Tata Motors shares fall 6% as JLR lows marin guidance, stares at 'close to zero' cash flows

Shares of Tata Motors tanked nearly 6% during the trading session on Monday after the its overseas arm JLR decreased its Ebit margin guidance. JLR has cut its guidance for Ebit margins to the range of 5-7 per cent, which were earlier estimated at 10%. This may impact its free-cash flow for the year.

Shares of Tata Motors dropped more than 5.5% to Rs 672.75 on Monday, with a its total market captiazatlion slipping below Rs 2.5 lakh crore mark. The stock had settled at Rs 712.05 on Friday. It has tumbled 43% from its 52-week high at Rs 1,179.05, hit nearly 11 months ago.

Tata Motors is focusing on its subsidiary Jaguar Land Rover (JLR) to navigate economic pressures, following a reported 51% decline in consolidated net profit for the fourth quarter of FY25. JLR significantly contributed, accounting for 71% of Tata Motors' revenue and 80% of its profitability during this period.

Looking forward, JLR anticipates that its free cash flow will be "close to zero" in FY26, while it remains committed to its investment strategies. The company expects EBIT margins to hover between 5–7%. Central to this strategy is the "reimagine" transformation initiative, projected to yield £1.4 billion in annual benefits, potentially stabilising its financial outlook.

The management at JLR aims to improve cash flow by the financial years 2027 and 2028, with a target to eventually restore EBIT margins to 10%. Although no specific timeline is set, these goals are aligned with Tata Motors' strategy to ensure stable growth and financial viability.

On the international front, JLR has been active in engaging with trade discussions, particularly in relation to reducing tariffs through the UK-US trade deal, aiming to enhance market competitiveness.

Despite challenges within the premium market, JLR retained its No.1 position in May, demonstrating resilience under challenging economic conditions. Its plans to expand in China, notably through the licensing of the Freelander model, reflect a strategic push for growth in the latter half of the fiscal year.

However, JLR faces risks such as semiconductor shortages and supply chain disruptions. The transition towards battery electric vehicles (BEVs) and adapting to new regulations and consumer demands further complicate the landscape, necessitating strategic adaptability.

Tata Motors' consolidated revenue showed a modest increase of 0.4% to Rs 1,19,503 crore, falling short of market expectations. This highlights the ongoing industry challenges and underscores the imperative for strategic recalibration to navigate future economic conditions.

Tata Motors has set an ambitious target for both domestic CV and PV businesses, execution remains the key monitorable given the weak demand environment both in CVs and PVs and rising cost pressures. Given these headwinds, its target of improving both market share and margins seems challenging, said Motilal Oswal Financial Services, which did not change its estimates. 

"JLR is facing multiple headwinds, including tariff-led uncertainty for exports to the US; demand weakness in key regions like Europe and China; and rising VME, warranty and emission costs. For the lack of any triggers, we reiterate Neutral with FY27E based target price of Rs 690," it said.

Tata Motors held its investor day on 9 June 2025 to share its future plans for the India CV and PV businesses. HSFC Securities expects the CV segment to witness growth in FY26, though margins may be impacted in the near term as a result of the safeguard duty on steel. It also expects the PV segment volumes to grow 2.5% in FY26, broadly in line with the industry. 

The slower EV sales and an ageing portfolio will be partially offset by continuing higher growth in the CNG segment and new refreshes/launches planned in FY26. We remain cautious in the near term due to the tariff overhang, subdued global macro, an ageing PV portfolio, slowing EV growth amidst higher competition and moderate growth for CVs," it said with a 'reduce' rating and a Rs 733 targe price.