An economic rebound will boost Tata Motors revenues in the domestic market, but JLR’s performance will decide its return to profitability.
A revival of the economy has helped India’s largest commercial vehicle (CV) maker, Tata Motors, post a smart 21 per cent jump in CV volumes to 74,273 units in the September 2009 quarter. Consequently, revenues rose 12.7 per cent to Rs 7,979 crore. Rising sales in the current fiscal indicate that demand is picking up and the company having a dominant share in the CV market should be able to grab most of the upsides.
Market share gains
The company sold 5 per cent more medium and heavy CVs (M&HCVs) than the September quarter last year helping it improve its market share from 59.8 per cent to 63.5 per cent. The light CVs (LCVs), too, continued their strong showing for the second straight quarter and improved its share of the market by 300 basis points to 66.8 per cent. Passenger vehicle (PV) volumes also went up 13 per cent due to higher sales of Indica Vista and the Nano (small car segment). However, a lacklustre performance of its utility vehicle portfolio and the mid-size car segment led to a 110 bps drop in its market share to 11.6 per cent.
| SIGNS OF RECOVERY | |||
| in Rs crore | Q2 FY10 | FY10E | FY11E |
| Net sales | 7,980 | 31,511 | 33,794 |
| % change y-o-y | 12.7 | 23.7 | 13.0 |
| OPM (%) | 13.4 | 12.7 | 13.2 |
| change in bps | 579 | 650 | 50 |
| Net profit* | 729 | 2,323 | 2,207 |
| % change y-o-y | 110 | 132 | -5 |
| P/E (x) ** | – | – | 19.3 |
| Source: Company, Analyst estimates * Includes extraordinary income for Q2 and FY10 ** On consolidated earnings including JLR; Rest of the numbers are standalone | |||
Margin gains and funding
Price hikes and a better product mix helped improve margins in the September quarter. The company expects price hikes and cost cutting measures to cancel out increases in commodity prices. The company has finally managed to pay the $3 billion (over Rs 14,000 crore) debt which it had taken to finance the Jaguar Land Rover (JLR) acquisition. These were financed by a rights offer in October 2008 and long-term rupee bonds (May 2009) of Rs 4,200 crore each, GDR and FCCN issue (October 2009) of Rs 3,500 crore and divestments (Tata Steel) which fetched it Rs 1,700 crore. Though the loans have been cleared by additional capital raised, the company is likely to continue to its divestments both of its investments as well as holdings in 100 per cent subsidiaries to deleverage its balance sheet, which currently has a net debt of Rs 18,600 crore and net debt-equity ratio of 1.34.
Outlook
Going ahead, on the domestic front and in the short-term, Tata Motors will be looking at the order for 5,000 buses under JNNURM to be delivered between now and March 2010 to boost its revenues. Further, the company will be pinning its hopes on the demand and success of the small car, Nano, which has seen deliveries of 7,500 units so far, the Indigo Manza sedan launched in October 2009 and M&HCV models based on the World Truck platform to be unveiled shortly. But, unless the JLR operations see a marked improvement in sales, it will continue to be a drag on Tata Motors. At current levels, the stock is trading at nearly 20 times its consolidated 2010-11 estimated earnings and upsides in the short-term appear limited.