Tata Motors has recently announced its Q1FY23 results which were not pretty good in terms of profitability. The company has loss widened in Q1FY23 to Rs. 3,468 Cr. from Rs. 341 Cr. in Q4FY22 majorly due to the poor performance of its JLR business. So, let’s discuss what were the problems which led to a weak quarter for Tata Motors in Q1FY23 and what are the future outlook for the company in this article as we move ahead.
Problems of Tata Motors:
- The major problem for Tata Motors‘ weaker performance in Q1FY23 is its subsidiary JLR. The sales figure of the JLR business is falling.
- This fall in the sales of the JLR business is majorly attributable to the issue of semiconductor shortage and lockdowns in China, as China is one of the big markets for the JLR.
- Due to such issues, the most profitable model of JLR is selling low and hence impacting the turnover. Further, this has also led to an impact on the Operating Leverage of the company.
Positive Side of JLR Business:
- The demand environment for the JLR business of Tata Motors looks quite strong.
- The business is having order book of over 2 Lakh units which also provides good earnings and business visibility.
- In Q1FY23, JLR sold around 71,000 units which are expected to rise to 40% YoY and 25% QoQ i.e., around 90,000 units in Q2FY23.
- The order book of around 60% consists of the most profitable units of JLR.
- Earnings before Interests and Tax (EBIT) guidance by the company at 5% in FY23.
- Further, the company has also maintained its guidance of the Free Cash Flow of 1 Billion Pound in FY23.
- The company has taken a cost-saving measurement of 250 million pounds in Q1FY23.
Domestic Business Update:
- Trucker’s Sentiment Index tracks the logistic status like its normalcy and others have given an indication of trading at 2-year high levels showcasing good movement in the economy.
- EBITDA Margin of Commercial Vehicle has fallen by 40 bps and stands at around 5.5%. For Passenger Vehicle EBITDA Margin is down by 80 bps and is at 6.1%. This fall in margin is majorly due to raw material inflation like steel, etc.
- At the end of Q1FY23, the commodity prices began to cool off and hence Q2FY23 margins should improve for the company.
- In the Passenger Vehicle segment, the company is witnessing robust demand for its vehicles like Altroz, Nexon, etc.
- The company also enjoys a leading position in the Electric Vehicle (EV) segment and this business is performing well for the company.
- The company plan to double the EBITDA Margin levels of Passenger Vehicles in the coming 2 years provided that constant improvement in penetration of EVs, falling raw material prices, and other favorable indicators.
- Also, the company plans to make its Net Automotive Debt to Zero, or to at least bring it down by 75%.
- Shortage of Semiconductor remains a near to mid-term concern for the company as well as the overall automobile sector.
- Failure or slow pace of Adaption of EVs by consumers
- Evolving EVs technologies
- Supply Chain side issues remain a key concern due to certain factors like Covid waves, geopolitical tensions, etc.
What Should Investors Do?
Tata Motors is one of the largest automobile manufacturers in India with a leading presence in commercial vehicles with a presence across small, light, medium & heavy commercial vehicles. The company in Q1FY23 has posted a weak performance majorly on account of its subsidiary (JLR) performance, but the prospects look good for the company provided the risk factors on the card. Hence investors should keep this company on their radar but should follow due diligence before making any investment decision.
Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF.