Tata Motors Q2 profit trebles to Rs2,500 crore on JLR sales
Mumbai: Tata Motors Ltd, India’s largest automaker by revenue, on Thursday reported a three-fold jump in net profit in the September quarter from a year ago, thanks to a strong performance by its UK unit Jaguar Land Rover Automotive Plc (JLR).
A better-than-expected performance by its domestic business also helped drive the growth in profit to Rs2,502 crore in the three months from Rs848 crore a year earlier, the biggest jump in six quarters. Sales rose 10.34% to Rs70,156 crore from Rs63,577 crore a year ago.
The results surpassed analyst estimates. A Bloomberg poll of nine analysts had estimated a net profit of Rs1,835 crore on sales of Rs68,895 crore.
JLR sales increased 5.07% from a year ago to 149,690 units, led by strong customer demand for the Range Rover Velar and other new models. New models such as the Jaguar XF Sportbrake and long wheel base Jaguar XFL helped sales in China and US expanding by 27% and 5%, respectively. Sales in Europe remained flat.
Earnings margin before interest, tax, depreciation and amortization (Ebitda), a measure of operating profitability, for Jaguar Land Rover stood at 11.8% on the back of a higher contribution by costlier models. JLR’s revenue rose 11.5% to £6.3 billion from £5.65 billion a year ago.
Ralph Speth, chief executive at Jaguar Land Rover, said he expects the margins in the forthcoming quarter to be higher “as the US GDP has been encouraging”. He expects China sales, which advanced the fastest among all the markets at 27.4% during the quarter and now accounts for a fourth in overall retail (sales to customers) sales, to continue the strong performance despite the economy cooling off as “proportion of wealthy is increasing.”
China’s economy is expected to cool to 6.7% from a year earlier in the fourth quarter and will likely grow 6.8 % in 2017, accelerating for the first time in seven years, Reuters reported on 9 November citing its poll.
JLR will be investing in more products as overall competitive intensity is increasing, Speth added.
For the year that ends in March 2018, JLR is estimated to invest £4-4.35 billion. The UK subsidiary expects to maintain Ebit margins of 8-10% in the medium term, according to the investor presentation on company’s website. Cautioning on the road ahead, it said margin pressures seen in 2016-17 including higher incentive levels and launch and growth costs are likely to continue in 2017-18.
Analysts said the earnings beat their estimates.
“JLR’s Ebitda margin was 220bps higher than our estimate of 9.6%, ” said Nitesh Sharma, analyst at Phillip Capital India. He said the margin rebound was led by lower hedging losses and stronger operating leverage.
Bharat Gianani, analyst at Sharekhan said the earnings “beat his estimates as well the consensus estimates.” Going ahead, commentary on the US and European markets, JLR hedge book position and quantum of foreign exchange losses anticipated would be the key monitorables .
Meanwhile, Tata Motors’s India operations sprang a surprise with a 30% jump in revenue to Rs13,400 crore, from Rs10,311 a year ago. The post-tax loss for the domestic business narrowed to Rs295 crore from Rs631 crore in the September quarter last year.
Guenter Butschek, chief executive and managing director at Tata Motors said, “The cost reduction has been structural and will thus be sustainable.” It has been achieved through initiatives that included reduction in variable costs, negotiation with vendors and improvement in designs and will also be extended to company’s new products.
Margins at company’s India operations rose to 7.2% owing to an increase in net realisations. Girish Wagh, head of truck and bus business at the firm attributed it to the transition to the Bharat Stage IV models. He claimed Tata Motors commands a premium in net realisation over its rivals.
Philip Capital’s Sharma said the revenue as well as margins for the stand alone business were ahead of the brokerage’s estimates.
Total domestic sales in the September quarter rose by a significant 21.7% to 142,646 units. Sales were led by commercial vehicles, with medium and heavy commercial vehicles clocking 21.3% growth to 40,616 units on the back of the government’s infrastructure push and increased production of Bharat Stage-IV compliant vehicles, the company said a statement.
Shares of Tata Motors rose 0.36% to Rs.440.30 on the BSE at the close of trading on a day the benchmark Sensex edged up 0.1% to 33,250.93 points.
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