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Business News/ Market / Mark-to-market/  Testing times for Tata Motors
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Testing times for Tata Motors

UK subsidiary Jaguar Land Rover is still to regain lost ground as the annual rate of contraction in monthly sales gets deeper

The recovery in commercial vehicles on the home ground would be less material to the Tata Motors stock on account of its meagre contribution to earnings. Photo: BloombergPremium
The recovery in commercial vehicles on the home ground would be less material to the Tata Motors stock on account of its meagre contribution to earnings. Photo: Bloomberg

Following the first slip in sales in October in almost three years, Tata Motors Ltd’s UK subsidiary, Jaguar Land Rover Automotive Plc (JLR), is still to regain lost ground. In fact, the annual rate of contraction in monthly sales is getting deeper; JLR’s February sales fell by 5.9% from a year ago.

The fall became noticeable when sales in China declined sharply from 1.2% year-on-year (y-o-y) in December to 20.3% in February. China accounts for a fifth of JLR’s sales.

Europe, the second largest region by sales, has also shown an erratic trend in the last six months, and is largely on the decline as well. Sales in the rest of the world have also been falling steadily and contracted by about 26% in February against the year-ago period. This could be due to weakness in Russia.

Most analyst notes reiterate the management statement about phasing out some existing models and new product launches in the coming months. That said, some models like the new Range Rover and the Discovery Sport fared well with reports suggesting lower incentives, especially in markets like the US. In fact, sales in the US have been good, with a 14% growth y-o-y clocked in February.

The point of concern is that the phasing out and introduction of new models has coincided with a slowdown in markets that are critical to JLR’s growth, namely China and Europe. Data for China reflects a slowdown in sales growth of luxury auto brands in 2014, compared with the previous couple of years.

A report by Motilal Oswal Financial Services Ltd says JLR volumes have been impacted by several transitory events like a China joint venture resulting in gradual transition of manufacturing from the UK to China, an expansion and captive engine plant in India, all having a bearing on production and delivery schedules at least in the interim.

The moot point and one that will impact earnings and valuation is the acceptance of and response to new products, amid growth pangs in some markets. These are testing times for the firm.

In fact, Motilal Oswal has cut growth estimates in earnings per share for the next two fiscal years, citing delayed recovery in JLR volumes.

The recovery in commercial vehicles on the home ground would be less material to the Tata Motors’ stock on account of its meagre contribution to earnings. In the last one month, the stock has fallen, albeit in line with broader market indices, although brokerage consensus indicates some headroom still from the current price of 553.

The more optimistic investors, however, say that Tata Motors has proved its mettle by turning around a loss-making firm, leaving a trail of successful launches over the past three years.

The writer doesn’t own shares in the above-mentioned companies.

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Published: 19 Mar 2015, 08:20 PM IST
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