Can Tata Motors achieve zero net debt by March 2024?

The next remaining three quarters of this financial year are crucial for automobile giant Tata Motors as it targets to achieve zero net debt by March 2024. Tata Group chairman N Chandrasekaran announced the ambitious target two years back, but the company's ongoing investments in the domestic business and at Jaguar Land Rover (JLR) are so vital that it's coming in the way of paring the debt for the company that is valued at ₹2.3 lakh crore by the stock market.

The net debt of the automotive division fell to ₹41,700 crore in June from ₹43,700 crore in March. It was ₹48,700 crore in March 2022. The company's domestic automobile business has a debt of ₹8,200 crore, while the debt at JLR stood at ₹25,700 crore in June.

The domestic entity plans an investment of ₹8,000 crore in FY24. Of this, ₹2,000 crore has been spent in the first quarter. The investment at JLR is much higher at £3 billion (₹31,600 crore) as it is transitioning its production towards electric. The UK division, which already announced £15 billion investment for five years, has spent £700 million in April-June.

In addition, Tata Group announced £4 billion (₹42,100 crore) investment in building Gigafactory in the UK for battery cell manufacturing. JLR will become the anchor customer of Tata's global battery business. Agratas Energy Storage Solutions, the newly-formed company of Tata Sons, will execute the project in the UK. Agratas also has a memorandum of understanding (MoU) with the Gujarat government to set up a lithium-ion cell factory entailing an investment of ₹13,000 crore.

Though the capital expenditure of Agratas won't feature in the balance sheet of Tata Motors, the automobile investments in India and the UK are high, hampering plans to achieve net debt zero. According to executives, the company will focus on achieving the target in the automobile business in India now. "If the market conditions are good, JLR will be able to clear off debt quickly by enhancing margins," says an executive.

The automaker reported a consolidated profit of ₹3,203 crore for the June quarter compared with a loss of ₹5,007 crore in the same quarter last year. The consolidated revenue came in at ₹1,02,236 crore, up 42.1%. The earnings before interest, depreciation, tax and amortisation (EBITDA) for the quarter stood at ₹14,700 crore, up 177%. The EBIT stood at about ₹8,300 crore, driven by JLR and CV businesses while the domestic PV business was steady. The revenue for the British arm improved by 57% to £6.9 billion on strong wholesales and an improved mix resulting in EBIT margins of 8.6% (up by 13%). The domestic passenger vehicle (PV) business was steady with 11.1% revenue growth.

Tata Motors reported total sales in the domestic and international market for July 2023 at 80,633 vehicles, a fall of 1.4% as compared to 81,790 units sold during July 2022. However, Electric Vehicle (EV) sales witnessed strong wholesale growth during the month. The company sold 6,329 units of EVs in July, up by 53%.