Tata Motors’ results for Q1FY2009 were below our expectations due to lower than expected margins. However, the profit after tax (PAT) was higher than our estimate mainly on account of a higher other income and a lower tax outgo during the quarter.
The net sales for the quarter grew by 14.4% to Rs6,928.4 crore on the back of a 3.9% volume growth and a 10.1% realization growth during the quarter.
Domestic sales of commercial vehicles (CVs) increased by 15.9% to 71,049 units while that of passenger vehicles declined marginally to 52,450 units. Export sales volumes declined by 34% to 9,220 units.
An increase in the overall expenses, such as raw material cost, employee cost and other expenses, led the operating profit margin (OPM) to decline by 130 basis points to 7.7%. Hence, the operating profit dropped by 2.9% to Rs530.5 crore in Q1FY2009.
The company has not reported the consolidated results for Q1FY09 since the financial statements of Jaguar and Land Rover (JLR) are under compilation and have not been finalized yet. However the performance of the subsidiaries was also affected by the rising commodity prices and interest rates during the quarter.
The road ahead
Our outlook on the CV industry remains cautious considering the lower availability of finance, the rising interest rates and the slowdown in the economy.
In view of the pressure on the company’s profit margin, we downgrade our consolidated estimate for FY09 by 7.3% to Rs54.6 and that for FY10 by 12% to Rs60.8.
At the current levels, the stock trades at 6.5x its FY2010E consolidated earnings and is available at an EV/ EBIDTA of 3.1x. We maintain our HOLD recommendation with a revised price target of Rs545.