Shares of Tata Motors, a major global automobile manufacturer, fell nearly 5.5 percent in early trading today, reaching ₹978.70. This decline marks the 9th consecutive day of losses for the stock, pushing it below the ₹1000 mark for the first time since late July.
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Today’s stock decline follows global brokerage firm UBS Securities’ latest report, which maintains a ‘Sell’ rating on the stock with a target price of ₹825 per share. This target suggests a 20.3 percent downside from Tuesday’s closing price. UBS cites concerns about potential further declines due to margin pressures at the company’s luxury arm Jaguar Land Rover and within the domestic passenger vehicle segment.
UBS said that JLR’s focus on higher-margin models during the semiconductor shortage has boosted its average selling prices and gross margins significantly, from £49,000 and 26.7 percent in FY 2020 to £72,000 and 31 percent in FY 2024. This shift, coupled with reduced sales incentives, has set JLR apart from competitors and provided a buffer against weaker performance in China.
However, UBS highlights that the demand for these premium models is starting to decline, with current orders falling below pre-COVID levels, suggesting a potential slowdown in JLR’s recent success and soon expects discounts for Range Rover to rise.
According to the company’s Q1FY25 earnings report, the JLR order book has decreased to 104,000 units, down from 133,000 vehicles in Q4FY24.
Jaguar Land Rover achieved a revenue of 7.3 billion pounds in the June quarter, marking its best first-quarter revenue on record, up 5 percent from the June quarter of FY24. The increase in profitability year-on-year is attributed to favorable volume, mix, and material cost improvements, partially offset by increased marketing expenses compared to the previous year.
Q1 numbers trigger sharp drop in stock performance
Since the release of its Q1FY25 numbers at the beginning of August, the stock has been on a downward trend. Despite reporting healthy figures, the company’s management was cautiously optimistic about the rest of FY25.
The stock ended August with a 4 percent decline and has continued to fall in September, down 12 percent so far. From its peak of ₹1,176 per share, the stock is now down 17 percent.
The company anticipates production constraints for Jaguar Land Rover (JLR) in Q2 and Q3 due to an annual summer plant shutdown and supply chain disruptions caused by floods at a major aluminum supplier.
Domestically, Tata Motors expects demand to rise during the festive season. Total passenger vehicle sales in August were approximately 44,500 units, marking a 3 percent year-over-year decrease and a 1 percent month-over-month drop.
PV manufacturers are facing reduced consumer spending, resulting in a significant inventory buildup. Dealers are struggling to clear existing stock, leading automakers to offer discounts on popular models to reduce unsold inventory.
While these discounts aim to boost sales, there are concerns that they might adversely affect profit margins. Tata Motors has recently increased festive discounts to up to ₹2.5 lakh on all petrol, diesel, and CNG cars and SUVs. Additionally, the company may offer consumer benefits of up to ₹45,000 on popular models.
