Tata Motors: Slowing down

Fuel costs and rising rates for auto loans could hit Tata Motors' sales

Tata Motors' June quarter results highlight the pressure on operating margins owing to rising cost of metals. The standalone operating profit has grown 30.8 per cent y-o-y in Q1 compared with 48 per cent growth in sales.

Operating profit margin declined 145 basis points y-o-y to 11 per cent as adjusted raw material cost, as a percentage of net sales, rose 203 basis points y-o-y.

Commercial vehicle sales grew an impressive 69.4 per cent y-o-y to 63,082 units, helped by the ban on overloading of trucks.

Plus, in Q1 FY06, Tata Motors had faced difficulties in procuring critical components, so the base was lower. Sales of passenger cars and utility vehicles grew by 21.75 per cent y-o-y, powered by Indica sales expanding by 32.7 per cent y-o-y.

The 50:50 joint venture with Fiat is likely to give Tata Motors access to better power train. But rising cost of auto fuels, coupled with rising interest rates for auto loans, could slow down the demand for the company's vehicles.

Also, metal prices have not yet eased. Hence, with the stock trading at about 16 times estimated FY07 earnings, there is little room for upside.

Bharti : Ringing loud

In the June quarter, Bharti posted a consolidated operating profit margin of 39 per cent, an impressive 150 basis points growth over FY06 and FY05. Its top line grew 13 per cent q-o-q, while operating profit went up 17.5 per cent.

Though Bharti's mobile average revenue per user (ARPU) remained at the same levels as in Q4 FY06, subscriber base grew 18 per cent q-o-q in the June quarter. In broadband and telephony, net additions were lower at 7 per cent, but ARPUs increased by 13 per cent.

The effective rate per minute in mobile has fallen to Re 1 in Q1 FY07 compared with Rs 1.28 a year ago.

While this number may not fall too much in the future, Bharti will have to improve ARPUs from the current levels. Its initiatives of growing market and economies of scale seem to be working and though new subscribers spend less initially, over time their usage seems to be rising.

The major concerns remain its capex plan of $1.8-2 billion and a highly competitive market. The stock went up 3.7 per cent on Wednesday, but at 22-23 times estimated FY07 earnings, it is not cheap.