Mumbai/Pune/New Delhi: As Tata Motors Ltd, the country’s biggest auto maker, prepares to report earnings on Friday, the market is bracing itself for some really bad news.
In the last quarter, sales of the company’s mainstay—commercial vehicles (CVs) such as trucks, buses and goods vans—have fallen off a cliff and analysts expect a sharp dip in net profit for the three months to 31 December.
A poll of eight analysts by Mint forecast quarterly net profit of Rs50.95 crore, a sharp 92% fall from Rs654.79 crore and the lowest in 22 quarters, according to Capitaline database. Sales are expected to shrink by nearly 45% to Rs5,161 crore from Rs9,238.48 crore. A Tata Motors spokesman declined comment.
Shares of the company, however, rose 4.5% to end Wednesday’s trading at Rs146.65 each after the UK government offered car makers loan guarantees to help them cope with the recession. Tata Motors makes the Jaguar cars and Land Rover utility vehicles after it acquired both brands last year.
Other truck makers have seen demand hit too, but analysts and investors say Tata Motors is different due to its scale and the impact of the slowdown on it. It reported a net profit of Rs2,167.70 crore on revenue of Rs40,340.79 crore in fiscal 2008.
In what many see as a validation of analyst projections, Tata Motors’ counterpart Ashok Leyland Ltd narrowly missed reporting a loss on Wednesday. Net profit at the company slumped 84% to Rs18.80 crore for the three months ended December, against Rs120.20 crore in the corresponding period the year earlier. Revenue was Rs1,000.80 crore, compared with Rs1,800 crore in the corresponding year-ago quarter.
Ashok Leyland has a 14.6% market share in the CV segment, behind Tata Motors’ nearly 59% share in the April-September period.
On Wednesday, credit rating agency Crisil Ltd , a unit of Standard and Poor’s, announced it had downgraded its ratings for debt issues of Tata Motors and Ashok Leyland. The change will increase borrowing costs for the firms at a time when they continue to struggle with sluggish demand. Tata Motors, for instance, may have to pay more in order to refinance a part of the $3 billion (Rs14,670 crore today) it paid for Jaguar and Land Rover.
“We continue to see Jaguar Land Rover as a big problem area for Tata Motors for the next few years at least,” said Ujwal Shah, an analyst at Independent Research Pvt. Ltd.
The fall in CV sales has hit Tata Motors hard. Sales were down 51.2% in December, according to company data. CVs make up nearly 60% of sales and as much as three-fourths of prof it for the Ratan Tata-chaired firm as margins on trucks are a healthy 13-15% against 8-10% for its passenger cars.
The gloomiest of predictions came from IIFL Capital, a subsidiary of brokerage India Infoline Ltd, which predicted a net loss of Rs293 crore for the company. Losses arising from foreign currency denominated loans should account for Rs127 crore of this, said analyst Jatin Chawla. The brokerage has a “reduce” rating on the stock, meaning it is advising clients at this point to sell it.
Mahantesh Sabarad, an analyst at Centrum Broking Pvt. Ltd, put his estimate of forex losses at Rs125 crore. Another analyst from a Mumbai brokerage, who didn’t want his name or that of his employer taken, predicted a Rs120 crore loss on the back of lower volumes, lower operating margins, and interest and depreciation costs.
Still, others say the Tata company will turn around over some five quarters. R. Venkatraman, a partner at consultancy firm AT Kearney, expects the erosion in Tata Motors’ profitability to continue for another 12-16 months and things to look up only after 2010.
There are signs of a revival in demand, even if temporary, at Tata Motors’ main Pune factory. At least three vendors, who declined to be identified as they are not authorized to speak on the subject, said the company has nearly tripled the production of its 410 and 407 series light CVs from the level of around 500 in the November-December period, to 1,400 units in February.
Two other vendors, who declined to be identified, said the company is also increasing production of the Safari sports utility vehicle and its Winger CV, and reviving production of the multi utility vehicle Sumo Grande, which had been stopped for a few months. The Tata Motors spokesman declined comment on this too.