BackTata Motors’ December quarter profit falls 25.5% on weak JLR sales
Net profit, including those of its units, fell to `3,580.72 in the three months ended 31 December from `4,804.80 crore from a year ago
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Mumbai: Tata Motors Ltd’s fiscal third-quarter profit fell 26%, missing analysts’ estimates, as sales of cars made by its UK luxury car unit slowed and it booked a one-time charge related to the company’s Singur project.
Net profit, including those of its units, fell to ₹ 3,580.72 in the three months ended 31 December from ₹ 4,804.80 crore in the year earlier, the company said in a filing to the stock exchanges. Net sales rose 8.8% to ₹ 69,121.61 crore.
A Bloomberg poll of 34 analysts had pegged the Mumbai-based company’s revenue at ₹ 66,836.7 crore and profit at ₹ 4,972.6 crore.
Sales at Jaguar Land Rover cars expanded 5% to 122,467 units in the December quarter from the year-ago period. The slower pace of growth was because of a 6.5% decline in Jaguar sales and a 1.2% contraction in luxury car sales in China, a market which accounts for a fourth of total car sales for JLR. It was the first time in three years that the maker of luxury cars saw sales in the China region drop. Allaying fears of slowing sales in China, Ralf Speth, chief executive of JLR, said, “We are still cautiously optimistic about China, even though the GDP (gross domestic product) has slowed down, the economy continues to be strong."
C. Ramakrishnan, chief financial officer of Tata Motors, said JLR’s margins are likely to moderate in the quarters ahead as the firm is in the ‘start-up’ phase. He was referring to the company’s plans to increase production in China, commencement of an engine-making unit in the UK and higher contribution of products which fetch lower margins. JLR’s capex for fiscal 2016-2018 will be in the region of £3.6 billion-3.8 billion, he added.
“JLR is a smaller disappointment as compared to company’s domestic operations," said Joseph George, an analyst with IIFL, a brokerage.
A strong pipeline of new models over the next two years holds them in good stead, said George, adding that he expects sales to pick up. He estimates it to rise 15-16% over the next two years.
Analysts say Tata Motors’ overall sales will increase at a faster pace as distribution of newer models, including Land Rover Discovery Sport and Jaguar XE, gathers momentum in the forthcoming months. Moreover, the commencement of production at the China factory will also boost volume from the region.
JLR plans to make the Evoque, Discovery Sport and XF replacements over the next 15-18 months in China through a joint venture. Currently, these models account for around 50% of JLR’s sales in the country. According to the company’s initial plans, prices for these models are likely to be cut by about 15% compared with the cost of similar imported models. This should result in substantial demand elasticity, Navin Matta, an analyst with HDFC Institutional Securities, wrote in a 21 January note.
Meanwhile, the parent company reported a loss of ₹ 2,122.72 crore in the three months ended December compared with a profit of ₹ 1,251.40 crore in the year earlier. Net sales rose 16.6% to ₹ 8,943.57 crore from a year ago. The launch of Tata Motors’ Zest sedan in August has helped boost sales and the company expects a pickup in demand for medium- and heavy-duty trucks.
In the December quarter, Tata Motors said it made a provision of ₹ 309.88 crore for carrying capital cost of buildings at Singur in West Bengal, where the company had built the Nano factory before shifting the plant to Sanand in Gujarat, following protests.
Tata Motors’ shares in the December quarter fell 1.3%, underperforming the BSE’s benchmark Sensex that rose 3.3%, and the exchange’s Auto Index which advanced 5%. On Thursday, the company’s shares fell 0.39% to ₹ 589.55 on BSE, while the Sensex shed 0.11% to 28,850.97 points. The company announced its earnings after the end of trading on Thursday.
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