Tata Motors shares’ 42% crash from peak wipes off ₹1.8 lakh crore from investor wealth | Stock Market News

Shares of Tata Motors, a leading global automobile manufacturer, have been maintaining a steady downward spiral in recent weeks, tumbling to levels not seen in many months. The stock, which consistently broke record highs between March 2023 and July 2024, is now becoming less appealing to investors, having declined for six consecutive months. 

The selling pressure has extended into the current month, with the stock hitting a 14-month low of ₹667 apiece in trade on Wednesday, February 12, declining 4.45% so far.  Since reaching an all-time high of ₹1,176 apiece in July 2024, the stock has corrected by 42%.

This significant drop has led to massive losses for retail investors, who held a 21.9% stake in the company at the end of the December quarter. The correction has also wiped out ₹1.8 lakh crore in market capitalization, bringing it down from ₹4.32 lakh crore to the current level of ₹2.52 lakh crore.

The company’s recent December quarter results also came in below estimates, triggering further sell-off in the stock. Weak Jaguar and Land Rover (JLR) performance, a decline in commercial vehicle (CV) sales, economic challenges in European markets, and weak demand in China have all impacted the company’s performance in Q3FY25.

The company’s net profit declined by 22.5% in Q3 FY25 to ₹5,578 crore from ₹7,415 crore, while revenue grew marginally by 2.7% to ₹1,13,575 crore. In Q3 FY25, JLR’s EBIT margins improved YoY to 9%, but analysts note that much of this improvement was driven by a reduction in depreciation.

Given the challenges in key markets, the company has marginally reduced FY25E JLR revenue guidance to £29 billion from £30 billion earlier and maintained guidance on EBIT margin at 8.5%.

Furthermore, margins in India’s CV and passenger vehicle (PV) businesses were boosted by PLI accruals, which aided margins by 130 basis points and 120 basis points for these segments, respectively.

Domestic brokerage firm Motilal Oswal expects margin pressure to persist at JLR over FY24-27E due to weak demand in key regions, rising cost pressures from investments in demand generation, and an EV ramp-up, which is likely to be margin-dilutive. Even in India, both the CV and PV businesses are witnessing a moderation in demand, it noted.

Motilal Oswal trimmed its EBITDA estimates by 3% and 5% for FY25 and FY26, respectively, factoring in JLR’s weakness, while maintaining a ‘Neutral’ rating on the stock with a target price of ₹775 apiece. Meanwhile, Jefferies India, after maintaining a ‘buy’ rating for 3.5 years, downgraded Tata Motors to ‘Underperform’ and slashed its target price to ₹660 apiece after the company’s Q3FY25 numbers missed their estimates.

Analysts expect recovery in luxury car market

Global luxury car volumes declined 3% YoY in 9MCY24, driven by a 14% YoY decline in China and a 1% YoY decline in Europe, primarily due to recessionary pressures in Germany and France. However, this was partially offset by a 1% YoY increase in North America.

While most luxury OEMs revised their volume guidance downward, primarily due to weakness in the Chinese luxury market, domestic brokerage firm LKP Securities expects a lagged recovery for luxury goods, including passenger cars in China, over H1 CY25E, supported by interventions from the Chinese government and central bank.

Similarly, the brokerage anticipates a revival in luxury sales in Europe, driven by rate cuts by the European Central Bank (ECB). It also expects strong demand for luxury cars to persist in North America, which remained resilient in 9MCY24, despite weakness in other developed markets.

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.