Tata Motors has fallen by nearly 4% over the last two days on news that the company will be shutting down its Jamshedpur unit for three days. This is the facility where the company makes trucks and truck parts. This follows a three day shutdown at its Pune plant. The fall is noticeable as markets in general have been flat on account of derivative positions being rolled over for the last two days.
The general perception in the market is that the slowdown will impact the company’s numbers for the June quarter. But, in the bigger scheme of things, Tata Motors India barely matters as far as its financials are concerned. Take the March 2012 quarter numbers, out of the Rs 50,908 crore of consolidated sales, the Indian division accounted for just Rs 16,391 crore. However, while consolidated net profit was Rs 6,234 crore, standalone profits were only Rs 565 crore or 9% of total profits.
In other words, the Indian unit just provided the top line to the company, while its profitability comes largely from Jaguar Land Rover (JLR). Though commercial vehicles (CVs) were the main drivers for growth in the domestic market, their contribution in the overall financials of Tata Motors is small.
The shutdown of the Tata Motors facility underlines the glut in the market and rising inventory. Delay in rains and high interest rates, plus an overall slowdown is not only hitting Tata Motors, which has the largest market share of 59.4% in the CV segment, but also other players. The company that should mainly be impacted with the shutdown is Ashok Leyland, which is the other big CV player. But unlike Tata Motors, Ashok Leyland derives its revenue and profits from the Indian markets. The stock however, has been stable over the last two days.
Shriram Transport Finance is another company that will be hit by the slowdown as it is the biggest financier in the CV segment. This stock has seen some selling over the last two days.
As for Tata Motors, its JLR division continues to do well with a 20% month-on-month sales growth for May 2012. Thus, the company will continue to show good consolidated numbers.
But is it time to buy the stock? Ratan Tata definitely thinks so as he has bought 4.25 lakh shares about two weeks ago at a cost of Rs 9.93 crore, which works out to be an average price of Rs 233 per share. Tata Motors currently trades at the same level.
