Tata Motors, the global automobile manufacturer, reported a robust performance in Q1FY24, driving its stock to reach a new all-time high of ₹665.4 apiece in today's trading session.
The company's consolidated net profit for the June ending quarter stood at ₹3,301 crore, a significant improvement led by strong performance in its Jaguar and Land Rover and commercial vehicle businesses.
Notably, in the same quarter of the previous fiscal year, Tata Motors had reported a net loss of ₹4,951 crore. During Q3 FY23, the company turned profitable after seven straight quarters of losses, posting a net profit of ₹3,043 crore. The subsequent quarter saw even better earnings, with Tata Motors reporting a consolidated net profit of ₹5,496 crore.
The company achieved its second highest-ever quarterly revenue of ₹1,02,236 crore in Q1FY24, representing a YoY increase of 42.1%. During the quarter, all three core automotive businesses delivered strong performance, including Jaguar Land Rover (JLR), Tata Commercial Vehicles, and Tata Passenger Vehicles.
Jaguar Land Rover's business posted 57% YoY growth in revenues, reaching 6.9 billion pounds. Its profit before tax (PBT) in Q1FY24 came in at 435 million pounds, up 67 million pounds from Q4FY23 and almost 1 billion pounds from Q1FY23.
The EBIT margin for the quarter stood at 8.6%, a significant increase from 6.5% in Q4FY23 (1300 bps). The higher profitability was attributed to favorable volume, mix, pricing, and foreign exchange revaluation, partially offset by higher inflation and supplier claims, as per the company's regulatory filing.
Going forward, Tata Motors expects Q2 production and cash flow for the JLR business to be lower than Q1 due to the annual summer plant shutdown. However, it said, wholesales and profitability are expected to remain in line with recent quarters.
On the domestic front, Commercial vehicle volumes experienced a modest decline of 14.1% YoY, while exports were also down by 32% YoY due to subdued economic conditions in overseas markets. However, the Heavy Commercial Vehicle (HCV) segment witnessed growth of 9% YoY, driven by government infrastructure projects and increased activity in sectors such as e-commerce, construction, auto logistics, and petroleum.
Despite the drop in volumes, revenues improved by 4.4% to ₹17,000 crore on account of an improved mix and a better market operating price. The business witnessed strong EBITDA and EBIT margins of 9.4% and 6.5% in Q1 and reported a strong PBT of ₹937 crore, led by improved pricing, a superior mix, and stable commodity costs.
Looking ahead, the company expects CV demand to sequentially improve in FY24. The promising monsoon and continuing infrastructure thrust by the Government augur well for the CV industry, even as it faces the headwinds of high-interest rates, fuel prices, and inflation, it noted.
Tata's PV business recorded robust demand in Q1FY24, with PV volumes growing by 7.7% YoY. Revenues in this segment grew by 11.1% to ₹12,800 crore, driven by improved pricing. The quarter also saw a significant jump in EV volumes (Including exports), increasing by 109% YoY to 19,300 units.
While Tata's PV business reported strong results, EBITDA margins were lower by 80 bps YoY at 5.3%, primarily due to a higher mix of EVs and increased fixed expenses.
The Passenger Vehicle industry in Q1 FY24 witnessed robust demand driven by new launches, especially in the SUV segment and EVs. The company expects demand to remain steady with the onset of the festive season, while the electrification trend is set to strengthen further.
"We will continue to leverage our aspirational portfolio and alternate powertrains to maintain market leadership and drive EV penetration further," the company added.
Should you buy the stock after Q1?
Tata Motors shares have been on a winning streak since April 2023. During this period the shares have appreciated from ₹420.80 to trade at the current market price of ₹641, producing a staggering return of 52.32%.
Following the company's Q1 FY24 performance, domestic brokerage firm ICICI Securities maintained its 'add' rating on the stock and revised the target price upwards to ₹699 apiece.
Another brokerage firm, Motilal Oswal, said that the company will benefit from the CV uptrend and stable growth in PVs, company-specific volume and margin drivers, a sharp improvement in FCF, as well as a reduction in net debt in both JLR and the India businesses. The brokerage retained its 'buy' call on the stock with a target price of ₹750 apiece.
On the other hand, Kotak Institutional Equities maintained its 'sell' call on the stock, but it raised target price to ₹600 from the earlier ₹550 apiece. The brokerage noted that despite the improvement in JLR's business performance and steady demand conditions in the domestic markets, there are some concerns.
These include increased competitive intensity in the Chinese BEV market and market share loss in the CV segment, according to the brokerage.
33 analysts polled by MintGenie on average have a 'buy' call on the stock.
Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of MintGenie.