Tata Motors Latest News : Reason for the fall in its Share Price

Tata Motor's Latest news: Tata Motors’ shares have been in focus in the last two days after the company provided a business update. Here are a few highlights for the same:

Tata Motors shares update: Highlights from JLR’s business in Q1

• Jaguar Land Rover informed the press that the shortage of semiconductors would result in wholesale volumes about 50% lower than planned. The company has reported that it will have a shortage of chip supply from suppliers in the second quarter ending September 2021, which will hurt margins and bottomline.
• JLR has cautioned that given the supply constraints, the company expects to report a cash outflow of about £1 billion with a negative EBIT margin for the quarter. Total liquidity at the end of the first quarter was over £5.6 billion including a £1.9 billion undrawn committed credit facility (RCF).
• Retail sales for the first quarter ending 30 June 2021 were 124,537 vehicles, 68.1% higher than the 74,067 vehicles sold in Q1 last year.  
• Wholesales were 84,442 units in the quarter (excluding the China JV), up 72.6% year-on-year. This was about 30,000 units lower (c. 27%) than otherwise would have been planned as a result of semiconductor supply constraints and the impacts of Covid-19, although this reduction had been broadly anticipated.   
• JLR expects the situation to improve in the second half of the financial year. However, the chip supply will be limited throughout the year and beyond compared to normal levels.

Some Details on Tata Motors

• Tata Motors shares have had a really strong run over the past one year, up 190%. Hence, a correction on such negative news was imminent. 
• While the lack of semiconductors has hurt the automobile industry as a whole, the extent to which it is expected to hurt JLR has come as a surprise. 
• Due to the shortage, there is a risk of delayed launch of the new Range Rover as well. Global brokerage firm Nomura has noted that given negative free cash flow for Tata Motors, the management’s commitment of achieving near-zero net automotive debt in the coming years is also at risk. The brokerage firm has maintained a ‘neutral’ rating with a target price of Rs 353. 
• Global brokerage firm Jefferies has cut FY22 EBITDA and EPS estimates by 10% and 44%, respectively. However, FY23 earnings are broadly unchanged as semiconductor shortages will ease in time.
• While the company could remain under pressure in the near-term, Tata Motors is poised to deliver a strong turnaround by FY23, led by cyclical recovery and improved strategy at both JLR and India.
• Despite the gloomy business update by JLR, the outlook on Tata Motors shares remains favourable over the long-term. The average Bloomberg consensus price target implies a 20% upside from the current levels.