Why Tata Motors Share Price is Falling

FY24 was a breakout year for the Tata group in the stock market.

Seven Tata companies became market darlings, transforming into multi-baggers with a stellar average return of 85%.

The king of the castle was Tata Motors. This Nifty 50 champion zoomed over 120%, leaving investors breathless.

This meteoric rise was fuelled by a bright future for JLR, healthier profit margins, and a strategic focus on SUVs - a perfect match for rising disposable incomes.

But like any good rollercoaster, the ride hit a dip today, with the stock taking a nosedive of over 9%, marking its biggest single-day drop since February 2022.

So, is the Tata's auto stock a falling knife or is this just a temporary setback?

#1 Gloomy Management Commentary

Shares of Tata Motors dropped as much as 9.2% to hit an intraday low of Rs 960.1 per share on Monday. The decline followed the company's announcement of a subdued outlook.

The stock was the top loser on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

On the demand outlook for Jaguar Land Rover (JLR), the management noted pressure in certain markets such as the European Union and the UK while North America shows signs of improvement, and demand remains stable in China.

The current order book stands at approximately 133,000 units, a decrease from around 150,000 units in the last quarter.

Tata Motors anticipates that its earnings before interest and taxes (EBIT) margin for FY25 will likely remain within a similar range to FY24, around 8.5%.

Despite expectations of increased variable and fixed market expenses due to planned investments, the company expects these costs to be offset by a full year of increased capacity of certain models.

However, the company retained its FY26 EBIT margin guidance of 10%.

In the commercial vehicles segment, Tata Motors expects volumes to either remain stagnant or decline in FY25, with a slow start in Q1 followed by a recovery in demand from Q2 onwards.

Additionally, the company foresees cost pressures, particularly in commodity costs, in Q1 and beyond, which it plans to mitigate through price adjustments.

For the passenger vehicle segment, Tata Motors predicts a moderation in the industry growth rate to under 5% in FY25.

This projection is based on the anticipated depletion of pent-up demand and a high base effect from the robust volume growth in FY23 and FY24.

While the EBITDA margin for the passenger vehicle internal combustion engine (ICE) business improved to 9.4% in FY24 from 8.5% in FY23, the margin for electric vehicles (EVs) remained negative (-1.4% in FY24 versus -0.5% in FY23).

#2 Lower than Expected Q4 Results

Despite robust volume growth and a strong performance from Jaguar Land Rover (JLR), Tata Motors, the country's second-largest automobile manufacturer by market capitalisation, failed to meet street expectations with its January-March quarter (Q4) results for 2023-24 (FY24).

Consolidated revenues witnessed a 13% increase to Rs 1.2 billion (bn). However, lower-than-expected realisations in the Indian operations dragged down overall performance.

The commercial vehicle (CV) segment, which accounts for 60% of Indian auto business revenues, experienced a mere 1.6% growth, hindered by a 6% decline in volumes. This decline was attributed to the high base in the year-ago quarter, driven by pre-buying.

In Q4FY24, the earnings before interest, taxes, depreciation, and amortisation (EBITDA) reached Rs 179 bn, marking a 26.6% YoY increase. Tata Motors' consolidated EBITDA was below estimates, primarily due to weak performance in the domestic CV business.

However, the EBITDA of JLR and domestic PV businesses were broadly in line with expectations.

Tata Motors Ltd reported a 45.7% year-on-year (YoY) rise in consolidated net profit, Rs 175.3 bn, for the March quarter.

In addition to its financial performance, the company announced a final dividend of Rs 6 per share, subject to approval at the company's AGM, with payment scheduled for eligible shareholders on or before 28 June 2024.

What Next?

Tata Motors is seeking to split its passenger and commercial vehicle businesses into two listed companies.

The CV business and related investments will be housed in one entity, while the other will include passenger cars, electric vehicles, and Jaguar Land Rover.

The demerger proposal will be presented to the board of directors in the coming months. It will be subject to regulatory and shareholder approvals. It will be completed in 12-15 months.

Further, Tata Motors has lined up US$ 2 bn to be invested by 2026 to launch 10 new EVs, including the Curvv, Harrier EV, Sierra EV, and the Avinya.

The company is setting up an ecosystem that will build everything from batteries and charging stations to financing vehicles and finally putting them on the road. No other automaker in India can currently counter that proposition.

The project, known as Tata UniEVerse, is an ecosystem that will leverage group synergies from companies such as Tata Power, Tata Chemicals, Tata Autocomp, Tata Consultancy Services (TCS), Tata Digital, Tata Elxsi, and Tata Motors Finance.

How Shares of Tata Motors have Performed Recently

Over five days, Tata Motors shares are down by 5%, while it has gained 21% in 2024 so far.

In the past month the stock is trading lower by 5%.

Over the past year, the stock has given a return of 88%.

The company touched its 52-week high of Rs 1,065.6 on 5 March 2024 and its 52-week low of Rs 478.1 on 8 May 2023.

About Tata Motors

Tata Motors Limited is a leading global automobile manufacturer with a portfolio that covers a wide range of cars, SUVs, buses, trucks, pickups, and defence vehicles.

It's a US$ 34 bn organisation and a leading global automobile manufacturing company.

Tata Motors offers an extensive range of integrated, smart, and e-mobility solutions.

The company has a strong presence in India, but it also exports its vehicles to over 100 countries around the world. It has several joint ventures with other automotive manufacturers, including Fiat, Jaguar Land Rover, and Daimler.

To know more about the company, check out Tata Motors financial factsheet and its latest quarterly results.

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