Tata Motors results: JLR belies investors hope, even as Tata-Mistry battle rages

Tata Motors Q2 profit stood at Rs848 crore, better than Rs1,740 crore loss in the year-ago period, was about one-third the forecast

Tata Motors attributed les-than-expected Q2 results to hedging loss and commodity derivatives impact following the Brexit vote. Graphic:
Tata Motors attributed les-than-expected Q2 results to hedging loss and commodity derivatives impact following the Brexit vote. Graphic:

The huge miss across parameters in Tata Motors Ltd’s September quarter performance is untimely and will take a further toll on the stock, at least in the short run.

The scrip had already declined by about 20% from the time the bitter feud between Ratan Tata and Cyrus Mistry started. But investors’ hope that its UK-subsidiary Jaguar Land Rover Ltd’s (JLR’s) robust numbers would offset the effect of the boardroom brawls has been belied.

Barring consolidated net revenue of Rs66,999.7 crore that came close to the average of analysts estimates compiled by Bloomberg, the results disappointed on all other fronts. Consolidated net profit at Rs848 crore, although better than the Rs1,740 crore loss of the year-ago period, was about one-third the forecast. The company attributed this to a huge realized hedging loss and a commodity derivatives impact. A ripple effect of Brexit perhaps.

What’s hard to fathom is that JLR’s operating margin at 12.9% was nearly 70 basis-points below Bloomberg’s average. And this is excluding currency hedging losses and the unfavourable revaluation of current assets and liabilities. While details of these one-time items were not available at the time of going to press, they are large enough to hurt investor sentiment. A basis point is 0.01%.

Meanwhile, the company’s Indian business is facing greater distress. Stand-alone operating margin failed to mirror improvement in commercial vehicle performance. It fell to 2.7% against a forecast of around 6%, and the year-ago margin of 6.8%. In fact, the quarter’s robust jump in sales volume had raised hopes for a sharper earnings turnaround. This hints at weaker realizations on sales, perhaps reflecting discounts given to push sales. Net loss at Rs630 crore was higher than the median forecast of a Rs20 crore loss.

Incidentally, it is the domestic entity’s performance that has become a bone of contention in the Tata-Mistry fight.

A media release last week said Tata Motors’ market share in commercial vehicles dropped from 60% in fiscal year 2013 to 40% in FY16—hard to accept for a firm that has been the market leader for decades.

Also, the drop comes in the last couple of years when the truck segment was northbound and when its arch-rival and competitor Ashok Leyland Ltd’s share has inched up. That’s not all. Tata Motors’ passenger car share of the overall market also plunged from 13% to 5%.

That said, all investor hopes were pegged on JLR. But this too disappointed.

The only silver lining among the host of negatives at this juncture is the stock’s reasonable valuation.

At Rs510, it trades at about 10 times the estimated earnings for FY18, which is reasonable given JLR’s growth prospects. So, any management assurance that the September quarter’s exceptionally high losses are a one-off and strong sales numbers from JLR may see the stock recover.

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