MUMBAI: Shares of large auto company Tata Motors Ltd rose 3.75% on the National Stock Exchange on Tuesday as the streets applauded management comments shared on Investor Day in India.
The management reiterated its main areas of intervention for the next two to three years, including obtaining market share gains in the passenger vehicle (PV) and commercial vehicle (CV) segments through new launches, double-digit Ebitda in commercial vehicles and high single-digit Ebitda. . Ebitda is short for earnings before interest, taxes, depreciation and amortization. Management also said it remains committed to achieving zero net indebtedness status at the consolidated level by fiscal 2024.
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According to analysts, the company’s efforts to turn around and accelerate growth in its PV and CV segments bode well for stand-alone businesses. “We believe that a strong focus on execution in both the CV and PV businesses will help generate strong operational performance in the stand-alone businesses. Therefore, we incorporate a strong recovery in stand-alone margins at ~ 9, 2% by FY23 versus ~ 3% in FY21, ”national brokerage firm Prabhudas Lilladher said in a report on Feb. 23.
However, improving its consolidated business is highly dependent on JLR’s operations. Investors will believe JLR’s volumes have been under pressure since fiscal 2019, hit by several headwinds. Analysts are not overly confident of a quick recovery here and are awaiting a detailed plan from management on increasing volumes. Tata Motors will host JLR Investor Day on Friday.
Another pain point for the company and the automotive industry as a whole is the inflation of input costs. Company management expects the gross margin to remain under pressure in the near term due to rising commodity prices. However, to offset this impact, Tata Motors is working on cost savings and price increases, management said.
It should be noted that Tata Motors took price increases in the second of FY21 and management hinted at further increases.
“The company has been cautious about rising raw material price pressures at 1HFY22, but felt that through good product interventions, price increases and cost reduction efforts, it can mitigate some of the commodity cost inflation. We are maintaining our sell rating on the stock as we remain skeptical of a pickup in volumes in JLR activity, “analysts from Kotak Institutional Equities said in a report dated 23 February.