Tata Motors Ltd shares are up over 9% in Friday morning trade on the NSE. This comes on the back of better-than-expected margin performance in the fourth quarter results (Q4FY22).
The automaker reported Q4 consolidated EBITDA (earnings before interest, taxes, depreciation and amortization) margin of 11.1%, a decline of 325 basis points (bps) year-over-year (year-on-year). One basis point is 0.01%. However, it was ahead of analysts’ estimates. For example, analysts at Motilal Oswal Financial Services expected the measure to be 10.6%.
Operating revenue fell 11.5% to Rs 78,439 crore. While the commercial vehicle (CV) and passenger vehicle (PV) businesses grew revenue by 29% and 62%, respectively, the Jaguar and Land Rover (JLR) businesses reported a 27% year-on-year revenue decline. Went.
The JLR business was impacted by semiconductor shortages, which led to a 38% year-on-year decline in wholesale volumes (excluding joint ventures) in Q4. But management expects the chip’s situation to gradually improve and surpass FY12 in FY13, it said in the post earnings call.
However, Q1FY23 is likely to be affected due to the lockdown in China and change in model. Concerns about increased commodity costs are likely to persist. But that is expected to improve in subsequent quarters and management expects to achieve an EBIT margin of 5% and free cash flow in excess of GBP1 billion.
JLR’s order book stands at 168,000 units at the end of Q4 which is an increase from 155000 units in Q3FY22. Due to low channel inventory in the system, analysts at ICICI Securities expect the mix to normalise, resulting in improved production and average reversal of gross margin.
In the Indian business, the CV segment will benefit from further growth coupled with an increase in infrastructure activity. Management said in the call that the increase in fuel prices did not impact demand as is evident from the good traction so far in May. The outlook for the PV business is likely to remain strong and hence the company is increasing capital expenditure in this segment. Note that in FY2012, PV volumes grew by 67% and the market share increased to 12.1% from 8.2% in FY2011.
“As the CV cycle turns (expected ~21% CAGR for the industry in FY22-FY25E), Tata Motors (to be the market leader in domestic CVs), said analysts at ICICI Securities in a report on May 13. Nate) is likely to profit with better margins.” CAGR is the compound annual growth rate. It also leads to electrification in the PV business with the highest market share.
Nevertheless, there are headwinds. “We cut our FY23/FY24 consolidated earnings per share estimate by 12% each for: a) JLR cut due to the lockdown in China and slow recovery in semiconductor supply, b) cost inflation, and c) translation effect 13 “Appreciation in INR against GBP on JLR consolidation,” analysts at Motilal Oswal Financial Services said in a report in May.