Tata Motors- Q3 margins improve across segments

Tata Motors: Q3 margins improve across segments

Auto maker tata motors q3 margins improved across segments, and JLR benefited from rising chip supply, according to brokerage firm Nomura. Tata Motor’s consolidated Ebitda at Rs 9,640 crore was ahead.

JLR: Average selling price (ASP) stood at £75.9k +9% q-o-q (Nom: 74k) benefited from strong mix. Ebitda margin was 11.9% (Nom: 12.3%). For India, commercial vehicle (CV) margin was 8.4% (Nom: 7%) and passenger vehicle (PV) margin was 6.9% (Nom: 6%) benefiting from 80bp one off. Q3FY23 consolidated free cash flow (FCF) was Rs 5,300 crore. Net auto debt decreased to Rs 57,500 crore.

For JLR, the company has an orderbook of 215k, and response to the new Range Rover, New Range Rover Sport and Defender has been strong with ~74% of its order book. Hence, we expect a strong uptick with volumes increasing 6%/28%/2% in FY23-25F to 366k/470k/478k units. The mix should remain strong, and China demand is rebounding. There is no pressure on incentives. Orderbook increased to 215k — net order inflow of 95k in Q3. JLR could reverse working capital of £1.8 bn as production normalises.

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India: CV: The company’s strategy to lower discounts is working well. The demand outlook is positive.

PV: Demand may normalise now as pent-up demand is released. Tiago EV has 25% first-time buyers. In the PV segment, TTMT remained a key beneficiary of a strong model cycle driving its market share to 14% in Q3. The strong response towards its CNG variants will continue to drive market share higher, in our view. In the MHCV segment, TTMT saw its market share normalising further to 47% in 3QFY23 .

India: We lower MHCV growth to 30% for FY23F and maintain 10%/5% growth in FY24F/25F. We raise PV volumes by 5% to 555k +49%/601k+8% in FY23-24F given the strong traction.

Valuation: SOTP-based TP to Rs 508

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We roll forward our valuation to March-24F (Dec-23F earlier). In our SOTP, we value JLR at 1.2x EV/Ebitda, CV at 10x EV/Ebitda, PV at 1.3x EV/Sales and investments at Rs 85/sh. The stock is trading at 4.3x FY24F Ebitda. Rising JLR production and debt reduction would be important catalysts, in our view. We estimate Net Auto debt to reduce to Rs 23,000 crore, or Rs 60/sh by FY25F-end from Rs 57,500 crore (Rs 150/sh) currently.