Tata Motors Shares Climb Despite Mixed Q2 Results, Brokerages Remain Optimistic

Tata Motors, India's leading electric vehicle manufacturer, saw its shares rise by 3% to Rs 829 on November 11, despite reporting disappointing Q2 results. The automotive giant, which holds a dominant position in the passenger vehicle (PV) market, faced setbacks in its Jaguar Land Rover (JLR) unit and its commercial vehicle (CV) sector, impacting its earnings performance. The company's consolidated net profit declined year-on-year to Rs 3,343 crore, reflecting the struggles across key segments. However, Tata Motors’ resilience amid challenging market conditions, combined with ongoing optimism from brokerages, has kept investor sentiment positive.

Jaguar Land Rover’s underperformance, particularly influenced by a recent flooding incident at the Nivelles facility, limited production to 86,000 units. Nonetheless, JLR’s leadership remains confident, with CFO Richard Molyneux emphasizing the unit's strong profitability resilience and affirming that JLR is poised for a significant rebound in the second half of FY25. This expectation is rooted in anticipated demand across various markets, coupled with the company’s commitment to meeting its EBIT margin guidance for both FY25 and FY26. Tata Motors has also identified the upcoming festive season as a crucial factor that could drive a positive Q3 for the company, offsetting earlier declines.

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Brokerages have expressed a cautiously optimistic outlook for Tata Motors. CLSA upgraded Tata Motors to an 'Outperform' rating, setting a target price of Rs 950 per share. CLSA’s positive stance is based on the company’s projections of solid EBIT margins and growth driven by new launches in the PV segment. In the CV sector, Tata Motors remains cautious, though it is optimistic about the segment's recovery and growth by Q4 FY25.

Nomura also maintained a 'Buy' rating on Tata Motors but revised its target price to Rs 900 from Rs 1,303 per share. The brokerage expressed confidence in Tata Motors' long-term potential, highlighting the anticipated recovery in the CV segment and JLR’s maintained guidance. According to Nomura, Tata Motors' earnings estimates for FY25-27 reflect stability and a gradual improvement, aligning with the company's robust recovery plans.

Jefferies echoed a similar sentiment, retaining its 'Buy' rating but adjusting its target price to Rs 1,000 from Rs 1,330. Jefferies is optimistic about JLR’s growth potential in the second half of FY25, noting that the brand’s profitability and market penetration remain promising. However, Jefferies also observed a slowdown in demand in specific regions, which could impact the broader financial picture for the automotive giant.

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On the other hand, UBS maintained a 'Sell' rating on Tata Motors, setting a target price of Rs 780 per share. UBS expressed concern over the quality of reported earnings before interest and tax (EBIT), which it found less robust than expected, and voiced reservations about Tata Motors’ reduced free cash flow (FCF) guidance for JLR, which dropped from £1.8 billion to £1.3 billion. UBS’s conservative outlook reflects apprehension over ongoing operational challenges and quality concerns, particularly within the JLR and CV segments.

Tata Motors remains focused on driving growth through new model rollouts and targeted marketing efforts aimed at capturing increased PV demand. The recent launches in the PV segment have shown promise, and the company expects the combination of these new products and strategic marketing to bolster its position in the market. JLR’s prospects for the latter half of FY25, particularly with projected improvements in production and market conditions, are expected to contribute to Tata Motors' financial stability and bolster investor confidence.

While Tata Motors has witnessed a 23% stock correction over the last three months, the recent upward movement in share price reflects renewed investor faith in the company's recovery strategies. Tata Motors' management has reiterated that it is committed to making strategic investments in infrastructure and ramping up production to ensure sustainable long-term growth.

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As India's automotive market continues to evolve, Tata Motors' performance in the next two quarters will be closely monitored by both investors and industry analysts. Despite the mixed results in Q2, Tata Motors' position as a key player in the EV market and its ability to adapt to changing demand dynamics underscore its potential for growth and stability.

[Disclaimer: This analysis of Tata Motors' Q2 results is based on recent reports and brokerage insights. Financial outcomes are subject to change based on market and industry conditions.]