Tata Motors’ net halves in Dec quarter
Earnings hit by falling sales at home, reduced contribution by Jaguar Land Rover, higher depreciation costs
Tata Motors Ltd, which earns more than 70% of its revenue from Jaguar
Land Rover (JLR), said net profit dropped by half in the three months
ended 31 December, hit by declining sales at home and the UK unit’s
reduced contribution, and higher depreciation costs.
GRAHAM BARCLAY/BLOOMBERG Building
capabilities: Jaguar Land Rover raised $500 million in fresh debt last
month and said it would raise more money from the markets and banks to
aid new product development and expand capacity.
India’s largest auto maker by sales on Thursday reported that net
profit, including the contribution of JLR, fell 52.21% to ` 1,627.5
crore in the quarter from the year earlier, well short of the ` 2,930
crore median estimate in a Bloomberg poll of analysts. Despite the
dramatic decline in profit, analysts were of the view that JLR’s
investment and research push would stand the company in good stead in
the long run.
The first drop in consolidated profit in five quarters was partly on account of JLR’s cheaper models gaining a bigger share of sales and losses at the domestic operations. Apart from the Range Rover Evoque and the Freelander having a larger share of overall sales, currency volatility also hit JLR.
The maker of luxury sedans and premium sport utility vehicles (SUVs), which has been expanding at a brisk pace on the back of new model launches, raised $500 million (nearly ` 2,700 crore today) in fresh debt last month and said it would raise more money from the capital markets and banks to aid new product development and expand capacity.
The company has also guided for negative free cash flow at JLR as it seeks to step up annual capital expenditure to £2.75 billion from £2 billion. This is to be utilized for expanding capacity at its plants in the UK and new product development.
Currency fluctuations shaved off 50 basis points from JLR margins in the December quarter, the company said. The British pound rose 0.7% against the dollar during the quarter, denting profits earned in the US. A basis point is one-hundredth of a percentage point.
Ajay Shethiya, an analyst at Centrum Broking Pvt. Ltd, said the earnings were below his estimates, although he had expected margins to shrink owing to the higher contribution of cheaper models.
“The depreciation costs (at JLR) were higher than expectation even as the operating margins surprised positively,” he said. Depreciation costs rose to £159 million from £119 million last year.
The first drop in consolidated profit in five quarters was partly on account of JLR’s cheaper models gaining a bigger share of sales and losses at the domestic operations. Apart from the Range Rover Evoque and the Freelander having a larger share of overall sales, currency volatility also hit JLR.
The maker of luxury sedans and premium sport utility vehicles (SUVs), which has been expanding at a brisk pace on the back of new model launches, raised $500 million (nearly ` 2,700 crore today) in fresh debt last month and said it would raise more money from the capital markets and banks to aid new product development and expand capacity.
The company has also guided for negative free cash flow at JLR as it seeks to step up annual capital expenditure to £2.75 billion from £2 billion. This is to be utilized for expanding capacity at its plants in the UK and new product development.
Currency fluctuations shaved off 50 basis points from JLR margins in the December quarter, the company said. The British pound rose 0.7% against the dollar during the quarter, denting profits earned in the US. A basis point is one-hundredth of a percentage point.
Ajay Shethiya, an analyst at Centrum Broking Pvt. Ltd, said the earnings were below his estimates, although he had expected margins to shrink owing to the higher contribution of cheaper models.
“The depreciation costs (at JLR) were higher than expectation even as the operating margins surprised positively,” he said. Depreciation costs rose to £159 million from £119 million last year.
Costs will stay firm and may only go up as JLR cranks out new models in
the months ahead, Tata Motors’ chief financial officer C. Ramakrishnan
said on an earnings call with analysts.
Even employee costs as a percentage of sales will rise as plants in the UK have started working in three shifts from two earlier. Analysts pointed to this as a positive sign of surging demand for the company’s products.
Rikesh Parikh, vice-president (equities) at Motilal Oswal Securities Ltd, said in a note that while earnings were hit by the “subdued Indian operations, we maintain positive view on the stock with improving sales performance from JLR and expect recovery in domestic business in FY14 (fiscal year 2014)”.
The Evoque and Freelander compact SUVs accounted for 52.5% of all Land Rover retail sales in the quarter, up from 43.7% a year earlier, according to company data.
Overall, Tata Motors’ sales fell 16%—the third decline in as many months.
