Why Tata Motors Share Price is Rising

Tata Motors was the top performing Nifty 50 stock in 2023, with a 101% rise in the share price.

The robust momentum came on the back of a strong JLR outlook, improving margins, and the company's increased focus on SUVs as disposable incomes rise.

The company also became profitable again in FY23 after posting what seemed like never-ending losses.

The stock is again in the news and on the radar of investors. The stock is up more that 10% in the last five days.

So, what's fuelling the rally?

Let's find out.

Two-fold Rise in Q3 Net Profit

Shares of Tata Motors, rose as much as 7.2% to hit a record high of Rs 941.9 on Monday after it announced its results for the December 2023 quarter.

The company reported a more than two-fold increase in net profit at Rs 70.3 bn, 2.4x times higher than Rs 30.4 bn registered in the year ago period.

This was on the back of a 25% YoY increase in revenue at Rs 1.1 trillion (tn) led by strong sales in its British luxury car unit, Jaguar Land Rover (JLR).

JLR reported record revenue of 7.4-billion-pound sterling for the quarter, a growth of 22% from the year-ago period. Earnings before interest and taxes or EBIT margin at 8.8% was more than double year-on-year.

Increased wholesales to fulfil more client orders in the quarter drove the topline of the luxury carmaker.

With respect to the India business, passenger vehicle volumes rose 5% YoY in the last quarter, supported by a strong supply situation, new SUV facelifts, and robust demand during the festive period.

Revenue in the passenger vehicle segment rose 10.6% YoY, and margins improved by 0.6% to 2.1% on account of cost savings in commodities, which offset higher fixed expense spends.

The commercial vehicle business of the automaker also saw a 19% growth in revenue on account of salience towards medium and heavy commercial vehicles and better market operating price.

Due to the increase in revenue, the company's consolidated EBITDA (earnings before interest, taxes, depreciation, and amortization) grew by a sharp 42.5% YoY to Rs 154 bn, and operating margin expanded by 1.7% to 13.94%.

The sharp improvement in the operational performance was despite the automaker seeing a rise in the raw material cost. Input costs rose nearly 20% YoY to Rs 638 bn.

Free cash flow in the automotive business during the quarter was also positive, driven by strong improvement in cash profits.

Highlights from the Management Commentary

In its latest conference call, the management said that it is not seeing any demand issues for JLR in the US while demand in Europe is relatively stable. It is also not seeing any change in the pace of EV penetration.

It continues to expect operating cash flow to support net debt of 1 billion pounds by the end of FY24 and anticipates a net cash in FY25.

With respect to commercial vehicles, the company said that fleet utilization continues to be at a healthy level.

However, management is witnessing a drop in government spending due to the elections and expects a pause in growth in the March 2024 quarter. It expects 4Q volume to decline by a single digit, followed by a soft June 2024 quarter.

Subsequently, it expects other macro indicators to remain positive, and this should ensure healthy CV demand, going forward,

The outlook for FY25 for passenger vehicles too remains challenging, and the industry is likely to grow by less than 5% YoY.

How Tata Motors Share Price has Performed Recently

In the past month, shares of the company have gained 19%. The stock has gained 54% in the past six months and around 112% in the year gone by.

The stock touched its 52-week high of Rs 949.6 on 5 February 2024 and a 52-week low of Rs 400 on 38 March 2023.

At the current price, the company trades at a price to earnings multiple of 34x and price to book value multiple of 12.6x.

About Tata Motors

Tata Motors Limited is a leading global automobile manufacturer with a portfolio that covers a wide range of cars, SUVs, buses, trucks, pickups, and defence vehicles.

It's a US$ 34 bn organisation and a leading global automobile manufacturing company.

Tata Motors is one of India's largest OEMs offering an extensive range of integrated, smart, and e-mobility solutions.

Tata Motors has a strong presence in India, but it also exports its vehicles to over 100 countries around the world. The company has several joint ventures with other automotive manufacturers, including Fiat, Jaguar Land Rover, and Daimler.

To know more about the company, check out Tata Motors financial factsheet and its latest quarterly results.

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