Led by a 46 per cent jump in volumes and an uptick in realisations, the revenues of the Indian passenger vehicle business jumped by 66 per cent and were above estimates. Though operating profit saw a 74 per cent jump, margin improvement was limited to 20 basis points Y-o-Y to 4.2 per cent and was lower than estimates. Profitability was under pressure given the sharp rise in input costs and a higher share of electric vehicles in the mix.
Going ahead, the company expects higher double-digit growth for the India business in FY27. This would be led by festive sales, new launches and product refreshes. While supply constraints, especially forgings/sheet metals, are improving, they continue to remain a focus area for the company. The inventory is at 30 days and the company is looking at building up stocks ahead of the festive season. Given the international expansion, especially in Africa, exports from India are expected to double in FY27.
What could offset the positive on the demand front is raw material inflation, which had a 4.5 per cent impact on margins in Q1 and is expected to impact Q2FY27 profitability by another 3.5 per cent. The company is trying to offset this partly through cost reductions, value analysis/value engineering and IPL cost normalisation. This is expected to offset the incremental raw material inflation, resulting in flat margins on a sequential basis in Q2FY27.
JM Financial has an ‘add’ rating on the stock with a target price of Rs 375. Factoring in Q1FY27 performance, the brokerage is revising domestic PV business volume growth to 16.5 per cent for FY27 as compared to 12.3 per cent earlier. Given the raw material prices, Nitin Agrawal and Sahil Malik are adjusting the FY27 operating profit margin for the India business to 6.8 per cent from 8.3 per cent earlier.
For JLR, temporary supply chain constraints due to a fire at a component supplier, the Middle East disruption due to the West Asia conflict, and the planned winding down of legacy Jaguar models ahead of new launches led to a 9.2 per cent Y-o-Y decline and a 16.8 per cent Q-o-Q fall in wholesale volumes. Average selling prices, however, were up sequentially by 4.5 per cent on account of a richer product mix.
The Ebit margins were lower by 110 basis points Y-o-Y and 640 basis points sequentially to 2.8 per cent. They were impacted by negative operating leverage and higher variable marketing expenses. While JLR saved on account of US-UK tariffs reducing from 27.5 per cent to 10 per cent, it was partially offset by a one-time US emissions provision release for Federal Corporate Average Fuel Economy in Q1FY26 (adverse base). Free cash flow for Q1FY27 was a negative £998 million as compared to a positive £829 million cash flow in Q4FY26.
Motilal Oswal Research has a ‘sell’ rating on the stock as JLR continues to face multiple headwinds on the demand and cost fronts. While JLR has embarked on a major cost-reduction initiative, it is likely to only partially offset the current headwinds, point out analysts led by Aniket Mhatre of the brokerage. Given the significant challenges at JLR and the continued geopolitical uncertainty, they reiterate a ‘sell’ rating with a target price of Rs 310.
