Tata Motor shares skid 9% despite robust Q4; here's why

Shares of Tata Motors plummeted over 9% in early trade on Monday, paring three sessions gain, as investors turned jittery after brokerages cut target price amid concerns over domestic demand outlook. Investors resorted to profit booking at higher levels after the stock climbed nearly 6% in the past three sessions.

Tata Motors shares opened lower at ₹1,010.30, down 3.5% against the previous closing price of ₹1,046.85 on the BSE. In the first two hours of trade so far, the auto heavyweight declined as much as 9.4% to ₹948, while the market capitalisation dropped to ₹3.18 lakh crore. The stock witnessed a surge in volume as nearly 29 lakh shares changed hands over the counter compared to two-week average of 6.21 lakh stocks.

The share price of Tata Motors touched its all-time high level of ₹1,065.60 on March 5, 2024, while it slipped to its 52-week low of ₹504.75 on May 19, 2023. In the last one year, the auto stock gained 81%, while it delivered 47% returns to its shareholders in the last six months. The counter witnessed a correction of nearly 4% in a month and 5% in the past one week.

Tata Motors shares witnessed sharp selling after brokerages cut target prices post Q4, citing demand concerns. Motilal Oswal has reiterated ‘Neutral’ rating on the stock with a revised target price of ₹955 from ₹970 earlier. ICICI Securities has also maintained “Reduce” with a lower target price of ₹915 from ₹901 estimated earlier. On the other hand, JM Financial has retained ‘Buy’ call on the stock with an upgraded price target of ₹1,200 from ₹1,000 projected earlier.

Motilal Oswal in its report says that there is no doubt that the auto major delivered an extremely robust performance across its key segments in FY24, but “there are clear headwinds ahead that are likely to hurt its performance”. “We have lowered our EPS estimates by 3% and 5% for FY25 and FY26, respectively.”

ICICI Securities also highlighted in its report that Tata Motors’ India business is set to stabilise now like British arm Jaguar Land Rover (JLR) and would face growth challenges in FY25-26E (more industry challenges).

Another domestic brokerage JM Financial in its report says that slowdown in key global markets remains a monitorable. “In the domestic passenger vehicles (PV) segment, new launches and ramp-up of capacity is expected to drive growth. Domestic Commercial Vehicles (CV) demand is also expected to pick-up from Q2. Improving margins for both domestic CV and PV segments augurs well and net cash position in India auto business provides comfort,” it says in its report.

Meanwhile, Tata Motors in its earnings report said that the auto major remained “cautiously optimistic” on domestic demand over the full year and expected first half to be relatively weaker. “The premium luxury segment demand is likely to remain resilient despite emerging concerns on overall demand. Despite this, we are confident of delivering a strong performance in FY25,” it says in the earnings report released on May 10.

In the fourth quarter ended March 31, 2024, the Tata Group company posted revenue at ₹1.02 lakh crore, up 13.3% YoY, while profit grew 12% YoY to ₹17,529 crore. The EBITDA was up 26.6% at ₹17,900 crore, with margin rising by 160 bps to 14.9%.

For FY24, the company clocked “highest-ever” consolidated net profit at ₹31,807 crore, up 9.2% YoY on the back of higher margins reported by all three businesses - Jaguar Land Rover (JLR), Commercial Vehicles, and Passenger Vehicles. The revenue and EBITDA also hit an all-time high of ₹4.38 lakh crore and ₹62,800 crore, respectively.

Segment-wise, Tata Motors’ British arm JLR reported revenue at 28,995 pounds in FY24, up 27.1%, while Tata Commercial Vehicles closed the fiscal with a topline of ₹78,790 crore, up 11.3 %. The passenger vehicle arm reported a revenue of ₹52,353 crore, up 9.4%.

The board of Tata Motors also recommended a final dividend ₹6 per ordinary share of ₹2 each (₹3 normal dividend and ₹3 special dividend) and ₹6.20 per ‘A’ ordinary share of ₹2 each (₹3.10 normal dividend and ₹3.1 special dividend) for the financial year ended March 31, 2024. 

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