Analysts say Tata Motors has a healthy hum

ET Intelligence Group: For some time, Tata Motors has been on the margins of India’s automotive investment pack, but it is beginning to reclaim its credentials as a worthy D-Street drive. And margins are at the heart of that transformation, likely making the stock a future winner.Sales are beginning to shift beyond first gear, but what’s already firing on all cylinders is a comprehensive cost control programme at JLR, the global business that makes the Jaguar and Land Rover models. No wonder that the Tata Motors stock has climbed about a third in the past three months — and drawn India’s Warren Buffett Rakesh Jhunjhunwala. Overseas ownership in the stock stood at 15.84 per cent in September, compared with 15.6 per cent in the previous quarter.JLR’s operating margins expanded 300 basis points to about 11 per cent, compared with the last fiscal year. Raw material costs to total revenue at JLR dropped to 61.9 per cent in September, compared with an eight-quarter average of 64.25 per cent. The charge plus project to reduce costs delivered savings of 600 million in the second quarter, taking the total to 1.8 billion for FY21.Besides, it has been able to keep capital expenditure at 531 million, 36-40 per cent lower than the quarterly run-rate in the previous fiscal. This has resulted in JLR’s ability to post positive free cash flow of 463 million after many quarters. So, consensus operating profit margin forecasts and the net debt position of JLR are set to improve.78901005The portfolio is expanding. The newly launched Defender has more demand than what JLR can crank out of its factories, with volumes in China and the UK reaching pre-Covid levels. However, due to the lockdowns across the globe, full-year sales are expected to shrink, and the Street has pencilled in volume decline of 14-15 per cent for JLR.Back home, margins in the passenger car and commercial vehicle segments are back in black. The car business has witnessed strong volume growth and substantial market share gains. The share of revenue of the PV business rose to 42 per cent in September, compared with 21.8 per cent a year ago. In CVs, the exit market share was quite similar to that last year. To top it all, Tata Motors is slashing debt in a hurry. Net automotive debt dropped to Rs 61,500 crore at end of September, reducing by Rs 6,300 crore.

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