Tata Motors overtakes TCS as group's most profitable firm after 10 years

Tata Motors reported a consolidated net profit of Rs 17,483 crore (adjusted for exceptional gains and losses) for Q4FY24, surpassing TCS’ consolidated net earnings of Rs 12,434 crore.

For the automotive major, this marked a 213.7 per cent year-on-year increase in the bottom line, from Rs 5,573.8 crore a year ago.

In contrast, India’s biggest IT firm saw a more modest Y-o-Y growth of 9.1 per cent in net profit, from Rs 11,392 crore.

Tata Steel — another major company in the Tata group — is yet to declare its results for Q4FY24.

In comparison, the combined net profit of 16 Tata companies that have declared their results was up 64 per cent Y-o-Y to Rs 33,217 crore in Q4FY24.

It’s the first time in a decade that Tata Motors has topped the profit league table in the Tata group.

The last time it held this position was in the June 2014 quarter, when it reported an adjusted net profit of Rs 5,330.6 crore, against TCS' Rs 5,186.6 crore and Tata Steel’s Rs 400.6 crore.

Despite this, TCS remains the most profitable firm in the Tata group in terms of annual profit, with a consolidated adjusted net profit of Rs 46,625 crore in 2023-24.

This is significantly higher than Tata Motors’ adjusted net profit of Rs 32,078 crore last financial year.

This financial turnaround for Tata Motors’ financial fortunes is a significant boost for Tata Sons, the group holding company, which has repeatedly provided capital support to the automaker in the past.

Tata Motors is currently the single largest equity investment by Tata Sons in any of the group’s listed and unlisted firms.

The holding company has cumulatively invested Rs 22,658 crore worth of equity in the automotive player, accounting for 36.5 per cent of all its equity investment in listed group companies and 18.2 per cent of all its equity investments.

A financially strong Tata Motors will allow Tata Sons to make additional investments in the group’s new ventures, such as electronics manufacturing, e-commerce and aviation.

Previously, Tata Steel had become the most profitable company in the group during the global boom in steel prices in late 2021.

The steelmaker reported higher net profit than TCS’ in three of four quarters in FY22 and it posted a record annual net profit of Rs 40,238 crore in FY22 against TCS' Rs 38,327 crore.

However, TCS has been the most profitable company in the Tata group for the past 15 years, barring a few sporadic instances.

The company was demerged from Tata Sons in 2003 and was listed on stock exchanges in July 2004 after its initial public offer (IPO).

The numbers suggest that it could be challenging for Tata Motors to maintain its lead in the profit league table given the large volatility in its earnings over the past decade.

This is also true for Tata Steel, which moved from a record-high net profit in the September 2021 quarter to a quarterly net loss 15 months later in the December 2022 quarter.

In contrast, TCS’ net profit and revenue have grown at a steady pace since its debut on the bourses around 20 years ago.

According to analysts at Motilal Oswal Financial Services, the best may be behind Tata Motors, and it could be challenging for the company to maintain its current earnings momentum.

“While there is no doubt that Tata Motors delivered an extremely robust performance across its key segments in FY24, there are clear headwinds ahead that are likely to hurt its performance,” write analysts at Motilal Oswal Securities in a post-results note on the automaker.

The brokerage has lowered its earnings per share estimates for Tata Motors by 3 per cent and 5 per cent for FY25 and FY26, respectively, given anticipated rising cost pressure and normalising product mix and a weak outlook for its India business.