Tata Motors Q3 Preview: Co to post profit after 7 quarters; China, Europe demand picture in focus

Strong performance of the domestic business, improved business reported by arm Jaguar Land Rover, and cooling raw material inflation are likely to favour Tata Motors as the company is expected to post a consolidated profit for the first time in 7 quarters in the quarter ended December.

The automaker will release its earnings after market hours on Wednesday.

Consolidated sales are expected to rise over 14% year on year (YoY) and 3% sequentially to Rs 82,738 crore, according to ET Now poll.

The automaker is seen posting a consolidated net profit of Rs 285 crore, compared with a loss of Rs 1,516 crore a year ago, and a loss of Rs 945 crore a quarter ago. Tata Motors’ production in the December quarter rose 12% on-year to 221,416 units, due to strong demand in the domestic market, even as exports nearly halved.

Domestic sales in the quarter increased 18% YoY to 223,001 units, while exports dropped to 5,168 units from 10,103 units a year ago.

JLR’s wholesale sales increased 15% on-year to 79,591 units in the third quarter, while retail sales increased 6%.

JLR had said it expects free cash flow to be positive in the December quarter by over 400 million pound sterling.

Expectations of strong earnings bolstered shares of the automaker on Tuesday. The stock was the top gainer on Nifty 50 and hit an over 1-month high of Rs 424 on the NSE. It ended 3.4% higher at Rs 422.15.

Here’s a summary of the expectations by analysts:

Kotak Equities
The brokerage estimates standalone business revenue to decline by 3% sequentially due to a 5% QoQ fall in volumes and a 2% increase in advertising and promotional spend amid a richer product mix.

Overall, EBITDA margin is likely to improve to 5.2% from 4.4% in Q2, led by lower raw material costs. It expects the domestic passenger vehicle business’ operating margin to improve 110 bps sequentially to 6.8%.

It expects JLR volumes (excluding China JV) to increase by 4% QoQ, led by an improvement in chip availability.

Overall, JLR’s revenues (ex-China JV) is likely to increase 6% QoQ in Q3, mainly due to superior product mix (higher mix of Range Rover). It expects reported EBITDA margin to improve by 210 bps sequentially to 12% due to a favorable model mix (higher mix of Land Rover). As a result, JLR’s EBIT margin is likely to come in at 3.4% in Q3.

Motilal Oswal Securities
The India business outlook remains healthy led by strong growth in passenger and commercial vehicle sales. Operating margin of the standalone business is estimated to expand 50 bps YoY due to easing input cost inflation.

JLR volumes are likely to grow YoY due to easing chip shortage issues. The brokerage estimates EBIT margin of 3.7% for JLR, supported by favourable product mix, softening input costs, and cost control measures.

Emkay Global Financial Services
JLR’s revenue is expected to grow 19% YoY to 5.6 billion pound sterling, owing to higher volumes (+14%) and realizations (+5%).
EBITDA margin may contract by 120 bps to 10.8% due to adverse model mix. The domestic CV revenue is likely to grow by 20% to Rs 149 billion, driven by higher realization (+26%).

Realization will improve due to higher MHCV share (42% vs 34% YoY) and price hikes. EBITDA margin is likely to expand by 340 bps to 5.8% due to better net pricing and scale.

India PV revenue is expected to grow 35% to Rs 11,500 crore, driven by higher volumes (+32%) and realization (+3%).

EBITDA margin is likely to expand by 370 bps to 6.9%, due to benign gross margin and scale.

Sharekhan
The brokerage expects consolidated revenue to grow by 12.5% QoQ to Rs 80,927 crore, led by 21% rise in JLR revenue (in pound terms), partially offset by a 2% decline in standalone business.

Consolidated EBITDA margins is likely to improve 630 bps QoQ to 9.7% on the back of operating leverage benefits and benefits of a fall in key raw material prices.

The brokerage expects JLR’s EBITDA margin to improve a sharp 510 bps QoQ to 11.3%, led by improved product mix, operating leverage benefits, and cost optimisation. It expects a consolidated net loss of Rs 324 crore in Q3.

(Data inputs from Ritesh Presswala)

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)