Tata Motors Share Price: Tata Group's Auto Giant Stock Jumps 3% On Q2 Results; What Analysts Say?

Tata Motors' stock saw a nearly 3% rise in early trading on Monday, emerging as one of the top gainers in the Nifty 50 amidst volatile market conditions. Analysts see promise for the company in the second half of FY25, with expectations that Jaguar Land Rover's (JLR) margin pressures will ease, potentially enhancing Tata Motors' overall performance. The stock opened at Rs 801 on the NSE, a slight dip from the previous close of Rs 800.95, but after reaching an intraday low of Rs 792, it rebounded sharply to Rs 829.

For Q2FY25 ending September 2024, Tata Motors reported an 11% year-over-year (YoY) decline in consolidated net profit, amounting to Rs 3,343 crore, down from Rs 3,764 crore in the same period last year. Additionally, earnings before interest, tax, depreciation, and amortization (EBITDA) dropped by 16%, from Rs 13,767 crore to Rs 11,567 crore YoY, leading to a 230-basis-point contraction in the EBITDA margin, now at 11.4%. This margin squeeze has been largely attributed to challenges faced by JLR.

According to Tata Motors' earnings presentation, Q2 results were impacted by temporary supply constraints, although the company maintains its full-year guidance of £30 billion in revenue with an EBIT margin of at least 8.5% and positive net cash.

Despite the weaker-than-expected Q2 results, many analysts remain optimistic about Tata Motors' performance for the remainder of FY25. Jefferies India Pvt Ltd noted that Tata Motors' Q2 EBITDA dropped 15% YoY, falling 9% below Jefferies' forecast, primarily due to the underwhelming JLR margin. Jefferies highlighted that JLR faced tough macroeconomic conditions in China and Europe, compounded by aluminium supply constraints and delayed shipments in Q2. However, JLR anticipates an improved performance in the second half of FY25 and has retained its full-year margin guidance.

Further, Jefferies pointed out a slowdown in demand for Tata Motors' commercial vehicles (CV) and passenger vehicles (PV) segments within India. Although CV sales remain profitable, the slowing demand is attributed to a high baseline and reduced road construction activities, which have historically driven CV sales.

Growth Challenges for JLR

Tata Motors' global challenges are echoed across the automotive industry. JLR's global peers have also reported a volume slowdown for 2024. Nuvama Institutional Equities has forecast a modest 2% compound annual growth rate (CAGR) for Tata Motors from FY24 to FY27, a contrast to the 21% CAGR achieved from FY21 to FY24. This slowdown is primarily driven by volume declines at JLR (projected at -3% CAGR) and stagnation in the India CV division. Nuvama attributes these challenges to various factors, including the exhaustion of JLR's order book, the discontinuation of certain Jaguar models, and weaker demand across key global markets.

Despite these challenges, analysts remain largely supportive of Tata Motors. Out of 36 analysts covering the stock, 22 have maintained a "buy" rating, nine suggest "hold," and only five have issued a "sell" recommendation.

Tata Motors stock was trading at Rs 823 per share as of noon on the NSE, with intraday gains exceeding 2%. Over the last year, the stock has returned nearly 26%. Year-to-date in 2024, Tata Motors shares have gained just over 4%.