Tata Motors Sees Muted FY26 For JLR; EBIT Margins To Drop 5-7%

Utkarsh Agarwal Jun 18, 2025

Tata Motors remains cautiously optimistic despite JLR’s muted outlook for FY26; investor focus shifts to long-term margins and EV investments

Tata Motors has provided a strategic update on Jaguar Land Rover (JLR) during a recent investor day, outlining near-term challenges while reaffirming its long-term growth plans. The company has maintained its "ADD" recommendation with a target price of Rs 788, offering a potential 14.8 per cent upside from the current Rs 687 level.

JLR: Muted FY26 Outlook, But Investment Plans Stay Intact

JLR expects revenue to fall slightly to ~GBP 28 billion in FY26, down from ~GBP 29 billion in FY25. EBIT margins are likely to shrink to 5-7 per cent, compared to 8.5 per cent last year. Free cash flow (FCF) is expected to be close to zero, a sharp drop from GBP 1.48 billion in FY25. The decline is attributed to lower earnings and working capital pressures.

Despite these headwinds, JLR plans to maintain a strong investment push. It will invest ~GBP 18 billion from FY24–28, with GBP 4 billion earmarked for FY26 alone. These funds will be used to develop next-gen vehicle platforms, advanced driver assistance systems (ADAS), battery electric vehicles (BEVs), and strengthen the brand.

Management aims to improve margins to around 10 per cent in the interim and target 15 per cent in the long run through GBP 1.4 billion in cost-saving measures and stabilising global macro conditions.

Key Challenges: Tariffs, Weak Demand, and Cost Pressures

JLR’s outlook is clouded factors such as:

Tariff risks for exports to the US
Weak demand in key regions like Europe and China
Rising vehicle marketing expenses, warranty claims, and emission-related costs

In China, the company is shifting focus to high-end SUVs to support profitability. A new Freelander model is expected to launch in the second half of 2026, which could aid recovery in the region.

Domestic Business Faces Cyclical Slowdown

Tata Motors’ standalone business is also showing signs of volume moderation across both passenger and commercial vehicle segments. This could weigh on earnings momentum in the near term.

EPS Estimates Revised, Preference for Peers

The company has revised its FY26 and FY27 consolidated earnings estimates downward by 6-7 per cent, reflecting margin pressures at JLR. Despite the stock’s recent correction, analysts suggest waiting for a better entry point.

Among automakers, Tata Motors remains on the radar, but analysts currently prefer Mahindra & Mahindra, Hyundai, TVS Motor, and Eicher Motors for stronger near-term performance.