Tata Motors (NSE: TATAMOTORS) is up 7% in India on the back of good results from the Jaguar Land Rover subsidiary. Part of the bounce here is, of course, because the results haven't been so good recently. The JLR announcement came out at the end of last week but with markets being closed the price movement is only now. That price rise is also fading away during the trading session - it's dropped 1% just in the time to type these few paragraphs. So, it's not obvious that the rise is going to hold, to put it mildly. Mature consideration of the figures might well produce a different result than that first flush of enthusiasm.
The news was that JLR is cash generative. That, in turn, according to BofA Securities at least, means that group net debt could halve over the year. Global wholesale units were up 8% in Q4 at 361,361 units. It's this which produces the free cash flow. Car making is extremely capital heavy and fixed costs are vast. The actual marginal cost of producing another unit is low compared with the fixed costs of being able to produce at scale at all. Therefore marginal improvements in sales will lead to much larger changes in cashflow and profit. Which is just what has happened here - the increased sales are mostly flowing directly through to the bottom line.
Tata Motors share price from NSE
Goldman Sachs has upped the price target for TATAMOTORS to Rs 550. If we're honest about that that's just an analyst looking for something to say about events. They've not really got a model which can predict that. We do have a little amusement here in the name of one analytical company “Swastika Investmart Ltd”. Yes, we know the symbol is Indian and ancient but to be taken seriously outside that country since 1945 we'[d really suggest a name change there. We also don't have the slightest shred of belief in the sort of chartism that's being used there.
The real and basic issue here is that the car industry suffered horribly from lockdown and twice over. Of course, new car sales fell off a cliff as no one was allowed to go anywhere. But that also led to an entire mess in the supply chain, especially of computer chips. The big question for all car makers now is that recovery path from those two events. Tata, given the JLR performance, seems to be managing that recovery.