Jaguar Land Rover Automotive plc (JLR), the British unit of Tata Motors Ltd, looks to be making a difference on the volume front. For the March quarter (Q4FY23), JLR’s wholesale volumes are ahead of guidance. Recall that JLR’s performance in the first half of FY2023 was disappointing, with the company reducing the volume target in Q2 by 16%. Since then, volume picked up momentum, helping ease supply chain bottlenecks, resulting in improved performance for the full year.
JLR’s FY23 volume, excluding the joint venture with China, represented a roughly 4% beat versus guidance, even though it didn’t fully offset the miss seen in Q2. The company is now likely to see positive free cash flow of over £500 million in FY23. Earlier it was expected to break at this level as well. The measure is still short of JLR’s estimate of more than £1 billion at the start of the financial year.
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Himanshu Singh, an analyst at Prabhudas Lilladher, said improving supply chain conditions mean better utilization of inventory, which will release working capital. Thus, this could be a reason for the increase in JLR’s free cash flow as compared to its guidance after the third quarter results.
JLR will now see a decline Net Debt levels rose to around £3 billion by March-end from around £4 billion by the end of December.
Given JLR’s better-than-expected performance in the fourth quarter, Motilal Oswal Financial Services Analysts raised consolidated revenue and EBITDA estimates by 6% and 21%, respectively.
To be sure, JLR’s order book fell 7% sequentially to 200,000 units at the end of Q4. This is due to the company’s focus on meeting the backlog on new orders, as indicated by management in the Q3 earnings call. This well indicates that 76% of the order book is tilted towards Range Rover, Range Rover Sport and Defender. However, a possible recession in Europe poses a looming risk to JLR’s sales. Furthermore, the recovery in the Chinese economy is significant as the country accounts for about 14% of FY23 volume.
Meanwhile, Tata Motors’ domestic business – commercial vehicles and passenger vehicles – is in a strong position. Both segments saw sequential improvements in Q4 wholesale volumes.
All eyes will now be on JLR’s margin performance and domestic business in the fourth quarter. So far in calendar year 23, Tata Motors Shares are up about 13%. In the long run, sustained volume growth and positive surprises on the margin front are key triggers for the stock.
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