Mumbai: A few days after Ratan Tata handed over car keys to the first Nano customer on 17 July, Tata Motors Ltd beat Street expectations to report strong net profits and its highest ever operating margin.
Lower steel prices and a higher price tag on new car models helped the country’s largest auto maker by stock market value earn net profits of Rs513.76 crore for the quarter ended June. Operating profit as a percentage of sales was 11.4, an improvement of 430 basis points over a year ago. A basis point is one-hundredth of a percentage point.
Tata Motors ended the last fiscal with consolidated losses of Rs2,500 crore, the first in seven years, after JLR sales tanked amid the global recession. Sandeep Bhatnagar / Mint
The first quarter results do not include the financial performance of struggling UK-based luxury car brands Jaguar and Land Rover (JLR), which Tata Motors bought from Ford Motor Co. in June 2008 in a debt-loaded deal. Tata Motors ended the last fiscal with consolidated losses of Rs2,500 crore, the first in seven years, after JLR sales tanked amid the global recession. Net profits in 2007-08 were Rs2,200 crore.
“This is our biggest Ebidta margin ever. The challenge is to see if it can be sustained in the forthcoming quarters,” Ravi Kant, vice-chairman of Tata Motors, told journalists at a post-results conference. Ebidta, or earnings before interest, depreciation and taxes, is another term for operating profits and is an important measure of corporate profitability.
Kant also said Tata Motors has engaged global consulting firms KPMG and RolandBerger Strategy Consultants GmBH to help cut costs and turn around JLR operations.
In a conference call with analysts, Tata Motors’ chief financial officer C. Ramakrishnan said the company has a combination of quarterly, half yearly and annual contracts with suppliers to help it benefit from lower input prices in the forthcoming quarters.
A 25% rise in sales of light commercial vehicles, which offer higher margins, also boosted profits. Commercial vehicles contribute Rs2 out of every Rs3 Tata Motors gets as revenue.
The company sold 127,340 vehicles during the first quarter, down from 133,709 vehicles in the same period a year earlier. The volumes were primarily dragged down by the exports, which declined 43% owing to adverse market conditions in South Africa, West Asia, Russia and Sri Lanka. Car sales declined 10% in the domestic market to 45,846 units, despite the excise duty cuts on cars announced by the government to stimulate the economy.
A Mint poll of five brokerages on 15 July had estimated the net profit would halve to Rs124 crore from a year ago. “The numbers, margins in particular, have come as a positive surprise,” said Jatin Chawla, auto analyst at IIFL, the research division of India Infoline Ltd. Tata Motors shares were up 0.39% to Rs374.95 each, even as the benchmark 30-share Sensex was down 3.92%. The earnings were reported 5 minutes before the stock market closed for trading.
Financing, too, played a role. Tata Motors has repaid $150 million (Rs723 crore) of the outstanding $1 billion short-term bridge loan that was rolled over earlier this year, said Kant. Tata Motors also used the proceeds from the sale of a 1.5% stake in group firm Tata Steel last month, he added.
On the possibility of future fund-raising through a global depository receipts (GDRs) issue or stake sales in other unlisted group firms, Ramakrishnan said the company will look at raising capital “at the appropriate time”.
The Mumbai-based auto maker, which took a bridge loan of $3 billion in March 2008 to fund the purchase of Jaguar and Land Rover from Ford Motor, completed the final stage of the rollover at end-May.
The company had unveiled its world truck series in May. Ravi Pisharody, executive director, commercial vehicles, Tata Motors said the company would begin to sell world trucks by next month. The company increased its market share in commercial vehicles to 67.4% during the quarter compared with 61% over a year ago, despite a marginal 1.1% growth in domestic sales to 72,216 units.
The company said that in response to infrastructure development, government stimulus packages for the automobile industry and Jawaharlal Nehru National Urban Renewal Mission initiatives, the truck and bus segment is slowly recovering. The signs of recovery are more prominent in the north and east, while western and southern regions have yet to stabilize.