Tata Motors: Lower margins at JLR dents show

Given strong volumes in October and new product launches, the company expects H2 to be better

Tata Motors’ consolidated September quarter numbers were lower than expected on the back of weaker operational performance at Jaguar Land Rover (JLR). JLR contributes about 83 per cent to the consolidated numbers. While revenues over the year-ago quarter for JLR were flat, operating profit margins at 12.2 per cent as against 19.4 per cent in the year-ago quarter were down 721 basis points. The drop in margins was due to less favourable product and geographic mix, higher manufacturing and launch expenses and the unfavourable forex movement.

While average selling prices were lower, falling sales in a higher margin China market dented profitability. The launches of Jaguar XE and XF, coupled with development of new engines also pegged back profits at the operating level. Finally, a negative effect of the revaluation of the euro to the tune of 40 million pounds aggravated the margin number. The year-ago quarter had seen good global growth, had a forex gain of 40 million pounds and there were no major launches. Even when compared with the June quarter and adjusting for the various one-offs, analysts say margins for JLR are down from about 15.2 per cent to about 13 per cent in the September quarter, which is still 220 basis points lower.

However, the management indicated that recent trends such as the best-ever October sales numbers for the US and UK markets coupled with expectations of higher sales in the China market, a strong product line-up as well as playing out of the lower commodity prices would help achieve profitable volume growth in the coming quarters.

While revenues at Rs 61,318 crore, up 1.1 per cent year-on-year, net profit adjusted for one-offs at Rs 2,200 crore was boosted by a tax credit of Rs 703 crore. The reported number for the bottom-line was a loss Rs 430 crore. The company indicated that lower operating profit, higher depreciation and an exceptional cost of 245 million pounds (Rs 2,493 crore) dented the bottom-line. The exceptional cost, pertaining to about 5,800 vehicles that were impacted by the explosion at the Port of Tianjin, China, will be reversed when the company receives the insurance related payments at a later date.

In the India business, medium and heavy commercial vehicle (M&HCV) sales continue to report strong sales with trucks growing at 37 per cent year-on-year in the quarter. Demand continues to come from the replacement and pre-buying ahead of regulatory norms. This company’s market share is at 51.5 per cent. The strong showing by the M&HCVs helped the standalone revenues move up by 20 per cent year-on-year. Margins, which were in the negative territory in the year-ago quarter, improved to 6.8 per cent. The trucks and buses segment, too, will see new product launches, while defence segment is also expected to contribute to higher revenues.