JLR, one-off income drive Tata Motors good show

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Tata Motors on Monday beat Street estimates for the December quarter, doubling profit to Rs 4,805 crore on an exceptional income in the local standalone business and robust performance by its UK-based subsidiary Jaguar Land Rover (JLR). Consolidated revenue for the quarter rose 38 per cent from a year ago to Rs 63,877 crore.

“On the back of strong demand, growth in volumes, a favourable product and geographical mix at Jaguar Land Rover, the company has been able to report profit for the quarter,” said the company’s chief financial officer C Ramakrishnan.

He however said the slowing economy would likely keep domestic sales weak. Tata Motors last week unveiled its first new models in four years in a bid to reverse the decline in sales.

Much of its December quarter profit came from an exceptional income of Rs 1,948 crore to the local business, which came from the sale of investments in foreign subsidiaries. On a standalone basis, revenues actually fell 27 per cent year-on-year from Rs 10,630 crore to Rs 7,769 crore, while net profit rose to Rs 1,251 crore from a loss of Rs 458 crore in the prior-year quarter.

The firm’s domestic business has seen prolonged slowdown, as passenger car sales came off in the face of high competition and its line-up of cars is being perceived as dated.

Analysts reckoned the performance as “above expectation”. “The results were once again driven by an impressive performance by Jaguar and Land Rover, which posted record Ebitda margins of 17.9 per cent, higher than our expectations of 15.8 per cent,” said Yaresh Kothari, an analyst at Angel Broking.

“The standalone operations deteriorated further, posting an operating loss of Rs 459 crore largely due to negative operating leverage following a steep decline in volume (down 36.1 per cent from a year ago and 13.9 per cent sequentially) and an increase in discounts and promotional spends,” Kot­hari added. Kothari said the standalone net profit failed to impress as it was boosted by a one-off income of Rs 1,945 crore that came from the sale of investment in a subsidiary.

Mitul Shah, an analyst at Karvy Stockbroking, said JLR’s performance was above expectations while Tata Motors’ standalone performance was disappointing.

Demand for passenger vehicles has declined significantly in the domestic market, as customers struggle with high fuel costs and rising interest rates in a slowing economy.

Tata Motors’ share in the passenger vehicle market fell to about 8.5 per cent in December 2013 from 12 per cent a year ago. Sales of Tata trucks and buses have also plunged on weak economic activity. At the ongoing Auto Expo, Tata has showcased a slew of new vehicles, including a hatchback called Bolt and the Zest sedan, apart from upgraded versions of the Nano.

In contrast JLR, the marquee British firm the Tatas acquired in 2008, saw brisk business and continued to boost the consolidated bottom line. Quarterly profits for JLR stood at £619 million on revenues of £5.33 billion, higher than analysts’ estimates. JLR has pegged capital expenditure for 2014-2015 at £3.5 billion to £3.7 billion, up from an estimated £2.75 billion in 2013-2014, raising worries that the increased spend would hurt free cash flow. Analysts maintained a ‘buy’ rating on the stock, as they expect JLR to continue to do well.

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