Tata Motors share price declines 8% post Q3 results. Should you Buy, sell or hold the stock?

Stock Market Today: Tata Motors share price declined 8% in the morning trade on Thursday following the announcement of the quarterly earnings for the third quarter (Q3) of financial year 2024-25 (FY25). The automaker posted its results post-market hours on Wednesday.

Tata Motors Q3 Results

The combined net profit of Tata Motors dropped by 22.5% to ₹5,578 crore. During the same time the previous year, the company reported a net profit of ₹7,415 crore. Despite the JLR segment's impressive results, the company's performance was negatively impacted by the decline in margins.

Sequentially, the profit improved by 62%, as the company had posted a net profit of ₹3,450 crore in the preceding quarter ended September 2024.

Analyst Views

Here's what analysts said on Tata Motors following the Q3 earnings performance:

Jefferies downgrades Tata Motors

Jefferies India after 3.5 years of ‘Buy’ rating downgraded Tata Motors to ‘Underperform’ following its Q3 earnings.

Q3 earnings before interest, tax, depreciation and amortisation (EBITDA) fell 16% year-on-year (YoY) and missed Jefferies' estimates of 19%. Jaguar Land Rover (JLR) faces weak demand in China and Europe, rising customer acquisition costs, and higher warranty expenses, according to the global brokerage. 

India's commercial vehicles (CV) and passenger vehicles (PV) demand has slowed down while the competition is rising in the electric vehicles (EV) space. While Jefferies expects a seasonally better Q4, it has cut FY25-27 estimated EBITDA by 7-11% and earnings per share (EPS) by 5-10%. 

The brokerage also slashed its price target to ₹660. M&M, EIM and TVSL are their preferred buys in the auto space.

Motilal Oswal reiterates ‘Neutral’ rating

While management has maintained its guidance for JLR for FY25, Motilal Oswal Financial Services believes that the asking rate of 10.2% EBIT or EBIT margin for 4QFY25 is tough to achieve, given the current adverse macro environment. 

The brokerage expects margin pressure to persist at JLR over FY24-27, given: 1) weak demand in key regions, 2) rising cost pressure as it invests in demand generation, and 3) EV ramp-up, which is likely to be margin-dilutive.

Even in India, as per MOFSL, both CV and PV businesses are seeing a moderation in demand. MOFSL has lowered its EBITDA estimates for Tata Motors by 3% and 5% over FY25 and FY26, respectively to factor in weakness in the JLR business. For lack of any triggers, they reiterated a ‘Neutral’ rating with a December 2026 estimated SoTP-based target price of ₹755.

ICICI Securities upgrades Tata Motors

Tata Motors reported a consolidated EBITDA margin of 11.5% vs the consensus estimate of 12.9% while JLR's EBITDA margin stood at 14.2%. JLR maintained its FY25 guidance of 8.5% EBITM and becoming net cash positive. JLR expects to see strong performance in Q4 but remains cautious on demand trends in China.

“With JLR’s supply chain issues normalizing and volumes recovering, we expect EBITDA margins to improve to ~16%/17% levels in FY26E/FY27E. Tata Motor's domestic CV business is expected to see a gradual pickup with an increase in government infra spending, and the domestic PV business should see growth supported by new launches,” said the brokerage.

The brokerage upgraded Tata Motors to ‘Add’ from Sell, with a DCF-based revised target price of ₹831 (from ₹923), implying 11x/2.4x FY27E India/JLR EV/EBITDA.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.