Tata Motors stock drops 5% after Q1 earnings; should you buy, sell, or hold?

Shares of Tata Motors, a leading global automobile manufacturer, dropped nearly 5% in early trade today to reach ₹1,090 apiece. Despite the company reporting a healthy set of numbers for June quarter, the sharp run-up in shares led to profit booking, resulting in selling pressure on the stock.

Additionally, the management was cautiously optimistic for the remainder of FY25. They anticipate constrained production for Jaguar Land Rover (JLR) in Q2 and Q3 due to the annual summer plant shutdown and supply chain issues caused by floods at a key aluminum supplier.

"We are likely to witness constrained production in Q2 and Q3, reflecting the annual summer plant shutdown and floods at a key aluminum supplier. "As we work towards mitigation and recovery, we will keep our guidance on our key full-year financial deliverables of >8.5% EBIT and achieving net cash," the company stated in its exchange filing.

On the domestic front, the company anticipates a gradual improvement in demand throughout the rest of the year due to ongoing investments in infrastructure, favorable monsoons, positive macroeconomic conditions, and festive demand. However, it has noted that global demand is likely to remain muted.

On Thursday, after market hours, the company reported a consolidated net profit increase of 74% to ₹5,566 crore for the June 2024 quarter, driven by strong performances from Jaguar Land Rover and its domestic business. Total income for the period rose to ₹1,09,623 crore, compared to ₹1,03,597 crore in the June quarter of FY24, according to a regulatory filing by Tata Motors.

Jaguar Land Rover achieved a revenue of 7.3 billion pounds, marking its best first-quarter revenue on record, up 5% from the June quarter of FY24. The increase in profitability year-on-year is attributed to favorable volume, mix, and material cost improvements, partially offset by increased marketing expenses compared to the previous year.

In the domestic market, commercial vehicle sales for the April-June quarter rose 7% year-on-year to 87,615 units compared to Q1 of FY24. However, passenger vehicle wholesales in the domestic market declined by 1.1% year-on-year for the same period.

The passenger vehicle industry in Q1 FY25 witnessed retail (registrations) moderating, impacted by the general elections and intense heat waves across the country," Tata Motors Passenger Vehicles MD Shailesh Chandra said.

He added, “Going forward, we expect an improvement in overall sales on the back of the onset of the festive season and the launch of Curvv, India's first SUV Coupe.”

Additionally, the company’s board has approved a scheme of mergers, separating Tata Motors into two listed companies. Under this scheme, TML will demerge its commercial vehicle undertaking, including all related assets, liabilities, and employees, into TMLCV.

Post-Q1: Is Tata Motors still a strong buy?

Following the company's June quarter performance, domestic brokerage firm Nuvama Institutional Equities maintained its 'reduce' rating on the stock, raising the target price from ₹960 to ₹1,010 based on Sum-of-the-Parts (SotP) valuation. 

This increase in fair value is attributed to the reduction in the number of shares due to the cancellation of ‘differential voting rights’ shares.

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.