Tata Motors Ltd (TML) second quarter results have been well ahead of the street, following the acceleration at Jaguar Land Rover (JLR) following the coronavirus lockdown. TML’s domestic business is also stepping on the gas, with revenues recovering sequentially.
While JLR’s retail volumes are down roughly 12% YoY (YoY), the sequential recovery of 53% has been remarkable. The improvement in China, along with Europe and the US also rebounding despite the second wave of coronavirus cases, is impressive. JLR’s global retail network has also reopened.
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Analysts have noted that overall discount levels are down, helping revenue. JLR’s second-quarter revenue soared 52% sequentially, although year-on-year, they were 28% lower. Still, the lower costs and operational performance are quite encouraging. JLR’s earnings before taxes turned around after two quarters of heavy losses. The company saved some 600 million euros in costs in the quarter and about 1.8 billion euros so far this year.
Nationwide, TML’s passenger and commercial vehicle businesses are recovering long after the shutdown. Keep in mind that commercial vehicle retail sales have increased to 38,300 units in the second quarter after falling to 3,100 units in the first quarter. However, while freight demand is improving, demand from the bus segment remains lackluster.
Passenger vehicle sales have improved due to a rebound in retail sales amid a growing preference for personal mobility. In fact, TML’s passenger vehicle sales were up 73% year-on-year. Management noted that retail sales have performed well due to growing demand.
Overall, TML’s consolidated revenue and improved operating profit have been ahead of Street’s expectations. Ebitda margins stood at 10.5% in the second quarter due to lower costs compared to 2.6% in the first quarter. Net losses were down too much QoQ against expectations of higher losses. Ebitda is earnings before interest, taxes, depreciation, and amortization.
“Despite a decrease of more than 30% in JLR volumes, the company posted healthy margins. This resulted in a significant reduction in consolidated losses. It’s a stellar performance despite a challenging environment, “said Mitul Shah, head of research at Reliance Securities.
While analysts are likely to improve their earnings expectations for the year after the good show, TML’s stock appears to reflect the improvement in performance.
The stock performed well post-covid-19 and is roughly 32% lower than its pre-covid highs since its roughly 67% drop in March. The stock is trading at a one-year price-earnings multiple of approximately 27 times based on Bloomberg.
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