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Tata Motors lowers Q3 guidance, stock falls 6%

Auto maker says it may post a lower operating margin on sales of cheaper models from its Jaguar Land Rover stable
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First Published: Thu, Jan 24 2013. 11 41 AM IST
The company hasn’t reported its earnings for the quarter ended 31 December. Photo: Priyanka Parashar/Mint
The company hasn’t reported its earnings for the quarter ended 31 December. Photo: Priyanka Parashar/Mint
Updated: Thu, Jan 24 2013. 11 23 PM IST
Mumbai: Tata Motors Ltd, India’s biggest auto maker and owner of British luxury car maker Jaguar Land Rover (JLR), warned investors on Thursday that it may post a lower operating margin in the December quarter as its UK unit sold more cheaper models and spent money on introducing a new Range Rover.
Tata Motors shares plunged as much as 9.6% on Thursday.
The company hasn’t reported its earnings for the quarter ended 31 December and hasn’t announced a date for it yet.
JLR’s earnings before interest, taxes, depreciation and amortization, or operating margin (Ebitda), for the December quarter, “is likely to be slightly lower than the previous two quarters”, Vijay Somaiya, head of treasury and investor relations at Tata Motors, said in a conference call.
The UK subsidiary accounts for 70% revenue of Tata Motors and more than 90% of its profit.
Following the announcement, Tata Motors shares fell 5.91% to end at Rs.293.55 on BSE while the benchmark Sensex fell 0.51% to close at 19,923.78 points.
The company update implies an Ebitda margin of 12.4%, significantly below estimates and its margins in the recent past, Joseph George, an analyst at IIFL Ltd, said in a note to clients after the conference call.
“Although some of the factors causing the margin dip (such as product mix) are likely to reverse, we believe consensus margin estimates for FY14 and FY15 are likely to see downgrades,” he said.
Somaiya attributed the likely drop in margin to a higher contribution of the cheaper Range Rover Evoque model to the overall sales mix and adverse currency movement. The average selling price of the Evoque is between £30,000 and £35,000, compared with an average of £42,000 for the other models, he said.
The lower margins are also the function of marketing expenses incurred on the new Range Rover—the new model introduced globally last September, he said, adding the introduction of the model will be completed in all the countries by the end of this month.
JLR, meanwhile, is also increasing its capital expenditure on new product development in fiscal 2014.
In a statement issued on Wednesday night, the firm said that in a bid to increase and accelerate the development of new products in new and existing segments, it would invest “in new powertrains and technologies to meet customer and regulatory requirements, grow our manufacturing footprint in China and explore manufacturing opportunities in other markets. As a result, we expect our capital spending could increase to be in the region of £2.75 billion in fiscal 2014.”
JLR also plans to launch a smaller Jaguar sedan by the end of fiscal 2014 to compete with the BMW 3-Series cars.
JLR is also increasing production capacity at its UK plant from 400,000 units—the capacity level it intends to reach by the turn of fiscal 2012-13, to 500,000 units in the next fiscal.
According to Somaiya, JLR typically funds most of its capital spending from its operating cash flow. He warned that after capital spending of around £2.75 billion in fiscal 2014, up £.75 billion, the company’s annual free cash flow spends could be negative.
“We expect that our strong balance sheet and liquidity (£2,176.5 million of total liquidity and £795.0 million of undrawn committed credit lines with two and four years remaining as on 30 September, 2012), as well as proven access to funding from capital markets and banks would also support our investment plans as required,” the company said in the statement
“We believe the increase in capex guidance for FY14 and expedition (faster roll-out) of new launches is a harbinger of times of healthy demand for JLR. We view it positively as we can expect a strong monthly run rate from here on,” wrote Ashwin Patil, an analyst with brokerage LKP Securities Ltd.
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First Published: Thu, Jan 24 2013. 11 41 AM IST
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