Tata Motors reported a net loss of Rs2.6 billion for the quarter for total operating income of Rs47.6 billion (down 34% y-o-y).
Excluding the profits on sale of investments (+Rs478 million) and forex losses (-Rs2.3 billion), the company reported a loss of Rs459 million.
While operating income was mainly in line with our estimates the loss was higher than our estimate of Rs358 million.
EBITDA margin declined ~940bp (y-o-y) and over 600bp (q-o-q) to 1.9% on account of a slump in sales volumes and higher raw material costs, up around 580bp y-o-y and 240bp q-o-q.
Interest and depreciation expenses rose 84% and 20% y-o-y creating additional pressure on the bottom line.
In the tough operating environment Jaguar Land Rover (JLR) continued to post volume declines (Land Rover down 47% y-o-y; Jaguar up 38% y-o-y).
Key subsidiaries showed a marked downtrend with earnings of Tata Daewoo down 21% and Telcon and TMFSL reporting a loss.
The company has to refinance the loan of $3 billion, taken for the acquisition of JLR and to meet its working capital requirements by June 2009. It has repaid around US$1bn from the proceeds of the rights issue and the sale of investments.
Tata Motors has further managed to raise around Rs5 billion ($104 million) through public deposits. Thus it not very clear as to how the company will arrange for the remaining $2 billion.
Further management also indicated that the funding requirement of JLR has actually gone up from what it had budgeted.
Outlook and valuation
We revise our earnings estimates down by 20% for FY09, up by 5% in FY10 and downwards by 6% in FY11 and reduce our target price due to a reduction in the value of the core business and that of subsidiaries.
The domestic market remains tough, with financing concerns and a slowdown in demand. The JLR acquisition changes the financial and geographical profile of Tata Motors.
Lack of clarity on the funding and profitability of JLR will continue to weigh on the stock. Maintain UNDERPERFORM and cut our target price by 17% to Rs120.