Multiple headwinds are expected to keep Tata Motors in the slow lane

While the India business performance was broadly in line with brokerage estimates, the Jaguar Land Rover or JLR unit's operating show came in lower than expected

Tata Motors was the second-biggest loser on the Sensex on Wednesday, closing about 1.3 per cent lower. The decline was driven by weaker than expected operational performance in the March quarter (Q4FY25) and a muted near-term outlook for its core businesses in the passenger and commercial vehicle segments. 

  Brokerages have also revised their earning estimates downwards, as the stock has gained roughly 17 per cent over the past month.

  While Tata Motors’ India business largely met brokerage estimates, the operating performance of its Jaguar Land Rover (JLR) unit fell short of expectations. Although JLR’s profit rose 14 per cent year-on-year and 22 per cent sequentially, lower than expected average selling prices weighed on the overall profitability. The operating profit margin stood at 15.3 per cent, down 100 basis points from the year-ago quarter. 

Profitability was impacted by an unfavourable product mix, higher variable marketing, and employee expenses, and increased emission-related costs. These were partially offset by lower warranty expenses and favourable foreign exchange revaluation.

  A key concern for the Street is the range of challenges JLR faces across major markets, including tariff-related uncertainties and ongoing inventory adjustments. 

  The auto major noted that while sales in the EU remain strong, the UK market was gradually recovering. Aniket Mhatre of Motilal Oswal highlighted multiple headwinds for JLR, including tariff-led uncertainty in US exports, demand softness in Europe and China, and rising variable marketing, warranty, and emission costs. According to the brokerage, margin pressures are likely to persist, with a projected decline of 100 basis points over FY25–27. The UK-US trade deal is a relief for the company as it removes uncertainty, despite the applicable US tariff rising to 10 per cent from 2.5 per cent earlier. 

  Rishi Vora of Kotak Institutional Equities pointed out that 40 per cent of US volumes comes from the European Union (EU). The imports from the EU will still have to bear the 27.5 per cent tariff, which will dent earning growth, he added. 

  A positive, however, is that JLR’s balance sheet is in a much better position versus previous downcycles, which is comforting, the brokerage said. 

  Given the rally in its stock price and the significant tariff-related impact on FY26-FY27 financials, Kotak Research has 

downgraded the stock to “sell” from “reduce”. 

  The India business revenues and operating performance were broadly in line with estimates. In the commercial vehicle business,  volumes contracted by 7.2 per cent Y-o-Y, while the operating profit margin of 12.2 per cent, 20 basis points higher. This was driven by better realisations and cost savings.

  While commodity costs are a headwind, the margins are expected to sustain going ahead given cost-control initiatives. The company expects the domestic CV industry to grow in single digits in FY26 with heavy CV expected to grow faster. It is seeking to improve its share of the small commercial vehicle market with product-related actions. 

  In the domestic passenger vehicle segment, while the average selling prices were below estimates, the operating profit margins were above expectations due to better gross margins on account of accrual in the production-linked incentive scheme. 

The company expects FY26 to witness a muted performance, as was the case in FY25, which saw 1-2 per cent growth.

  The company is relying on new variants of Altroz and Tiago to improve its share of the hatchback market. The launches of the internal combustion engine (ICE)-powered Sierra and EV and Harrier EV are expected to strengthen its utility vehicle share.  Given the runup in the share price and the earnings cuts for the stock, Elara Capital has revised its rating to “accumulate”. 

  Motilal Oswal Research has a “neutral” rating as CV and PV businesses are witnessing a moderation in demand in addition to the headwinds at JLR. 

  The company has lowered its earning estimates by 12 per cent in FY26 and 5 per cent in FY27. Given the lack of triggers, it has a “neutral” rating on the stock.