Global operations come to the rescue amid domestic struggle
Ratan Tata’s gambit to acquire Jaguar and Land Rover (JLR) has paid off. Almost on all parameters, JLR operations have scored over the company’s domestic operations. Starting with sales, the company’s domestic operations clocked sales of 241,000 units (95,000 passenger vehicles and 131,000 CVs and 15,000 exports) in the fourth quarter, a growth of 15 per cent y-o-y. JLR clocked sales of 64,083 units, a growth of 12 per cent.
JLR has significantly contributed to the company’s profitability. However, concern stems from the domestic numbers. On a standalone basis, the company’s operating margin has touched a low of 8.8 per cent in the fourth quarter, while for the full year the figure stands at 9.9 per cent. Analysts say this indicates the going will remain a challenge in the domestic market as sales could decelerate in FY12. On a consolidated basis, margins for the fourth quarter have come in at 13.5 per cent, and for the full year at 14.4 per cent.
In the first nine months of FY11, JLR operations clocked margins of 14.8 per cent, which has saved the day for the company. Clearly, the global operations have provided the much-needed kicker to profitability. While a global footprint has helped the company overcome pressures in the fourth quarter, analysts believe this does not bone well for the domestic market, which is expected to slow down further.
Nano is driving volumes for the company, as it has sold 100,000 units in FY11, but the margins are relatively thin. Indica sales have remained flat at 99,515 units, claim analysts. Says Deepak Jain, assistant vice-president (auto) at Sharekhan: “The results on an annual basis are good, but for this quarter the standalone margins have come in at 8.8 per cent, lowest in two years. We expect volume growth from JLR to continue in FY12, driven by strong demand from China.”
Profit after tax for the fourth quarter stood at Rs 2,637 crore, below the expectations of analysts. While the actual figure meets with the expectations of the Street, a boost has come from exceptional items like forex gain of Rs 177 crore. If this is adjusted, then the PAT stands at Rs 2,460 crore, which is below the consensus estimates. Also with the tax rate for the fourth quarter coming at a much lower level has pushed up the profits, claim analysts.
The company has brought down its debt/equity ratio to 0.6 per cent levels. The company’s gross debt stands at Rs 32,000 crore and net debt stands at Rs 22,000 crore. The company intends to reduce this even further as cash flows improve.