Investors upbeat on Tata Motors

JLR will see more launches this year, some of which will be volume generators at much below current line up

Since the announcement of its disappointing first quarter results, the Tata Motors stock has dipped nearly 10 per cent on the BSE. Its net profit almost halved following the dismal performance by its cash cow, Jaguar Land Rover (JLR), especially in China.

However, there hasn't been a mad rush to dump the stock. Market watchers say the China worry was factored in since the beginning of the year when retail volumes remained under pressure for not only JLR, but its peers such as Audi and BMW, too.

“The demand normalisation in China has happened significantly faster than anticipated and management concedes that situation is only evolving, with no signs of immediate turnaround,” said Kaushal Maroo of Emkay Global Financial Services.

The impact of a general slowdown in luxury car demand in China is not as severe as it is made out to be. According to Tata Motors, the reason behind the disappointing numbers is the slow ramp-up in local production of JLR's flagship product Evoque.

“The issue has purely been ramp-up – one out of imported Evoque and ramp-up of the new Evoque. More importantly. the new integrated marketing, sales and service organisation has been set up to support sales for the joint venture. That has also been an issue in the past. We've made some changes in the organisation and added some new people who will address those issues,” said Vijay Somaiya, head of investor relations at Tata Motors.

“In this quarter, we have seen China's share of our global volumes in Jaguar Land Rover come down from 29 per cent (in year-ago quarter) to 14 per cent. The overall volumes have still been quite respectable and turnover rates are also on par. But margins have come down due to China. Volumes in China are up. China will continue to be an improving market for us,” said C Ramakrishnan, chief financial officer at Tata Motors, in a conference call.

JLR will see a bevy of launches this year, some of which will be volume generators positioned much below its current line up. A new Discovery Sport, Jaguar XE, all-new Jaguar XF, Range Rover Evoque, 2016 model year Jaguar XJ, the Jaguar F Pace and the much-awaited Evoque convertible are the launches expected later this year.

“These products are expected to drive significant volume growth in the current year. We feel good about the future despite 2014 being a difficult year for JLR. Longer-term, we continue to feel optimistic about our growth,” added Ramakrishnan.

China demand is expected rebound in the coming quarters after the market stabilises. For JLR, the prospects are bright as its market penetration remains the lowest compared to that of Mercedes-Benz, Audi and BMW. Growth for JLR in China surged higher than its peers during the previous years because of a constantly-improving distribution network setting a high base. At present, China is the world's largest automotive market even for luxury vehicles.

“We believe the slowdown in Chinese market would result in volume moderation over the next two quarters, although we expect remarkable improvement in FY17 with strong product pipeline. Moreover, tax benefit from its local assembly in China would provide partial relief on margins front. We believe volume growth would compensate for higher expenses and price rationalisation,” said Mitul Shah of Karvy.