Marketing expenses also played a role in narrowing the UK subsidiary’s operating margins to 14% from 17% a year earlier. This was even as volumes, led by China, rose 9.9% to 94,828 units from a year ago. Sales in China, which accounted for 21% of the quarter’s volume, have expanded 50% since 1 April, Ramakrishnan said in his presentation.
Domestic operations posted a loss of ` 458.5 crore, the worst performance in 15 quarters, as sales of trucks and passenger cars declined.
Sales of passenger vehicles, which have been ceding ground to the competition, dropped 36% to 54,675 units.
The lower wholesale figures (despatches to dealers) are the result of the company reducing stock levels by 33%, said Karl Slym, managing director. Retail sales, or sales to buyers, are better as recent launches, which include the Safari Storme, “have been received well”, he said.
The sale of medium- and heavy-duty trucks and buses fell by one-fourth to 80,079 units as a slowing economy and shrinking industrial production forced transporters to postpone purchases, Ramakrishnan said.
He said the company’s factory for heavy-duty vehicles is operating at half its capacity.
Ravi Pisharody, an executive director at Tata Motors’ commercial vehicle business unit, said, “The fourth quarter is supposed to be the best quarter for commercial vehicle sales. But we don’t see any traction yet.”
The poor car and truck volumes saw the company’s operating margin shrinking to 2.2% from 6.7% a year ago, the lowest in several quarters.
While analysts remain positive on JLR, a revival in the domestic operations is still not in sight.
“While we have little hope for the passenger vehicles business, we see a case for the CV (commercial vehicle) cycle to improve by FY15. In the near term, Tata’s India business will struggle to stay profitable,” analysts Abhijeet Naik and Nitij Mangal of CLSA Asia-Pacific Markets wrote in an 8 January report.
Earnings were declared after the markets closed. Tata Motors dropped 2.59% to ` 296.70 on BSE. The benchmark Sensex closed at 19,497.18 points, down 0.57%.
Paritosh ranjan
PGDM 2sem
Even employee costs as a percentage of sales will rise as plants in the UK have started working in three shifts from two earlier. Analysts pointed to this as a positive sign of surging demand for the company’s products.
Rikesh Parikh, vice-president (equities) at Motilal Oswal Securities Ltd, said in a note that while earnings were hit by the “subdued Indian operations, we maintain positive view on the stock with improving sales performance from JLR and expect recovery in domestic business in FY14 (fiscal year 2014)”.
The Evoque and Freelander compact SUVs accounted for 52.5% of all Land Rover retail sales in the quarter, up from 43.7% a year earlier, according to company data.
Overall, Tata Motors’ sales fell 16%—the third decline in as many months.
Marketing expenses also played a role in narrowing the UK subsidiary’s operating margins to 14% from 17% a year earlier. This was even as volumes, led by China, rose 9.9% to 94,828 units from a year ago. Sales in China, which accounted for 21% of the quarter’s volume, have expanded 50% since 1 April, Ramakrishnan said in his presentation.
Domestic operations posted a loss of ` 458.5 crore, the worst performance in 15 quarters, as sales of trucks and passenger cars declined.
Sales of passenger vehicles, which have been ceding ground to the competition, dropped 36% to 54,675 units.
The lower wholesale figures (despatches to dealers) are the result of the company reducing stock levels by 33%, said Karl Slym, managing director. Retail sales, or sales to buyers, are better as recent launches, which include the Safari Storme, “have been received well”, he said.
The sale of medium- and heavy-duty trucks and buses fell by one-fourth to 80,079 units as a slowing economy and shrinking industrial production forced transporters to postpone purchases, Ramakrishnan said.
He said the company’s factory for heavy-duty vehicles is operating at half its capacity.
Ravi Pisharody, an executive director at Tata Motors’ commercial vehicle business unit, said, “The fourth quarter is supposed to be the best quarter for commercial vehicle sales. But we don’t see any traction yet.”
The poor car and truck volumes saw the company’s operating margin shrinking to 2.2% from 6.7% a year ago, the lowest in several quarters.
While analysts remain positive on JLR, a revival in the domestic operations is still not in sight.
“While we have little hope for the passenger vehicles business, we see a case for the CV (commercial vehicle) cycle to improve by FY15. In the near term, Tata’s India business will struggle to stay profitable,” analysts Abhijeet Naik and Nitij Mangal of CLSA Asia-Pacific Markets wrote in an 8 January report.
Earnings were declared after the markets closed. Tata Motors dropped 2.59% to ` 296.70 on BSE. The benchmark Sensex closed at 19,497.18 points, down 0.57%.
Paritosh ranjan
PGDM 2sem
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