PL Stock Report - Tata Motors (TTMT IN) - Q1FY24 Result Update - Strong performance, ripe for guidance upgrade - BUY

Tata Motors (TTMT IN) - Himanshu K Singh - Research Analyst, Prabhudas Lilladher Pvt Ltd

Rating: BUY | CMP: Rs639 | TP: Rs760

Q1FY24 Result Update - Strong performance, ripe for guidance upgrade

Quick Pointers:

♦ JLR’s 2QFY24 volumes to be similar to 1Q, due to 2-week production shutdown.

♦ JLR guidance may be revised upwards post 2Q performance.

We increase our FY24/25E EBITDA estimates by 13%/9%, to factor in company’s guidance and 1Q results. Tata Motors’ (TTMT) consolidated revenue was higher than our and consensus estimates (+c30% YoY). Moreover, solid performance of JLR and India CV business boosted margin beat. JLR’s volume improvement along with better mix will likely continue and may result in guidance upgrade in coming quarters. Benefits from better product mix should continue helped by a strong order book of 185k units (with 76% mix of higher ASP models) and help post strong ASP and margins. Also, lower discounts at CV should help margins and TTMT is confident of maintaining its lead in SUVs.

Overall, we maintain our positive stance on TTMT given (1) JLR’s volume ramp-up resulting in strong revenue, profitability and FCF, 2) CV segment (on domestic side) benefitting from ongoing upcycle, operating leverage and tailwinds from low commodity costs & low discounting and (3) sustained market share in PV segment (13.5% vs 8% in FY21) led by revamped portfolio, rising SUV share and rising EV penetration. We expect Revenue/EBITDA CAGR of 17%/44% over FY24/25E. Retain ‘BUY’ with SoTP based TP of Rs 760 (earlier Rs 675).

♦ 1QFY24 JLR and CV help post strong performance: Consol. revenue grew by c30% YoY (helped by JLR’s revenue growth of c45%) beating our and Bloomberg consensus estimate (BBGe). Consol. EBITDA margin at c13.3% beat PLe (10.6%) and BBGe (11.0%). Consol. Opex was lower led by JLR and India CV segment. India CV revenues were a strong beat, as realisations grew 6.3% QoQ despite inferior mix in 1Q, benefitting from lower discounting; which has helped EBITDA margins (+c370bps YoY) to reach 8.4% (PLe: 6.8%). PV (ex-JLR) revenue beat while EBITDA margins (5.3%; -200bp QoQ) missed PLe.

♦ Key takeaways: (1) JLR: Remains optimistic on demand. Current order book is 185k units (200k in 4QFY23) of which +76% is for New RR, RR sport and Defender. JLR started activating marketing to build demand momentum for end of FY24 or early FY25, but will not see VME going beyond 2-3% in future (1.1% in 1Q). It also sees 2Q wholesale to be similar to 1Q (on lower production from plat shut down), however, has maintained its 400k FY24 volume targets. JLR will ramp-up production of RR and RR Sport by 30% from current levels by end of FY24. China volumes are improving with higher profitability. Its margins benefited from inventorisation (c1.1%) in 1Q and may upward revise guidance post 2Q. (2) CV segment: TTMT noted that lower availability of vehicles post BS6 (II) (as it had made major upgrades), impacted market share, which has now normalized. It expects CV industry to grow 5-10%YoY, while HCVs could grow in double digits. TTMT is focusing on profitable growth (lower discounting). Non-CV business grew by +25% YoY in 1Q. Commodity price should come down to 4QFY23 levels (3) PV segment: TTMT has waiting period of 3-12 weeks and strong demand for SUVs have continued. There is increase in competition, but has not used VME freely. EV division saw impact on margins due to higher lithium prices and IPL spends in 1Q, start of PLI, fall in lithium prices and cost control efforts should help margins 2Q onwards.

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