Operating profit margin improved by 580 basis points on a year-on-year basis, better than the 430 basis points improvement reported in the June quarter. While the company’s average price realizations have fallen owing to a shift in the product mix favouring light commercial vehicles, per unit prices have actually been rising. In the core commercial vehicles segment, prices have cumulatively risen by 7-8% in the past year. While commodity prices have corrected from last year’s highs, the prices hikes have not been rolled back, leading to a jump in profitability. Raw material costs fell by 735 basis points as a percentage of sales last quarter. Of course, the company’s measures to cut costs sharply during the slowdown have also helped improve overall profitability.

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The company’s depository receipts listed on the New York Stock Exchange rose by 7.4% after the results were announced on Monday evening. A similar rise when Indian markets open on Tuesday will send the stock (currently at 39) within striking distance of its highs of 620 reached a month ago. While there is little doubt that things have turned around sharply for the domestic business, a large part of the company’s revenues and profit come from the Jaguar-Land Rover, or JLR, business, which is running losses. The results announced on Monday are for the company’s stand-alone operations and don’t include JLR’s financials.

More importantly, Tata Motors has a negative tangible net worth, which is the measure of the physical worth of the company after deducting the value of intangible asses from its balance sheet. At the end of the last financial year, the company had a negative tangible net worth of Rs6,227 crore. This would have reduced marginally because of a further issue of depository receipts worth Rs1,725 crore ($375 million).

What this means is that in case of a default, there may not be enough physical assets to recover loans. The company has a high net debt of Rs18,600 crore at the end of September. While cash flows from domestic operations are relatively strong, these will be offset by the cash burn at JLR. Tata Motors’ shares barely reflect any of these concerns.

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