Mumbai: India’s Tata Motors on Thursday posted roughly flat profit in the fiscal first quarter and lagged estimates as higher costs weighed on margins and rising interest rates hurt sales in Asia’s third largest economy.
Tata Motors, part of India’s salt-to-software Tata conglomerate, whose range includes utility vehicles and the ultra-cheap Nano, said revenue rose, driven by British luxury brands Jaguar and Land Rover, which it bought from Ford Motor Co for $2.3 billion in 2008.
But the rising costs of steel, rubber and other raw materials have squeezed margins and forced some Indian carmakers, including Tata and Maruti Suzuki, to raise prices.
India has raised interest rates 11 times since March 2010 to combat stubborn inflation, hurting industries based on credit. The Indian auto industry is spurred by an aspirational middle class that relies on loans to buy cars. It targets families of four that ride on motorcycles, a common sight on Indian roads.
But even the world’s cheapest car failed to lure buyers in July. Tata’s sales fell in July, led by a slump in sales of the Nano, which slid 64%.
Overall car sales in India fell 15.8% in July, the first drop in two and a half years, and higher interest rates and car prices are expected to hurt demand over the next few months.
Tata posted first-quarter net profit of Rs1,999 crore, compared with Rs1,989 crore a year earlier.
Tata Motors’ consolidated revenue rose 24% from a year earlier to Rs33,572 crore. A Reuters poll had forecast net profit of Rs2,160 crore for the quarter on net sales of 329.1 billion.
Tata spent Rs20,390 crore on consumption of raw materials in the quarter compared with Rs14,850 crore a year earlier.
In June, India’s top carmaker Maruti Suzuki beat estimates with an 18% rise in its fiscal first quarter net profit, but posted a 25% drop in July sales.
Shares in Tata Motors, valued at $11 billion, provisionally closed up 0.69% at Rs850 in a weak Mumbai market. They have fallen 35% this year after rising nearly 65% in 2010.