Why are Tata motors shares falling?

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Why are Tata motors shares falling?

Tata Motors, a titan of the Indian automotive industry, is capturing attention with its innovative vehicles and ambitious growth strategies. It is facing a troubling shift in its stock value. The recent decline has raised eyebrows among shareholders and market experts. Investors are now closely watching the company’s every move. What could be behind this sudden drop? In this article, we dive deep into the company’s future plans and segments and the factors that have led to this significant downturn.

Automobile Industry Overview

The Indian automobile industry holds a 7.1% share of India’s GDP, making it the third-largest automobile market globally. In FY24, it produced 28.43 million vehicles, including passenger, commercial, two, and three-wheelers. By 2029, the industry is projected to reach $187.85 billion, growing at a CAGR of 8.20% from $126.67 billion in 2024.

India’s passenger car market is expanding at a CAGR of 5.45%, from $39.82 billion in 2024 expected to hit $54.76 billion by 2030. The commercial vehicle industry grew 2% to 10,02,846 units in FY24. The Indian government aims for 30% of new vehicle sales to be electric by 2030, promoting a shift towards sustainable mobility and creating opportunities in electric vehicle markets.

The below charts show the production and sales of automobile units in millions.

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Company Overview Of Tata Motors

Tata Motors was established in 1945, over 79 years ago. The company’s headquarters are based in Mumbai, Maharashtra, India, and promoted by J. R. D. Tata. Tata Motors Limited manufactures and distributes automobiles. The company’s primary business is the design, manufacture, and marketing of automobiles, trucks, utility vehicles, defence vehicles, and buses.

Tata Motors also manufactures engines for industrial and marine use. The business sells its products under the names Jaguar, Tata Motors, and Land Rover. Tata Motors’ prominent brands include Indigo, Manza, Vista, Xenon, and Prima. The company’s products meet a wide range of consumer needs, including personal usage and business applications in a variety of industries.

The company is actively operated in more than 125 countries, which includes the Middle East, North America, Africa, Asia, Russia, Oceania, Central America, and South America. Tata Motors has 25 manufacturing facilities and 9 research and development sites. It has reported more than 91000 collective workforce strengths.

Segments Analysis Of Tata Motors

Commercial Vehicles

Tata Motors is the largest commercial vehicle manufacturer in India, with the widest product and service portfolio across cargo and public transportation segments. In this segment, the company manufactured vehicles of 4,05,471 units in FY24, which has decreased by 4.06% as compared to FY23.

It has more than 140 new launches and more than 700 new variants of vehicles. The commercial vehicle segment has a revenue of ₹78,791 crore, which is to be 18% of the consolidated revenue in FY24. It has a product portfolio of buses and vans, SCVs and pickups, MHCVs, and ILCVs.

Passenger Vehicles

Tata Motors is the third-largest car manufacturer in the growing Indian passenger vehicle (PV) sector. Its products have cutting-edge features, the highest levels of safety, and trendsetting design. The company’s sales of passenger vehicles are the second largest sales network in India.

In this segment, the volume increased by 6.02%, from 5,40,965 units to 5,73,541 units in FY24. Passenger vehicles have more than 10 new variants. It has booked a revenue of ₹52,353 crore, which is to be 12% share of the consolidated revenue for FY24. Nexon and Punch are the top 2 SUV models in the passenger vehicles segment.

Electrical Vehicles

Tata Motors is one of the largest players in the Indian EV industry. The company’s electrical vehicles sales volume has increased by 47.46%, from 50,077 units in FY23 to 73,844 crore units in FY24. In the EV penetration, the company has a 13% share in FY24 and more than 70% of the market share in the 4-wheeler EV segments in India.

The company’s electrical vehicles have traveled more than 2.8 billion km. Tata Motors has a wide range of products, including Tiago.ev, Punch.ev, Nexon.ev, and Xpres-T. In this segment, the company has earned a revenue of almost ₹9,300 crore in FY24.

Jaguar Land Rover

Jaguar Land Rover is the world’s most desirable modern luxury brand for the world. The company’s Jaguar Land Rover segments have increased by 24.88%, from 3,21,362 units in FY23 to 4,01,303 units in FY24. In this segment, the company has earned revenue of approximately ₹3,19,959.83 crore (£28,995 million) in FY24, which is to be a share of 69% of consolidated revenues. The company has a diversified product portfolio, which includes Range Rover, Discovery, Defender, and Jaguar.

Tata Motors Finance

Tata Motors is one of India’s leading automotive financiers, offering commercial and passenger vehicle loan services. In this segment, the company’s assets under management amount has decreased by 7.56%, from ₹43,338 crore in FY23 to ₹40,060 crore in FY24. The company has operated through more than 350 branch networks across India.

Why is Tata Motors Share Price Falling?

Tata Motors Limited is currently experiencing a decline in its stock price. It has reduced from its all-time high of ₹1,179. Now Tata Motors is trading at ₹9,90 levels. Tata Motors Limited’s stock price is declining due to several key factors. First, the company has significantly reduced prices on its electric vehicles and popular models, with up to ₹3 lakh. This indicates weak demand and excess inventory at dealerships.

Furthermore, the automotive market has seen a significant decline in sales, with a reported 4.5% drop in dealer sales in August 2024 compared to the previous year. Current inventory levels at dealerships are significantly high, reaching 70-75 days of sales. This excess stock pressures Tata Motors to offer discounts on its vehicles, which will affect the profitability of the company.

Additionally, global brokerage UBS has issued a ‘Sell’ recommendation for Tata Motors, setting a target price of ₹825. This suggests a potential downside of around 20% from current levels. UBS highlights concerns over Jaguar Land Rover’s (JLR) declining order backlog has fallen below pre-COVID levels and rising discounts on premium models like the Range Rover, which could further impact profitability.

Furthermore, three major global brokerages, such as Goldman Sachs, Morgan Stanley, and Nomura have also given a downgrade rate on Tata Motors for a weaker outlook in the financial year 2025. This has influenced investor sentiment negatively.

Financial Analysis Of Tata Motors

Looking deeply into the consolidated financial analysis of Tata Motors Limited, the company’s revenue has increased over the last four years. The revenue of Tata Motors Limited has increased from 345967 crore in FY23 to 437928 crore in FY24, which has grown by 26.58%.

The company’s revenue has come from India by 29.17%, North America by 15.41%, China by 13.06%, Europe by 12.68%, the UK by 12.56%, and other countries by 17.12% in FY24. The company has sold a total vehicle of 13,80,315 units, which includes 13% of the electrical vehicles of Jaguar Land Rover. Tata Motors Limited’s revenue has grown at a CAGR of 13.81% over the last four years.

Before FY23, the net profit of the company had incurred the net loss. The company recovered from net loss to net profit, from ₹11,309 crore to -₹2,690 crore in the year 2023. Tata Motors Limited’s net profit has grown by 108.24%, from ₹2,690 crore to ₹31,807 crore in FY24.

Tata Motors Limited’s operating profit margin has improved from 3.37% in FY23 to 7.10% in FY24. The net profit margin also has upgraded from 0.68% in FY23 to 7.10% in FY24. The company’s ROE will be 19.39% in FY24. The ROCE of the company has increased from 6.45% in FY23 to 19.39% in FY24.

Tata Motors Limited has increased its debt until 2022. The company is starting to reduce its debt in the financial year 2023. In FY24, the company has declined its net borrowing from 134,113 crore in FY23 to 107,262 crore. It has affected the debt-to-equity ratio of the company, which has reduced from 2.77x in FY23 to 1.16x in FY24.