Mumbai: Tata Motors Ltd’s fiscal second quarter (Q2) net profit more than doubled, surpassing market expectations, as India’s largest auto maker by revenue sold more vehicles in a rebounding economy and benefited from cost cuts, cheaper raw materials and increased demand during the festive season.
The company’s stand-alone net profit, which excludes earnings from the luxury JaguarLand Rover unit it bought last year, rose to Rs729 crore in the quarter ended 30 September, from Rs347 crore in the year-ago period, Tata Motors said on Monday. Revenue rose 13% to Rs7,979 crore.
Tata Motors sold 158,575 vehicles in the three months, up from 135,037 in the same period a year earlier, as economic revival and cheaper auto finance lifted demand. Festive buying in September boosted sales from a weak year-ago period, when the global financial crisis was spreading and a credit crunch was taking root.
Revved up: A file photo of Tata Motors’ factory in Pune. Festive buying in September helped boost sales from a weak year-ago period. Santosh Verma / Bloomberg
Truck and bus sales, considered to be a benchmark of demand in an economy, have been rising steadily since January this year. According to the Society of Indian Automobile Manufacturers, commercial vehicles sales rose 11% to 123,699 units in the three months to September from a year earlier.
“Stable material prices and accelerated cost reduction efforts continued to yield beneficial impact on margins,” Tata Motors, which in July started selling the Rs1 lakh Nano car billed as the world’s cheapest, said in a statement. The auto maker’s operating margin rose 5.8 percentage points to 13.4% in the quarter.
The company has sold some 7,500 Nanos in the first three months since its launch and plans to expand production capacity by 20%.
A series of interest rate cuts by the Reserve Bank of India and duty reductions by the government to stimulate economic growth and boost demand have started working. India’s industrial production has rebounded, expanding 10.4% in August, the highest in 22 months.
“Clearly, we are seeing the benefit of economic growth,” said Mahesh Patil, who helps manage about $2 billion (Rs9,320 crore) in stocks at Birla Sun Life Asset Management Co. Ltd in Mumbai. “Last year, consumer confidence wasn’t there because of the global crisis. With concerns easing, people are now purchasing.”
Tata Motors’ earnings beat expectations of Rs469.10 crore in net profit and Rs7,864 crore of revenue, based on a Mint poll of five brokerage firms on 13 October.
After declining for eight months in a row, Tata Motors’ truck sales started increasing in July. The company’s commercial vehicle sales vaulted 21% from a year earlier to 89,655 units in the three months ended 30 September. Such vehicles contribute Rs2 out of every Rs3 Tata Motors earns in revenue.
“Actual requirement of trucks have started going up with improvement in manufacturing and construction activities,” said Ravi Pisharody, president of the company’s commercial vehicle business.
Growth in the sales of light commercial vehicles that depend on loans had outpaced that of medium and heavy vehicles.
Truckers are still fretful that the rebound may not be sustainable, said V.G. Ramakrishnan, head of the automotive and transport practice (South Asia and Middle East) at consulting firm Frost and Sullivan.“Most of them haven’t made profits because of fuel price hikes and rise in other operating costs,” he said.
Still, a low base last year should help boost commercial vehicle sales in the next six months. Commercial vehicle sales are expected to grow 50% for the whole year to March because of the low base effect, said Jatin Chawla, an analyst at IIFL, the institutional research wing of brokerage India Infoline Ltd.
Margins may come under pressure because commodity prices are rising, company officials said. In turn, the company may have to consider price increases if commodity prices keep rising.
On Monday, the company’s shares gained 1.88% to Rs539.35 on a day the benchmark 30-share Sensex fell 0.42%. The earnings were announced after the stock market closed.
Earlier this month, Tata Motors raised $750 million selling securities to finish repaying debt stemming from the takeover of Jaguar Land Rover. It sold 29.9 million global depository receipts (GDRs) at $12.54 apiece and 4% convertible notes due in 2014, it said.
As of 30 September, Tata Motors’ stand-alone debt was Rs18,600 crore; debt to equity was 1.6:1 and this will improve to 1.34:1 post the $750 million GDR issue.
Vipin V. Nair is with Bloomberg. Reuters also contributed to this story.