Many reasons for Tata Motors stock to shine despite loss

ET Intelligence Group: Stats are often known to conceal more than they reveal. Otherwise, when a company posts a net loss in the vicinity of $2 billion for the year, only the eternal optimist would search for positives in the red ink.

But that’s where headline numbers might be downright misleading.

Tata Motors, India’s biggest automotive group, may have logged losses but they fail to reflect the robust operating performance at the maker of JLR, which took one-off write-downs as part of the strategy to take the big cat Jaguar all electric.


Restructuring costs at JLR were cumulatively around ₹15,000 crore, contributing to the ₹13,395 crore net loss for FY21. In February, JLR has already indicated it would incur £1.5 billion of exceptional charges due to the Reimagine strategy. JLR, the maker of Range Rover and Discovery, has witnessed improvement on cost metrics, cash generation and demand enhancement. Operating profit (EBIT) margin of JLR rose to 7.5% in March to a multi-quarter high. Stable gross margins, continuous efforts to lower the break-even level and softening costs helped boost margins.

The impact of lower break-even can be gauged from the fact that JLR generated positive cash flows even when volumes were below 400,000 units.

JLR expects higher FY22 revenue than FY21, and operating margins around 4%; EBIT margins have remained more than 6.7% for two quarters while wholesale volumes were in the 1-1.25 lakh units on a quarterly basis. The semiconductor shortage prompted the company to give a conservative guidance.

The JLR management believes the semiconductor shortage will ease in the second half of FY22. The Street has been pencilling more than 20% volume growth for FY22. So, JLR could offer significant potential upside if challenges emerging from semiconductor shortage are deftly tackled.

In addition, the restructuring expenses would result in savings of 250 million pounds per annum. Demand is returning and it has an order book of around one lakh vehicles, nearly equivalent to its quarterly sales.

The waiting period is up to a year, with market share climbing to 6% in March, compared with 4.4% in the first quarter of FY21, in the JLR- specific segment.

Back home, phenomenal consumer response to new-gen models has lifted profitability of the passenger car division, with volumes more than doubling – to the highest in 34 quarters. No wonder EBITDA rose to 4.9% for the passenger car business and in absolute terms, it was the highest in nearly a decade.

The stock has been an outperformer in the past one year. Investor interest should sustain on value enhancement in the domestic business, debt reduction in the balance sheet, and JLR’s electric portfolio expansion.