New Delhi: Tata Motors Ltd, India’s largest automaker by sales revenue, will report its June quarter (Q1 FY19) results on Tuesday. The sustained turnaround in the domestic business, helped by a low base, is unlikely to offset a muted performance by the UK subsidiary Jaguar Land Rover (JLR) Automotive Plc, as the Tata Group flagship is expected to report a net profit of 909.1 crore on net sales of 70,900.8 crore, according to a Bloomberg poll of 10 analysts.

During the corresponding quarter a year ago, Tata Motors reported a net profit of 3,200 crore on net sales of 58,651 crore. If not for a one-time gain owing to a change in pension plans at JLR, Tata Motors would have swung to a loss of 409 crore.

During the three months to June, JLR sales volume showed strong signs of recovery with a 5.85% growth, while the domestic market was buoyed by higher passenger and commercial vehicle sales.

Analysts estimate consolidated margins to expand by about 60 to 150 basis points during the quarter, driven by lower raw material and manufacturing costs at JLR, gains from expressing pound revenues in rupee terms (as the pound appreciated about 11% against the rupee during the quarter), and a richer product mix for commercial vehicles in the domestic market. One basis point is one-hundredth of a percentage point.

Here are a few factors to track in the Q1 results:

JLR volumes

JLR’s retail sales during the quarter rose 5.85% over the year-ago to 145,510 units, with only five models out of 13 posting growth, according to company data. Jaguar and Land Rover sales were both buoyed by the introduction of new models such as the E-Pace compact SUV and Range Rover Velar SUV.

Among international markets, North America, China, the UK and other markets performed better over the year ago, with other markets contributing the most with a 20.3% rise in sales to 22, 776 units. Sales in China, JLR’s largest market, slowed during the quarter owing to an impending reduction in import tariffs effective 1 July.

JLR margins

Analysts expect lower raw material costs to expand the UK subsidiary’s margins, on a low base since higher marketing expenditure in the US and an overall slowdown in demand during the corresponding quarter last year impacted margins and profitability. A slowdown in the Chinese market is also expected to impact profitability.

JLR’s Ebitda (earnings before interest, tax, depreciation and amortization) margin is expected to expand 2.5 percentage points to 10.4%, said Jinesh Gandhi of Motilal Oswal Securities Ltd in a 10 July note, adding that an adverse product mix would crimp net realisations by 2.5%.

The Ebitda margin is a key measure of operating profitability.

Domestic operations

Off a low base, total domestic sales during the March quarter rose by a stellar 64.32% to 164,579 units, as per data provided by industry body Siam (Society of Indian Automobile Manufacturers). These numbers were driven primarily by commercial vehicles, with the division clocking 74.72% growth to 105,610 units, on the back of heavy pre-buying in the March quarter last year, in addition to infrastructure-building and broad-based economic growth creating robust demand in sectors such as road construction, mining, retail and e-commerce. The passenger vehicle division grew by 48.49% to 58,969 units.

Led by higher operating leverage, Tata Motors’ standalone Ebitda margin is expected at 8.1%, said Abhishek Jain of HDFC Securities in a 9 July note.

At 10.51am, Tata Motors shares traded 1.20% down at 264.10 per share on BSE. During the June quarter, the Tata Motors stock declined 17.76%, while the benchmark Sensex gained 7.45%.

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