Tata Motors Ltd’s consolidated results for the March quarter were ahead of expectations, thanks primarily to a further improvement in the performance of Jaguar-Land Rover (JLR).

The luxury car maker reported earnings before interest, tax, depreciation and amortization (Ebitda) of £233 million (Rs1,593.7 crore), an increase of 21% over the December quarter. JLR’s Ebitda margin improved to 11.4%, from 9.8% in the March quarter. What’s more, there finally seems to be some free cash flow generation at the consolidated level. The net debt of the firm’s automotive operations (i.e., excluding vehicle financing operations) fell by nearly 20% to Rs18,800 crore at the end of the March quarter, compared with Rs23,100 crore at the beginning of the quarter.

Graphic: Yogesh Kumar/Mint

JLR’s growing profitability is the key reason for cash generation, thanks to a return of volume growth of JLR vehicles in the retail market. Inventory with dealers has reduced considerably and the company has been able to increase sales to dealers. JLR is benefiting from operating leverage, thanks to a rise in production. Last quarter, it also benefited from favourable currency movements.

Yet, Tata Motors’ stand-alone performance came as a negative surprise. Ebitda margin fell by around 3 percentage points, and even though revenue rose by 36%, thanks to a sharp increase in volumes, operating profit was flat owing to a 40% jump in operating expenditure. The company explained that the March quarter includes a number of provisions and adjustments related to the annual results.

But the disappointment in the stand-alone numbers are more than offset by JLR’s strong performance and it’s not surprising that Tata Motors’ American depository receipts rose by 7.5% on Thursday after the results were announced. In India, Tata Motors shares have risen by 10% in the past two trading session (ahead of the results announcement), following a 22% correction from their highs in end-April. The shares have been very volatile and even though the core performance has picked up, they can be expected to fall at a much faster rate if the market corrects from current levels.