scorecardresearchQ3 Earnings review: Brokerages raise estimates as Tata Motors turns profitable

Q3 Earnings review: Brokerages raise estimates as Tata Motors turns profitable after 7 quarters

Updated: 27 Jan 2023, 01:38 PM IST
TL;DR.

Post the third quarter results, brokerages have retained their bullish stance on the stock. some have even upgraded their future earnings estimates as well as target prices. Most brokerages have a target of between 515 to 525 for the stock.

Post the third quarter results, brokerages have retained their bullish stance on the stock. some have even upgraded their future earnings estimates as well as target prices. Most brokerages have a target of between  <span class='webrupee'>₹</span>515 to  <span class='webrupee'>₹</span>525 for the stock.

Post the third quarter results, brokerages have retained their bullish stance on the stock. some have even upgraded their future earnings estimates as well as target prices. Most brokerages have a target of between 515 to 525 for the stock.

Auto major Tata Motors reported better than expected for the third quarter of FY23 (Q3FY23), turning profitable for the first time after 7 consecutive quarters of losses. Post the third quarter results, brokerages have retained their bullish stance on the stock. some have even upgraded their future earnings estimates as well as target prices. Most brokerages have a target of between 515 to 525 for the stock.

The company reported a consolidated net profit of 2,957.71 crore for the quarter ended December 2022 on account of robust sales across markets, against a loss of 1,516.14 crore in the same quarter last year. Its revenue from operations came in at 88,488.59 crore, up 22.51 percent from 72,229.29 crore in the same quarter last year.

Higher wholesales, a stronger mix, pricing, and foreign exchange gains contributed to Q3FY23's continued solid performance. The management anticipates Q4FY23 to perform better than Q3FY23 going forward.

The company's earnings before interest, taxes, depreciation, and amortisation (EBITDA) for Q3FY23 stood at 12,280 crore with corresponding EBITDA margins at 13.9 percent, up 290 basis points QoQ.

Jaguar Land Rover's revenue stood at 6 billion pounds, up 28 percent as compared with the same period last year, reflecting better supplies, a strong model mix and pricing.

Despite uncertainty across the globe, the company's view on demand outlook remained cautiously positive. In addition to 85,000 deliveries, the company got 95,000 new orders for Q3FY23.

Most brokerages were also positive on the stock post its Q3 results. According to experts, the auto major should witness a gradual recovery as supply-side issues ease (for JLR) and commodity headwinds stabilize (for the India business). It will also benefit from a macro recovery in India, company-specific volume/margin drivers, and a sharp improvement in Free Cash Flow and leverage in both JLR and the India business. Let's see what they have to say:

Prabhudas Lilladher

In Q3FY23, Tata Motors' consolidated revenue surprised at 88500 crore led by better-than-expected average realizations at JLR and CV business, said the brokerage. It further stated that the product mix at JLR improved sequentially driven by an increase in the mix of Defender, New Range Rover (RR) and RR Sport. Currently, JLR has an order book of 215k units of which 74 percent is contributed by these models and PL expects this mix to further improve over the next year. It sees JLR ramping up its production as supply issues further subside. On the domestic side, CV demand outlook remains strong, especially for MHCVs and passenger carriers. PV market share also remains strong at 14% percent and EV at 85 percent, added the brokerage.

It maintains a positive stance on Tata Motors as volume ramp-up at JLR is expected to help revenues, and profitability and drive free cash flow generation aided by a strong order book. Domestic traction also looks good led by CV segment benefits from ongoing upcycle, operating leverage and tailwinds from lower commodity costs & discounting and strong momentum in market share in the PV segment led by revamped portfolio, customer preference for SUVs and rising EV penetration, explained the brokerage. It maintains a buy with a target of 520, implying an upside of 24 percent.

Motilal Oswal

Tata Motors Q3FY23 operating performance was a beat, driven by strong mix benefits for JLR and lower discounts in the India CV business, said MOSL. JLR is seeing strong demand for RR/RRS/Defender (74 percent of order book), which augurs well for FY24 performance as supply has gradually improved, it noted. India CV should continue to benefit from good demand and focus on the demand-pull strategy, further stated the brokerage.

Post the results, the brokerage has upgraded its consolidated EPS estimates for FY23 (reduction in losses) and FY24 (by 19 percent) to account for a strong mix at JLR and better margin in the India CV business due to lower discounts. It maintains a Buy call with a TP of 525 (Dec-24 SOTP based), implying an upside of 25 percent.

Emkay

"Tata Motors' Q3FY23 consolidated EBITDA surged 43 percent YoY, above our estimates backed by better margins in JLR and standalone divisions. JLR’s strong performance was driven by better volumes and mix, whereas standalone performance was led by better pricing. Consolidated revenue grew by 23 percent due to better revenues in JLR and standalone divisions. JLR’s order book is strong, at 215,000 units. Models such as new generation RR/RR Sport and Defender form 74 percent of the order book which should lead to product-mix improvement ahead," noted Emkay

Factoring in the strong Q3 performance, the brokerage has increased its FY23E consolidated EBITDA by 14 percent. It maintains a positive stance on expectations of a sales upcycle across segments and aggressive cost savings. It has a buy call on the stock, with SOTP-based TP of 515/share now ( 485 earlier), based on FY25 estimates (Dec-24E earlier).

Key risks: Further delay in production ramp-up due to supply issues, luxury-car demand contraction in target markets, lower-than-expected growth in India CVs/PVs, failure of new launches and adverse currency/commodity prices, added Emkay.

Sharekhan

According to the brokerage, the company is witnessing robust demand and is expected to deliver better operational efficiencies, aided by aggressive launches, market positioning, product differentiation, cost savings, and investments in research and development (R&D). It expects operational performance to improve strongly in Q4FY23E and FY24E, as supply constraints are expected to ease gradually, while demand remains strong for both JLR and domestic operations. Domestic CV and PV segments are also expected to remain healthy because of new launches and operating leverage benefits, it added. It maintained a buy call with a target price of 516, implying a 23 percent upside.

Stock price trend

The stock surged over 8 percent in intra-day deals to 453 post its third-quarter earnings. Overall, in the last 1 year, the stock has shed 15 percent but has advanced 14 percent in January till date.

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Tata Motors stock price trend
First Published: 27 Jan 2023, 01:38 PM IST