The September quarter results of Tata Motors Ltd was below expectations, notwithstanding the resilience displayed by its UK subsidiary, Jaguar Land Rover (JLR). The stand-alone business pulled down performance as weaker truck sales and higher overall costs adversely affected margins.
Consolidated net sales of India’s largest truck maker grew 19.9% from a year ago to Rs.43,403 crore, but was short of the Street’s expectations. Fortunately, JLR’s robust 12.8% sales growth (in British pounds) made up for the flat performance on the home ground. Besides poor industrial activity and the diesel price hike that hit truck sales, the firm also offered discounts. This is mirrored by the fact that net sales were a tad lower in the quarter despite a 5.8% increase in volumes compared with the year ago.
Consolidated operating profit was higher by 18.5% from the year-ago period at Rs.5,333.7 crore. Consolidated operating margin at 12.3% was in line with a year ago, in spite of challenging markets and higher staff expenses and marketing costs. The key reason was strong operating leverage on account of good sales growth at JLR.
Analysts say the luxury brands in its kitty have held out despite the recession. JLR’s growth engine over the last few quarters has been China—from 16% of sales a year ago, the region now accounts for 21%. JLR’s operating margin came in at 14.8%, about 40 basis points (bps) higher than a year back. One basis point is 0.01%. “Good JLR profit margins could be viewed positively by the markets,” said a result review report by Emkay Global Financial Services Ltd.
In stark contrast, Tata Motors’ stand-alone operating margin dipped by 130 bps to 5.9%. High competition in the passenger vehicle segment, despite robust sales posted by its utility vehicles and the Nano small car, sluggish truck sales and higher fixed and variable costs were the reasons cited by the management for the pressure on profitability. These factors are likely to continue in the near term. Operating profit, too, fell by almost 23% from the year ago to Rs.733 crore.
Evidently, the firm is facing the heat of recession and heightened competition. Although consolidated net profit at Rs.2,075 crore was 10.5% higher than a year ago, it was nearly 15% lower than Bloomberg’s consensus estimates. Stand-alone net profit for the quarter of Rs.867 crore, compared with Rs.102 crore a year ago, was shored up by robust dividend from subsidiaries.
The Tata Motors’ stock has over several quarters outperformed the benchmark Sensex and BSE’s auto index. “In spite of weakness in domestic markets, Tata Motors’ balance sheet strength and ability to generate cash flows at the consolidated level during tough times sustains investor interest in the stock,” Umesh Karne, analyst, Brics Securities Ltd, summed it up. At Rs.267, the stock trades at around six times fiscal 2014 valuation, which leaves room for upsides, especially if the domestic truck business looks up.