Tata Motors: In comparison to the peer set retail sales which were up about 3.5 percent on quarter in April-June, retail sales of Tata Motors’ UK-based subsidiary Jaguar Land Rover (JLR) were down 6 percent in the reporting quarter.
Jaguar Land Rover (JLR), the UK-based subsidiary of Tata Motors, made 6 percent lesser retail sales during the April-June quarter at a time when its peers like Audi, BMW, and Mercedes Benz retailed about 3.5 percent more.
The main reason for the dip was the firm's limited production of the higher-margin model, the Range Rover Sport, of merely 6,000 units as compared with its typical run-rate of approximately 25,000 units, according to brokerage firm ICICI Securities.
“As against peers, JLR’s June quarter retails were relatively more affected as it was undergoing the RR/RR Sport run-out phase, resulting in loss of volumes,” the brokerage firm said, adding this was over and above the impact of China lockdown.
The brokerage said JLR would need to put together around 80,000 units per quarter in the rest of FY23 to maintain flat wholesale volumes year-on-year, excluding China.
With an outlook suggesting around 90,000 units in the second quarter, ICICI Securities believes JLR is on course to compensate for its under-performance in the June quarter.
|JLR and its peer performance in June quarter|
|Audi||Up 3% YoY||EBITDA margin shrunk 190bps YoY to 9.4%, and EBIT margin came down 178bps YoY at 8.9%|
|BMW||Up 20% YoY||EBIT margin fell 380bps YoY to 12.0%, while EBT margin shrunk 1,060bps YoY to 8.4%|
|JLR||Down 11% YoY||EBITDA margin contracted 271bps YoY to 6.3%|
|Mercedes Benz||Up 8% YoY||EBIT margin expanded 195bps YoY to 14%|
|Source: ICICI Securities brokerage report|
The brokerage firm believes that wholesale of about 30,000 units per month in the coming months would be good enough for JLR to meet its FY23 free cash flow guidance of GBP 1 billion. This would mean free cash flow breakeven volumes at approximately 25,000 units monthly.
JLR’s guided earnings before interest tax (EBIT) margin of 5 percent seems on the higher side for FY23 currently, and to achieve it, the brokerage firm believes the luxury carmaker needs to deliver earnings before interest tax depreciation and amortisation (EBITDA) margin of 15 percent for the remaining quarters of FY23.
“With operating margin guidance for global peers being slightly subdued year-on-year due to input cost inflation, we are building in an EBIT margin of 1.5 percent for JLR (up 150bps YoY) versus the guidance of 5 percent (FY23E EBITDA margin at 10.5 percent vs Q1 at 6.3 percent),” the brokerage firm said.
ICICI Securities has maintained its ‘buy’ rating on Tata Motors shares with an unchanged target price of Rs 646, implying a percent upside in the stock.
Capex and R&D expenses
With a focus on electric vehicles (EVs) and product development, the outlook for capital expenditure and research and development expenses remain largely unchanged on a year-on-year basis for most peers as well as JLR.
The British luxury carmaker has guided for a capex of around GBP 2.5 billion for FY23, similar to FY22.