BackTata Motors Q1 profit more than triples on JLR sales
Net profit surged to Rs5,398 crore in the three months ended 30 June from Rs1,726 crore a year earlier
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Mumbai: Tata Motors Ltd’s fiscal first-quarter profit more than tripled, beating analysts’ estimates by a wide margin, as sales at its luxury car making Jaguar Land Rover (JLR) unit jumped, offsetting dwindling vehicle sales in its home market.
Net profit surged to ₹ 5,398 crore in the three months ended 30 June from ₹ 1,726 crore a year earlier, Mumbai-based Tata Motors said on Monday. That exceeded the ₹ 3,776.3 crore June quarter profit estimate, according to a Bloomberg survey of 34 analysts. Revenue rose 38.2% to ₹ 64,683 crore.
This is also Tata Motors’ highest quarterly profit, barring the quarter ended March 2012, when a tax credit of ₹ 1,794 crore had boosted net profit to ₹ 6,234 crore.
Tata Motors’ UK unit has once again come to the rescue of its struggling parent, which is facing declining sales of its Tata-branded cars, buses and trucks in India, where economic growth has slowed to less than 5% in the past two fiscal years.
Earnings at JLR has substantially exceeded analysts’ expectations on higher prices and contribution of new models, according to Mitul Shah, an analyst at Karvy Stock Broking Pvt. Ltd.
“The surprise came from a 3% increase in the average selling price of the models," said Shah. “A higher contribution of new models like the Jaguar F-Type, new Range Rover models boosted the overall operating margin." Tata Motors’ operating margin widened to 18% in the June quarter from 13.3% a year ago, Shah said.
Tata Motors’ shares rose 3.33% to ₹ 447.40 on the BSE, outpacing the benchmark Sensex’s 0.75% gain on Monday.
JLR despatches to dealers and retail sales (sales to customers) for the June quarter grew 27.1% to 115,156 units and 22% to 115,596, respectively, from a year earlier.
China remained a key contributor to JLR’s profitability and the number of units sold, with sales from the region accounting for 29% of overall volume from 21% a year earlier.
Ralf Speth, chief executive at Jaguar Land Rover, said that even as he expects the volume run in China to be strong in the months ahead, volume from the European region, including Ukraine and Russia, may be affected by the ongoing crisis in the region.
“Also, margins from China may taper off with the rollout of the locally produced vehicles which will be cheaper than the existing ones, from (the) company’s joint venture with Chery Automobiles," Speth told reporters in Mumbai.
The performance of Tata Motors’ domestic business continued to disappoint.
For the quarter ended June, the standalone domestic business reported a profit before tax of ₹ 394 crore, nearly half of the ₹ 753 crore it reported in the year-ago quarter. Profit before tax included a divided of ₹ 1,549 crore from subsidiary companies—most of it from JLR.
“The dividend from subsidiaries has been boosting earnings of Tata Motors’ standalone entity for three years now," said Mahantesh Sabarad, deputy head of research at SBICap Securities Ltd. He, however, warned that JLR’s performance in subsequent quarters may not be as impressive. “Their (JLR) product pipeline is likely to run dry for some time with major launches already behind them. Moreover, the company’s margins are likely to get eroded."
Sales of commercial and passenger vehicles dropped 28% from a year earlier in the April-June quarter and revenue fell to ₹ 7,705 crore from ₹ 9,105 crore in the corresponding quarter last year.
“Sales of MHCV (medium and heavy commercial vehicles) saw growth after almost nine quarters. We expect this momentum to continue," said Ravi Pisharody, executive director, commercial vehicles, at Tata Motors.
To be sure, most domestic auto companies have been under pressure as sales fell for nine consecutive months until May because of a weak economy. Sales picked up in June and July as new launches brought back buyers. Tata Motors, however, continued to report declining sales. In July, passenger vehicle sales at Tata Motors fell 15%.
The company is now banking on two new models to breathe life back into its passenger car business—the Zest, which will be launched on Tuesday, and the Bolt hatchback, scheduled to be launched later this year.
Analysts expect the new models to revive sales.
“The new models could potentially add 20-40% to Tata Motors’ car sales. As Tata Motors has lost considerable market share in this segment, these new launches are key to their medium-term business strategy, in our view," wrote Aditya Makharia and Arjun A. Bhatia of JPMorgan in a 21 July report on the company.
The Zest model will compete in the fast-growing compact sedan category, which is around 300,000 units per annum.
“A market share of 10% would imply sales of about 30,000 units from this segment, which could add about 20% to company’s overall volume," they wrote.
Meanwhile, the company continues to operate without a full time managing director. Karl Slym, who was heading Tata Motors until earlier this year, died in January.
The poor performance of the company and the lack of clear direction has irked the company’s minority shareholders, who rejected a remuneration proposal for Slym and two other executives in excess of permissible limits in July. This was one of the first instances where shareholders stalled the payment of excessive compensation to top executives in a company as large as the Tata group firm.
Companies that seek to pay a whole-time director more than 5% of a company’s net profit are required by law to seek minority shareholders’ approval. Tata Motors, which recorded losses in the past two quarters, said it had to take stockholder sanction because of “inadequacy of profits".
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