Tata Motors shrugs Q2 loss, stock up 5% on good JLR operational performance

JLR expects the EBIT margin and free cash flow (before restructuring costs) to turn positive in the second half of Fiscal 2022

Shares of Tata Motors were up 5 per cent at Rs 509.95 on the BSE in Tuesday’s intra-day trade after the company’s wholly owned subsidiary - Jaguar Land Rover UK reported good operational performance in July-September quarter (Q2FY22). The management said JLR expects to see gradual recovery starting in the second half (October-March) of FY22.

JLR expects the earnings before interest tax (EBIT) margin and free cash flow (before restructuring costs) to turn positive in the second half of Fiscal 2022. “While supply remains constrained, JLR will continue to take mitigating actions, including prioritising the production of higher margin vehicles for the available supply of semiconductors and closely managing costs to bring down the break-even point for the business,” the company said.

At 09:39 am; Tata Motors was trading 2 per cent higher at Rs 493 on the BSE, as compared to 0.10 per cent rise in the S&P BSE Sensex. The stock had hit a 52-week high of Rs 532 on October 14, 2021.

In Q2FY22, auto major Tata Motors reported a consolidated net loss of Rs 4,416 crore owing to the dual impact of semiconductor shortage and high input prices. The company had posted a net loss of Rs 314 crore in the year-ago period (Q2FY21) and Rs 4,451 crore in the June quarter, respectively.

The company’s revenue from operations rose 14 per cent to Rs 61,378 crore in the reporting period against Rs 53,530 crore last year. It said demand remains strong for JLR and India passenger vehicles, while that for commercial vehicles is improving gradually.

Tata Motor’s revenue beat primarily tracked higher than expected JLR volumes, with margin resilience arriving on the back of operating leverage gains. Improvement in India passenger vehicles (PV) margins (up 360 bps YoY to 5.2 per cent) was encouraging. The company has maintained medium and long term margin and FCF guidance for JLR, ICICI Securities said in a note.

In the near term, sequential improvement is expected across businesses amid some easing of chip shortages, with H2FY22E seen delivering positive EBIT and FCF in India and JLR, the brokerage firm said.

Tata Motors Q2FY22 performance was heavily impacted by the semiconductor shortage in JLR and India. Operating performance beat in JLR was driven by a favorable mix and lower fixed cost. India commercial vehicle (CV) business missed our estimates due to commodity cost pressures. We expect a strong recovery/ traction in JLR/India businesses from Q3FY22E onwards, Motilal Oswal Securities said in result update.

Tata Motors should witness a gradual recovery from 2QFY22 lows as supply-side issues ease and commodity headwinds stabilize (for the India business). It would gain from the triple benefits of a macro recovery, company-specific volume/margin drivers, and sharp improvement in FCF and leverage in both JLR as well as the India business, the brokerage firm said. It maintains ‘buy’ rating on the stock with target price of Rs 565 per share.