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Auto giant, Tata Motors missed analysts' estimates in the quarter ending June 30, 2022 (Q1FY23) period with net loss widening and revenue sequentially declining. The company's commercial business witnessed strong volume growth, while the passenger vehicles business maintained robust momentum. However, EBITDA margins were impacted due to lower margins at Jaguar Land Rover (JLR) on the back of a spike in RM cost, pricing pressure, and major supply challenges including semiconductor shortages. Tata Motors expects demand to remain strong despite worries about inflation and geo-political risks. Post Q1 earnings, Tata Motors shares will be in focus on stock exchanges.
In Q1FY23, Tata Motors consolidated net loss widened to ₹5,006.60 crore compared to ₹4,450.92 crore in the same quarter last year, and ₹1,032.84 crore in the preceding quarter. Revenue from operations stood at ₹71,227.76 crore in Q1FY23 higher than ₹65,535.38 crore in Q1FY22 but lower than ₹77,857.16 crore in Q4FY22.
The growth in Tata Motors' commercial vehicles business in Q1 FY23 has been broad-based across regions and segments. For India business, domestic wholesales were at 95,895 vehicles (+124% yoy). However, exports were at 5,218 vehicles, a lower 22.6% affected by the financial crisis in a few export markets.
Further, the Tata Group-backed company's passenger vehicles business continued its strong momentum with wholesales at 130,351 vehicles, up 101.7% vs Q1 FY22. The SUV portfolio contributed 68% of Q1 FY23 sales.
Meanwhile, in Q1FY23, JLR's retail sales stood at 78,825 vehicles, broadly flat compared with Q4 FY22 and down 37% compared with Q1 FY22. Further, the luxury car's revenue came in at £4.4 billion in Q1 FY23, down 7.6% from Q4 FY22, impacted by supply challenges including semiconductor shortages, slower than expected ramp-up of the New Range Rover, and New Range Rover Sport production, and China lockdowns. The customer order book grew further to 200,000 vehicles.
JLR posted a loss before tax in the quarter to £(524) million before a £155 million favourable exceptional pension item. The loss primarily reflects the lower wholesale volumes with the weaker mix, as well as unfavourable inflation of £(161) million and currency and commodity revaluation of £(236) million year on year. The EBIT margin was (4.4)% reflecting the lower volumes and unfavourable mix. Free cash flow was negative in the quarter £(769) million, primarily reflecting £(616) million of unfavourable working capital movements.
Mitul Shah- Head of Research at Reliance Securities said, "Tata Motors consolidated revenue grew by 8% YoY (down 8% QoQ) to ₹719 billion, vs. our estimate of ₹732 billion. Its consolidated EBITDA de-grew by 40% YoY (down 64% QoQ) to ₹31.8 billion, vs. our estimate of ₹65 billion due to lower realization and lower margins at JLR and higher RM cost. EBIDTA margin contracted by 350bps YoY and 670bps QoQ to 4.4%, vs. our estimate of 8.9%. TTMT reported net loss of Rs50.1 billion and Adj net loss of Rs57.3 billion (adjusted for an exceptional item of ₹7.2 billion), vs. our estimated net loss of Rs15 billion."
Going forward, Tata Motors expects demand to remain strong despite worries about inflation and geo-political risks while the supply situation is expected to improve further. Cooling commodity prices are expected to aid improvement in underlying margins. It said, "We aim to deliver strong improvements in EBIT and free cash flows from Q2 onwards to get to near net auto debt free by FY24."
Should you invest in Tata Motors shares post Q1?
Mansi Lall- Research Associate at Prabhudas Lilladher said, "We have a positive stance on Tata Motors given (1) PV business is likely to gain further market share, led by new product launches and expanding portfolio. (2) CV volumes will benefit from the cyclical upturn, improving fleet utilization and freight rates (3) new refreshes in Land Rover and strong order book to benefit JLR and drive FCF generation."
Reliance Securities Head Research said, "We expect near term challenges for JLR as well as domestic business to continue due to semiconductor shortage, higher commodity inflation, global supply chain issue amid ongoing geopolitical issue and demand moderation. However, going forward in 2HFY23E, situation would normalize with likely softening in commodity prices and normalized inflation level. Moreover, JLR’s strong order book of over would result into strong volumes in 2HFY23E with semiconductor issue easing out now. We believe lower CAPEX and global recovery would support JLR, while improving PV business and focus on cost control would improve TTMT’s standalone margins."
"Moreover, tight control on capex and R&D would lower its automotive debt to greater extent over the next 2-3 years. In view of expected recovery of JLR’s global business with likely ease on semiconductor supply, turnaround of PV business post restructuring of domestic business coupled with attractive valuation, we maintain positive view on the stock. At present we have BUY rating on TTMT with SOTP based 1-Year Target price of Rs615," Shah added.
On BSE, Tata Motors shares settled at ₹443.95 apiece up by ₹2.90 or 0.66%. The company's market cap is around ₹1,47,443.57 crore.