Buy or sell? What should investors do with Tata Motors shares post Q1 results

Markets will react to Tata Motor’s Q1 results in tomorrow’s trading session, with the auto stock expected to attract more buying interest from investors. Earlier this month, domestic brokerage firm Motilal Oswal saw a 13 per cent potential upside on Tata Motors and reiterated its a ‘buy’ rating on the stock, with a target price of ₹700.

The Tata Group-company announced its June quarter results post-markets hours on Tuesday. Ahead of Q1FY24 earnings announcement today, shares of Tata Motors settled 1.62 per cent higher at ₹639.45 apiece, after hitting a 52-week high of ₹642.50 apiece on the BSE.

“FY24 has begun on the right note with all automotive verticals delivering strong performances. The distinct strategy employed by each business is now delivering consistent results and making them structurally stronger. We remain confident of sustaining this momentum in the rest of the year and achieve our stated goals,” said PB Balaji, Group Chief Financial Officer, Tata Motors.

Analysts had expected strong earnings in the quarter-under-review led by improving margins and healthy sales in its British luxury arm.

In the April-June quarter, JLR revenues improved by 57 per cent to £6.9 billion on strong wholesales and improved mix resulting in EBIT margins of 8.6 per cent. The profit before tax (PBT) during Q1 FY24 was £435 million, up £67 million up nearly £1 billion from Q1 FY23.

JLR’s order book stood at 185,000 units with Range Rover, Range Rover Sport and Defender representing 76 per cent of the order book. It reported free cash flow (FCF) at £451 million, the highest first quarter cash flow on record, while the cumulative FCF over the last three quarters stood at £1.8 billion.

In a research report, Motilal Oswal explained that JLRs roadmap for electric vehicle (EV) transition would be driven by three platforms viz. a) electrified modular architecture – EV only platform, b) flexible modular longitudinal architecture platform offering flexibility between ICE, hybrid, and pure-electric, and c) JEA for all electric Jaguars.

Through global partnerships announced in FY23, JLR plans to deliver a) automated driving systems and AI-powered connected services from 2025 with NVIDIA, b) increase performance and range for its next gen EVs using silicon carbide semiconductor inverter technologies developed with Wolfspeed, and c) accelerate the digital transformation of its industrial operations with Tata Technologies,” said the brokerage in its report.

Tata Motor’s CV segment reported a revenue growth of 4.4 per cent year-on-year to ₹17,000 crore in the June quarter, with the operating margin expanding by 390 bps to 9.4 per cent. The rise in revenue was on the back of improved mix and better market operating price.

Apart from seasonality, Q1 FY24 for the CV segment was impacted by the transition to BS 6 Phase 2 emission norms. Domestic CV volumes were down 14.1 per cent to 824,000 units, while exports were at 36,000 units, down 32 per cent year-on-year because of subdued economic conditions in overseas markets as well.

Going forward, Tata Motors remains optimistic on the demand situation despite near term uncertainties and expect a moderate inflationary environment to continue in the near term. ‘’We aim to deliver a strong performance in the rest of the year too, thanks to a healthy order book coupled with low-break-even in JLR, a steady improvement in demand whilst we continue to drive our demand-pull strategy in CV, a set of exciting launches ahead of the festive season in PV and continued aggression in EVs,” said the auto major in is statement.

Tata Motors shares are likely to open higher tomorrow and could see a rally in early trade driven by robust growth reported by its CV and JLR segments. Over the past one month, shares of Tata Motors have rallied over 12 per cent so far till date.

In the long term, Tata Motors is a well-positioned for further rise, given stable global growth and macroeconomic conditions, according to analysts. The auto firm is also well-positioned to benefit from growth in the EV sector, along with steady volumes from JLR, despite the ongoing uncertanties in global markets.

Updated: 25 Jul 2023, 08:54 PM IST