Tata Motors: Performance takes a backseat, guidance guides stock markets

KOCHI: The hammering suffered by the Tata Motors shares on the stock market on Monday, despite its sterling performance has grabbed many headlines in the financial publications.

A four-year old note on Linkedin by Jeff Majtyka, the president of Ellipsis, is worth reading.

 (Jeff founded Ellipsis in 2015 to elevate the strategic role of financial communications advisory)

“Regardless of one’s position on guidance, nearly everyone agrees with the efficient markets hypothesis. Stocks are valued on expectations of future performance. Companies that give guidance help narrow the standard deviation of those expectations, and their words and numbers carry weight because they have the most information about their future. “

Tata Motors FY24 results proved to us that the financial results have taken a back seat and the guidance given by the company’s top officials guided the market, at least on the immediately following day of the results announcement – May 10 (Monday).

As is amply clear now, even ordinary investors are not carried away by the financial results on the ground – the easily accessible yardsticks on the company’s performance.

What more investors can hope of a company’s results than the following?

Tata Motor’s Q4 net profit rose 222 per cent to Rs17,407 crore; revenue up 13.3 per cent to Rs1.2 lakh crore; Ebitda up 32.8 per cent to Rs16,995 crore; Ebitda margin at 14.2 per cent versus 12.1 per cent earlier.

All these real numbers are almost in line with Bloomberg estimates whereas the Q4 net profit has been a far cry  or multiples from that of the Bloomberg estimates, which was just Rs6,966.98 crore.

Monday, May 10, the first day of the market since the result announcement saw the Tata Motors shares tumble 8.34 per cent before closing at Rs959.40 on NSE.

The PE ratio at this level was quite attractive at 16.90 against a sector PE of 44.42. Monday’s closing price was 7.06 times the book value (BV) of the share which was Rs136.05.

While the Tata Motors shares had touched a 52-week high of Rs1,065.60, the 52-week low is far lower at Rs504.75, than the Monday’s closing price.

Though all the top officials of the company, including the group chief financial controller (CFO) and the managing director of passenger car segment, expressed satisfaction over the FY24 per performance, they made it a point to express their cautious stand on the future, especially the immediate one – the current financial year (FY25).

Rs2,310cr cash outflow for dividend

“This year (FY24) has been a satisfying year after many years of challenging performance,” PB Balaji, group CFO, said while interacting with analysts.

The dividend announced, including a special dividend, will result in a total dividend package of Rs6 and 6.2 against each share (ordinary share and DVR respectively), and this will result in a cash outflow of Rs2,310 crore for the company.

The company believes that the market growth rate is likely to moderate as pent-up demand is exhausted, and growth may stay below 5 per cent during the current year.

Challenges

“High channel inventory may result in stress on wholesale,” the company further noted. (Channel inventory refers to the inventory held by intermediaries such as retailers, wholesalers, and distributors within a supply chain or distribution channel).

The company also fears the extraneous factors like elections, heat wave etc to add to the uncertainty. This prompts the company to remain cautiously optimistic on domestic demand over the full year, and expects first half (H1) to be relatively weaker.

Sailesh Chandra MD of Tata Motors Passenger Vehicles Ltd (PV) explained with the support of numbers why his company elects to remain cautious for the immediate future.

“The previous years have been strong on growth; three years back the demand for sales of the industry was at 2.73 million units, but this has grown to 4.2 million.  So it is natural that the growth will moderate at some point of time,” Sailesh Chandra explained.

He further said the possibility of refilling the channel is low this year because it’s already high, and hence the scope for refilling will remain low for this year. “The market witnessed a lot of growth in the past two years,” he added.

He also reminded that a lot of negative commentary is being trained from certain corners against the electric vehicles (EV) market, where Tata Motors alone controls almost two-thirds of the passenger car market.