Mumbai: Tata Motors Ltd, India’s largest truck maker, said on Tuesday that its net profit for the quarter ended June rose to Rs497.22 crore, a jump of 30% from the corresponding period a year ago, led by foreign exchange gains as a stronger rupee lowered its repayments against dollar-denominated debt. That has helped offset slowing sales of commercial vehicles.
Sales in the three-month period grew 13% to Rs7,631.28 crore from the previous year. The rupee has risen more than 9% against the dollar this year, making it cheaper for Indian companies to purchase foreign goods and repay dollar-debt. On 31 July, the rupee closed at 40.37 to a dollar.
An appreciating rupee helped add about Rs205 crore in foreign exchange gains for Tata Motors because its loans for expansion were in dollars and the gains of the rupee meant the company spent less of the local currency to repay the borrowing. Excluding this gain, operating margins dipped to 9% in the quarter, from 13% a year ago.
“The foreign exchange gain is largely due to the foreign currency convertible bonds that the company issued in last two to three years,” said Umesh Karne, senior research analyst, Emkay Share and Stock Brokers Ltd, a Mumbai based brokerage.
Still, rising borrowing costs for consumers hurt vehicle sales. In the quarter ended June, Tata Motors’ vehicle sales in the domestic market grew a mere 0.4% compared with a 44% growth in the year-ago period. The company expects a slower growth in demand for its vehicles this year due to higher interest rates.
A series of interest rate hikes to curb inflation and excessive lending has sent borrowing rates to a five-year high and hurt the pockets of vehicle buyers, who have been delaying or avoiding purchases.
The Reserve Bank of India has its benchmark rate at 7.75%, which has dented vehicle sales in India—Asia’s fourth largest automotive market. Tata Motors hasn’t been spared.
“The reason for the slowdown is mainly the hike in interest rates. Till the interest rates begin to soften, sentiment for purchases will be down,” said Ravi Kant, managing director, Tata Motors. “People are cautious to add vehicles to their fleet at this point,” he added.
In the latest quarter ended June, sales of heavy and medium vehicles, which contribute around 60% to the total revenue of the company, dropped 10.7% from a year ago.
The company dominates India’s heavy- and medium-truck market with a 59% market share—a decline from the 64% it held as of March. That was partly because a key supplier of engines for the vehicles was unable to supply enough goods because of its own manufacturing problems.
However, Tata Motors had better luck with light commercial vehicles, selling 9% extra as more people bought its mini-truck Ace.
The company’s shares dropped 1.1% to Rs699.30 on the Bombay Stock Exchange on Tuesday. The Sensex, the benchmark 30-stock index gained by 1.9% to 15,550.99 points.
The company announced its result after the trading hourson Tuesday.