Tata Motors Ltd’s strong March quarter performance was driven by stellar overseas sales clocked by subsidiary Jaguar Land Rover (JLR), continuing a trend established over the last few quarters. The March quarter impressed with the highest growth in earnings over the last four quarters. Net profit after adjusting for tax credits jumped by a massive 88% from a year ago, way above Bloomberg’s consensus estimate of Rs 3,822 crore. Reported net profit was higher by 136.2% at Rs 6,234 crore, with over 90% of it accruing from JLR’s profit.
Better still, Tata Motors’s profit growth is a sheer volume game. With its foothold in China increasing on new products such as the Evoque, JLR sold 44% more vehicles in the March quarter than a year ago. Sales volume at the Indian entity grew on the whole by around 16%, with price increases of around 3% during the quarter, lifting revenue for the period. On home turf, it is a given that most of the growth came from strong commercial vehicle momentum that was seen across the industry. Consolidated sales for the quarter rose 43.4% to Rs 50,907.9 crore.
(L to R) Ralf Speth, CEO of Jaguar Land Rover, P M Telang, MD-India Operations, TataMotors and C Ramakrishnan, CFO of TataMotors during a press conference announcing the company’s Q4 consolidated resultsfor FY 2011-12 in Mumbai on Tuesday. PTI
That said, the automotive company has not been spared of cost pressures. Employee costs, raw material costs and product development expenses increased both at JLR and at the stand-alone entity. A report by Emkay Global Financial Services Ltd says the 32% rise in other expenditure was higher than expected, accruing mainly from subsidiaries. Yet, thanks to strong sales growth, operating profit at Rs 6,744 crore was a substantial 50% higher than a year ago. Again, one must note that more than three-fourths of the operating profit came from JLR’s operations, although this came nearly 10% below Bloomberg’s consensus estimate. Consequently, the operating margin at around 14% was also a tad below expectations.
Concerns could, therefore, crop up on the margin outlook, given that product development and marketing expenses could be high both on the international and domestic fronts. In fact, the management in its media address stressed that competitive pressures are increasing in the domestic market on account of the sluggish economy and fuel price hikes, even though interest rates have peaked. Analysts also reckon that growth in the light commercial vehicle segment could moderate during fiscal 2013 (FY13), after growing at a scorching rate of 26-27% annually in the last few years.
Tata Motors’s consolidated debt at the end of FY12 stood at Rs 47,000 crore, which includes that of the vehicle financing business, which typically operates on higher debt. However, strong operating cash flow will come in handy when it comes to sticking with its debt-reduction plan through the current fiscal.
Graphic by Yogesh Kumar/Mint
The Tata Motors stock has reigned supreme on bourses in the past six months, outperforming all benchmark indices. Faith in JLR’s launches, after strong sales numbers registered month-on-month since January, lifted investor sentiment. It even scaled a 52-week high of Rs 320.60 a month back, brushing aside concerns raised by Moody’s Investors Service Inc. The current price of Rs 275.90 for the stock discounts one year estimated earnings by around eight times, leaving ample room for upsides.
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In full swing (PDF)
Quarterly performance (PDF)