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India Autos & Auto Parts

Equity Research

Tata Motors
Date: June 16, 2025

JLR Investor Day Highlights

• Weaker FY26 Outlook:

  • JLR projected a significant decline in EBIT margin to 5-7% for FY26, down from 8.5% in FY25.
  • Revenue is expected to decline slightly to ~£28 billion (FY25: ~£29 billion).
  • Free Cash Flow (FCF) will likely be near zero compared to +£1.5 billion in FY25.

• Key Challenges:

  • Trade/tech protectionism, weaker USD, and tough China macroeconomic conditions.
  • BEV transition risks, along with stricter emission regulations and warranty costs.

Strategic Direction

• Brand Strategy:

  • Strengthening its four brands (Range Rover, Discovery, Defender, Jaguar) through higher-priced special editions and bespoke offerings.

• EV Transition:

  • Electric Range Rover launch expected in 2026, followed by vehicles on new EMA architecture and Jaguar BEV.
  • In China, JLR has licensed its Freelander brand to a joint venture for new EVs.

• Cost Savings:

  • Plan to achieve £1.4 billion/year in internal cost savings by FY27 (equivalent to ~5% of revenues).

Margin and Financial Guidance

• Margin Revision:

  • Reduced FY26-28E EPS by 12-19%.
  • EBIT margins projected at 6.0-6.5% for FY26-28E.

• Valuation Update:

  • Price Target lowered to INR600 (from INR630), based on revised financials.
  • The India CV business is valued at 11x FY27E EV/EBITDA, while JLR is valued at 2x FY27E EV/EBITDA.

Analyst Recommendations

• UNPF (Underperform):
  • Retains UNPF rating despite Tata’s efforts in India.
  • Concerns about persistent headwinds in global markets and increased competition in India’s electric PV segment.

India Business

• India CV and PV Growth:
  • India CV volumes expected to grow 3%/7%/7% in FY26-28, with EBITDA margins around 11.5%.
  • India PV volumes projected at 7%/10%/10% for FY26-28, with EBITDA margins around 7.5%.

Sustainability

• Net Zero Targets:
  • JLR aims for net zero emissions by 2039, with 46% reduction in Scope 1 & 2 emissions by FY30.

Risk and Catalysts

• Risks:

  • Persistently weak demand in JLR’s core markets.
  • High Customer Acquisition Cost (CAC) in the luxury auto segment.

• Catalysts:

  • Improved volumes and margins in the India business.
  • Stronger demand recovery in global luxury autos.

Conclusion

JLR faces a challenging FY26 due to margin compression and external headwinds, despite strategic moves towards EVs and brand enhancement. The India business shows stronger potential but remains subject to competitive pressures. The revised price target reflects cautious optimism amidst a volatile outlook.