With three months to the close of FY12, it looks certain that Jaguar Land Rover (JLR) sales will elevate the overall performance of Tata Motors Ltd for the year. In spite of a deepening slowdown across the globe, JLR sales from April to November rose 19% over the year-ago period. Land Rover sales alone grew by 28%, as new vehicles such as Evoque and Defender attracted robust demand.

The 2012 Range Rover Evoque. Photo: Bloomberg

Going by geographies, China’s share in JLR sales for the September quarter shot up to 16% from about 9.7% a year ago. What’s more, Land Rover sales are beating industry averages too. IDBI Capital Market Services Ltd points out, “Tata Motors management has not seen any signs of slowdown in its fast-growing markets like China, Russia, Brazil, Middle East, etc., led by growing aspirations of owning a European car, strong brand pull and relatively immune premium segment. Even US has been holding up well..." Analysts forecast 8-10% sales growth for JLR in FY13 over 2012.

With JLR revenue comprising two-thirds of Tata Motors’ revenue and three-fourths of its net profit, optimism about its consolidated performance for the current year is understandable. All the more so when Tata Motors’ domestic passenger segment is expected to register a contraction in sales volume during fiscal 2012.

Fortunately, commercial vehicle sales in the stand-alone business continue to defy expectations of subdued sales due to macroeconomic headwinds.

In spite of surging sales numbers, Tata Motors stock has underperformed both the BSE Sensex and the BSE Auto Index, though the gap has narrowed since the September quarter results were announced. A key reason for underperformance is the 250 basis points (bps) year-on-year drop in stand-alone operating margins during the September quarter, which squeezed consolidated margins by about 123 bps to around 13%. Full year 2012 consolidated profitability is expected to contract, too. One basis point is one-hundredth of a percentage point.

Strong JLR sales, however, would cushion the Tata Motors stock from downward risks. But upward momentum is likely only when the slowdown in the domestic automotive market abates.

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