Can Tata Motors maintain the momentum in FY24?

JLR’s performance has helped Tata Motors post record consolidated revenue in FY23. The net profit of the company has also increased 2,690 crore in FY23 from a loss in FY22.

In the March quarter (Q4FY23), all three key verticals – JLR, Commercial Vehicle (CV) and Passenger Vehicle (PV) witnessed year-on-year and sequential expansion in operating margins. This is encouraging and the segment has better tailwinds in FY24. But the road is not smooth.

JLR expects the first half of FY24 to be slightly slower. The chip supply shortfall is expected to ease further during the year, although aided by a slower production ramp-up. In Q1FY24, JLR volumes are likely to remain at the same level as Q4 at 94,649 units. On the order book, JLR’s management said the metric is very high at 200,000 units, considering both supply and production are currently very low. It notes that a healthy order book would be less than 200,000 units and expects the order book to decline by around 5,000 units per month in H1FY24.

“Given the uncertainties in the economies in which JLR operates, investors would do well to keep an eye on the order book,” said Himanshu Singh, an analyst at Prabhudas Lilladher. demand, which will then put a weight on the margin,” he said.

JLR expects an Ebit margin of 2.4% in FY23 from over 6% in FY24. In addition, it aims to clock free cash flow of over £2 billion in FY24. Analysts at ICICI Securities believe this is possible even after raising a modest increase in annual capital expenditure outlook to £3 billion from FY24.

To ensure this, JLR’s progress towards meeting its FY24 targets needs to be tracked. Remind that the company could not meet the targets set at the beginning of FY23.

In Tata Motors’ India business, after several quarters, the CV segment witnessed double-digit EBITDA margin in Q4. This was aided by a good volume performance partly due to pre-purchase and softening commodity costs. However, with the transition to the new Bharat Stage VI Stage 2 norms, Q1 FY24 volumes will be lower year-on-year. Tata Motors’ CV volumes declined by 27 per cent in April. The volumes will gradually pick up from the second quarter. But the market share trajectory here demands attention. While Tata Motors’ CV market share improved sequentially in Q4, it was down 300 basis points for FY23.

Yet Tata Motors gained 13.5% market share in the PV segment in FY23 by 210 basis points. Here, it aims to increase the penetration of the electric vehicle (EV) business. This bodes well but the EV business is currently in the red with an EBITDA margin of negative 4.6% in FY11.

Excluding product development costs, the EV business is nearly EBITDA neutral, according to the company. Thus, reaching the company’s target of double-digit margins in PV looks tough in the near term.

Overall, Tata Motors’ net automotive debt continues to come down, which is encouraging. However, the automaker won’t be able to meet earlier guidance of reaching zero net auto debt by FY20. It hopes to meet this target by FY25. While the segments are in a strong position, continued performance will keep investor sentiment intact. Investors seem to be factoring in the optimism enough. Tata Motors shares hit 52-week high 520.50 each on Friday.