paragraphs"><p>(Photo: Tata Motors)</p></div>
(Photo: Tata Motors)

The lower production guidance for Tata Motors Ltd.’s British arm Jaguar Land Rover due to difficulties in sourcing of chips has prompted analysts to cut estimates for the current fiscal.

The luxury carmaker’s management lowered its guidance for the financial year ending March. It now expects to maintain just positive EBIT margin for the current fiscal, compared with the earlier guidance of 5%.

It also expects to breakeven at the free cash flow level in the period, against the earlier indication of £1 billion free cash flow for the year.

The reduced forecast comes after a short supply of specialised semiconductors led to lower-than-expected production at JLR. The subsidiary contributed nearly 62% to the company’s overall revenues in the second quarter.

Wholesale dispatches registered 5% quarter-on-quarter growth to 75,307 units (excluding China JV), which was below the target of 90,000 units for the quarter.

“The management indicated supply of specialized chips still remain an issue and increase in production will be more gradual vs envisaged earlier – guidance for 160k wholesales in H2 is below our earlier estimate of 200-220k units,” Axis Capital said in a report.

Tata Motors’ net loss narrowed in the quarter ended June as operating margin at JLR improved by 300 basis points year-on-year to 10.3%.

Here’s what brokerages said on the company’s Q2 results:

Jefferies

  • We now expect a net loss in FY23 and cut estimated earnings per share for FY23-FY25 by 3-9% factoring lower guidance.

  • Like Tata Motors due to the ongoing cyclical recovery and improved franchise in India, early leadership in EVs and increasing focus on higher-margin Land Rover models.

  • Retain ‘buy’ rating with Rs 540 price target, implying an upside of 25%.

Motilal Oswal

  • Cut our earnings per share estimate for FY23 to a loss from profit and FY24 by 6% to account for slower production ramp-up at JLR.

  • Tata Motors should witness gradual recovery as supply-side issues at JLR and commodity headwinds in India business stabilise.

  • India commercial vehicle and passenger vehicle businesses were hit by residual commodity cost inflation, which should reverse from the third quarter.

  • Maintain ‘buy’ rating with a target price of Rs 500, a potential return on investment of 15%.

Axis Capital

  • Margins in India business to recover in H2 but weaker production guidance at JLR disappointing and drive deep cuts in FY23 Ebitda.

  • Lower guidance to push back volume recovery and more importantly de-leveraging at JLR.

  • Cut Ebitda estimate for FY23 by 31% but only 1-5% for FY24/FY25E on assumption of lower margins.  

  • Cyclical recovery and market share gains to drive volume growth in India, with better profitability due to commodity price correction.

  • Reiterate ‘buy’ with target price of Rs 550 per share, a potential upside of 27%.

Emkay Global

  • Owing to lower volume and margin assumptions at JLR, we reduce FY23-25E consolidated Ebitda by 5-14%.

  • Maintain positive stance on expectations of a sales upcycle across segments, aggressive cost savings and debt reduction.

  • Higher share of models such as Range Rover and Range Rover Sport and Defender in JLR’s orderbook should lead to better product mix.

  • Reaffirm ‘buy’ with a reduced target price of Rs 490 from Rs 515 earlier, with potential upside of 13%.

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