Should You Go Long on Tata Motors Post Q4 Earnings?

Tata Motors (NS:) has reported a remarkable surge in its consolidated net profit, reaching INR 17,407.18 crore, a staggering 222% growth compared to the same period last year. This impressive performance is attributed to improved operating leverage, favorable commodity prices, and robust volume growth across its segments. Additionally, the company’s revenue from operations witnessed a 13% increase to INR 1,19,986.31 crore for the quarter under review, surpassing analysts’ expectations.

For the entire fiscal year 2023-24, Tata Motors’ net profit soared to INR 37,764.33 crore, a significant rise from the previous fiscal year. P.B. Balaji, Group Chief Financial Officer, expressed satisfaction with the FY24 results, highlighting the company’s highest-ever revenues, profits, and free cash flows. He also mentioned that Tata Motors’ India business is now debt-free, with plans to achieve net automotive debt-free status on a consolidated basis in FY25.

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Despite the strong performance, Tata Motors remains cautious about domestic demand for the first half of the 2024-2025 fiscal year. The company anticipates relatively slower demand in H1, although it expects resilience in the premium luxury segment. Nevertheless, Tata Motors is confident in delivering a robust performance in FY25.

The company’s board of directors has recommended a final dividend of INR 6 per Ordinary Share and INR 6.20 per ‘A’ Ordinary Share for the financial year ended March 31, 2024. In terms of sales, Tata Motors witnessed a year-on-year increase in total wholesales and domestic dispatches in April 2024.

Tata Motors’ UK subsidiary, Jaguar Land Rover (JLR), continued its strong financial performance trend in FY24, with record-breaking results in Q4. JLR’s revenue for the quarter surged by 11% compared to the same period last year, reaching 7.9 billion British pounds. Moreover, JLR’s revenue for FY24 saw a substantial increase of 27% compared to the previous year.

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So should you go long on Tata Motors post Q4 earnings? Well, the financial health check in InvestingPro is clearly telling us that this is an investment-grade stock, with a rating of 4 out of 5. There are over 100 parameters that have been analyzed to arrive at this near-perfect score.

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However, we also need to look at the valuations before making an investment decision. This is where the fair value feature kicks in. As per 14 models used to calculate the intrinsic value of Tata Motors shares, the fair value comes at INR 1,215, depicting an upside potential of 22.4%, from the CMP of INR 989.7.

Looking ahead, Tata Motors expects JLR’s earnings before interest and taxes (EBIT) margins in fiscal 2025 to be similar to the previous fiscal year. The company remains optimistic about the demand for passenger cars, aiming to sustain double-digit EBITDA margins and positive free cash flows for its PV business.

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