Speed breaker in sight for TaMo’s JLR?
Tata Motors Ltd’s (TaMo’s) British subsidiary, Jaguar Land Rover Automotive Plc (JLR) has come a long way—from failing to meet the margin target in FY23 to raising the guidance in FY24. Recall that in FY23, JLR had clocked an Ebit (earnings before interest and tax) margin of 2.4%, lower than the 5% guided when the year began. For FY24, it has raised Ebit margin target to 8% from 6% plus earlier.
JLR expects volume in the second half of FY24 to be better led by higher production and capacity expansion for high-margin products—Range Rover and Range Rover Sport models. In the September quarter (Q2FY24), JLR’s Ebit margin fell by 130 basis points (bps) sequentially to 7.3%, led by low-margin products.
While FY24 is likely to be a strong one for JLR, the next fiscal year could break the momentum. Demand concerns cannot be ruled out for JLR even though it is a luxury brand.
Note that German automobile company Porsche has warned that the luxury sector is also feeling the heat of dampened consumer spending on the back of a rise in interest rates.
Now, aided by a rise in production, JLR’s order book has fallen by roughly 5,000 units per month in the last three quarters. This is not comforting. JLR’s order book stood at 168,000 units as of September-end. This is expected to further drop to 110,000 units by FY24 end. JLR plans to focus on brand activation to support the order book. HDFC Securities points out that one of the margin headwinds for JLR in FY25 could come from a rise in costs as it moves from “demand pull” to “sales push mode”, meaning it would have to give higher discounts to attract customers.
In the domestic business, Tata Motors’ commercial and passenger vehicle (PV) segments are yet to see the market share pick up pace. But the segments saw a sequential rise in their Q2 Ebit margins. Jefferies India is positive on truck demand in India.
But the brokerage sees demand concerns in PVs leading to a cut in the industry volume growth estimates by 3-4% over FY24-25.
As things stand, Tata Motors’ shares have risen as much as 67% in 2023 so far, suggesting investors are pricing in the positives adequately.
