Tata Motors net falls; overseas fund-raising plans to be revisited

Tata Motors net falls; overseas fund-raising plans to be revisited

Mumbai: Higher raw material costs and lower car sales took their toll on the net profit of Tata Motors Ltd, and the company said it is reconsidering plans to raise money in overseas markets in the backdrop of the ongoing global credit crisis.

The company said net profit declined 34% in the second quarter ended September.

Net profit in the quarter was Rs346 crore, or Rs8.17 a share, compared with Rs527 crore, or Rs12.43 a share a year ago, Tata Motors said in a release.

The results, however, exceeded expectations: They topped a Rs261 crore median profit forecast in a Bloomberg survey of 11 analysts.

The earnings don’t include Jaguar and Land Rover, which Tata bought from Ford Motor Co. for $2.4 billion (Rs11,832 crore) in June.

Tata Motors’ spending on steel, aluminium and other materials rose 4.4 % last quarter after commodity prices gained, while seven-year-high interest rates and inflation sapped vehicle demand.

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Chairman Ratan Tata aims to revive growth as the global credit crisis cuts demand for luxury vehicles and a plan to launch the world’s cheapest car in October has been delayed.

“Demand is dying down," said Jayesh Shroff, who helps manage the equivalent of $2.5 billion in equities at SBI Asset Management Co. Ltd in Mumbai. “It’s an environment where people don’t want to part with their money. The times are tough."

Tata Motors spent Rs4,340 crore in the quarter on raw materials, its biggest expense.

Steel prices increased as much as 33% and rubber prices rose by 29% in the last quarter,according to Jinesh K. Gandhi, a Mumbai-based analyst at Motilal Oswal Securities Ltd.

Forex loss

The earnings were inflated by Rs429 crore of other income, which included profit from the sale of “long-term investments", Tata Motors said without providing details.

The company also registered a foreign exchange loss of Rs285 crore in the quarter compared with a gain of Rs30.85 crore in the year-ago period, the statement said.

Sales of vehicle declined 1.1% during the quarter to 135,037 units, the statement said. Sales of cars and sport utility vehicles declined 7.3%, while commercial vehicle sales gained 4.4%.

Sales revenue rose to Rs7,029 crore from Rs6,595 crore.

“The automobile industry remains severely impacted with continued lack of financing and high interest rates," Tata Motors said. “The quarter was also impacted by high input costs and the company is aggressively pursuing its cost reduction initiatives."

Share sale

Tata Motors on 20 October closed a rights offering of shares aiming to raise Rs2,186 crore to partly fund the purchase of the luxury units.

The issue was fully subscribed, chief financial officer C. Ramakrishnan told reporters.

The rights issue, however, struggled due to a stock market slump and the offering was bailed out by the company’s promoters and underwriters.

The company this month said it’s “adjusting" production of some models as vehicle demand slows in India.

Industry-wide car sales fell in July and August for the first time in more than two and half years as expensive auto loan rates cut demand.

Tata’s efforts to revive sales by selling the Tata Nano micro car for Rs100,000, set to be the world’s cheapest, were set back last month when the company had to stop construction of the car factory due to protest from farmers.

The carmaker abandoned the factory in Singur in West Bengal and chose a new site in Gujarat to set up the Tata Nano factory.

The car was to go on sale in the last quarter of this year.

The company also said it will reconsider a plan to raise as much as $600 million from overseas markets due to the global credit crisis, Ramakrishnan said.

Tata in May announced the plan to raise funds overseas to replace a $3 billion bridge loan it had taken to purchase the two UK-based units.

Shares of Tata Motors rose 9.11% to close at Rs171.80 each on the Bombay Stock Exchange on a day when the exchange’s benchmark Sensex index gained 743.55 points or 8.22% to 9,788.06.

The shares have lost 76.09% this year compared with the Sensex’s 52%.

Reuters contributed to this story.