Tata Motors: Higher depreciation expenses & revaluation of forex debt hits Q4

Revaluation of foreign currency debt and commodity hedges crimp JLR's earnings

For a consecutive year, Tata Motors has sprung a nasty surprise on investors with March quarter numbers. Like the corresponding quarter last year, higher depreciation expenses have hurt profitability this year, too. Earnings were also hit by unfavourable revaluation of foreign currency debt and higher provisions made for losses arising out commodity hedges. Given that Jaguar Land Rover (JLR) volumes grew in single digit and the domestic business showed very early signs of recovery, a dip in earnings was expected. However, a 56 per cent year-on-year (y-o-y) decline in net profit to Rs 1717 crore was nothing less than a shock.

Consolidated sales growth was in line with estimates. Consolidated revenues grew 3.5 per cent to Rs 67,576 crore during the quarter compared to the corresponding quarter last year. The March quarter has also impacted the full year's consolidated net profit, which remained flat at Rs 13,986 crore. Depreciation and amortisation expenses rose 23.4 per cent y-o-y and 15.5 per cent sequentially to Rs 3857 crore, which contributed to the sharp decline in quarterly profits.

  Operationally, the quarter has not sprung any major surprise. JLR revenues for the quarter rose nine per cent y-o-y, while operating profit rose 10.4 per cent. JLR's operating margin expanded 20 basis points y-o-y to 17.4 per cent, despite concerns over lower margins in China. Higher depreciation and amortisation expenses, coupled with unfavourable revaluation of foreign currency debt and commodity hedges, crimped JLR’s earnings. As a result, JLR's net profit during the quarter declined 33 per cent to £302 million.

The domestic business, however, seems to be showing signs of recovery. With demand for medium- and heavy-commercial picking up, Tata Motors has reported a sales growth of 24 per cent for this segment, even as light commercial vehicles continued to decline. As a result, commercial vehicle (CV) sales remained flat in the March quarter compared to last year. Passenger vehicle sales also grew 19 per cent, driven by a 33 per cent increase in the car segment. The domestic business (CV and passenger vehicles) reported a volume growth of five per cent compared to last year. Revenues for the domestic business grew 26 per cent over a year to Rs 10,784 crore. Operating margins in the domestic business have turned positive at 2.8 per cent. Despite this, post tax loss remains elevated at Rs 1,164 crore.