Tata Motors’ stock witnessed strong gains following the announcement of its Q1 results, as the market believes most of the negative factors have already been priced in. The company had already seen a significant drop in its share price amid tariff concerns, especially regarding Jaguar Land Rover (JLR) exports to the US. Although there was some relief from the UK earlier, concerns over JLR’s business with India and the US had been weighing on the market.
In Q1, Tata Motors reported a consolidated EBITDA margin decline from 14% to 9.2%, mainly due to tariff pressures. For JLR, the EBITDA margin fell to 4%, but management provided a relatively optimistic guidance for the coming quarters. They highlighted that demand from the US remains healthy, the UK market is stable, while concerns are more prominent in China and the EU. Notably, the 10% luxury tax imposed by China has been absorbed by JLR without passing it on to customers.
For FY26, JLR has guided for an EBIT margin in the range of 5-7%, at the higher end of expectations. Management also expects JLR to turn free cash flow positive in FY26, despite reporting negative free cash flow this quarter.
The commercial vehicles (CV) business remained resilient, with margins holding up despite a slight decline. The passenger vehicle (PV) segment saw its margin drop by 310 basis points to 4%, which includes around 100 basis points benefit from the government’s PLI scheme. Management believes margins could improve in the second half (H2) of the year.
In the passenger electric vehicle segment, Tata Motors recorded its highest-ever monthly sales, and expects further growth, especially with the push from its new “H” platform.
A major development in JLR is the appointment of P. B. Balaji as the new leader, which the market views positively. Additionally, the much-anticipated demerger of the CV and PV businesses will be effective from October 1, a move the market hopes will unlock significant value.
From a debt perspective, Tata Motors has made impressive progress. When Chandra took over leadership, the company had announced plans to make the business debt-free. At that time, debt levels were between ₹1.25 lakh crore and ₹1.5 lakh crore, but they have now reduced to around ₹70,000 crore. This is seen as a major positive by analysts who previously avoided recommending the stock due to its high debt burden.
While some market experts still prefer other auto stocks like Maruti Suzuki and Mahindra & Mahindra, the consensus is that Tata Motors investors need not be disappointed. With better-than-expected guidance for JLR, resilience in CV margins, leadership changes, and the upcoming demerger, sentiment for Tata Motors is turning positive. For long-term investors, the stock could offer potential upside as the company enters a more promising second half of the year.
Disclaimer:This article is for informational purposes only and does not constitute investment advice. Stock market investments are subject to market risks. Please consult a qualified financial advisor before making any investment decisions.
