Tata Motors’ results for the quarter ended June have disappointed the Street, as the performance of the domestic business was anaemic. The 12 per cent rise in consolidated net profit at Rs 2,245 crore was lower than market estimates, primarily on account of dismal domestic business. However, Jaguar Land Rover’s (JLR) growth was robust across markets.
The company has blamed the macro-economic situation in India for the poor domestic performance. The standalone business saw revenue fall nine per cent year-on-year (y-o-y)and profit after tax decline a massive 49 per cent. Commercial vehicle (CV) volumes grew 1.3 per cent, while passenger vehicle volumes declined 10 per cent y-o-y. In what analysts say is a worrying trend, operating margins fell to 7.3 per cent from 8.8 last year. This was due to heavy discounts, both for CVs and passenger cars. Auto analyst Deepak Jain of Sharekhan sees little trigger for the company in the domestic market. “We need to watch out for the performance of JLR, and if it would hold up,” he adds.
JLR’s strong performance came to the rescue of Tata Motors. JLR’s net revenue rose 35 per cent, while profit after tax rose eight per cent. Compared to the year-ago period, JLR’s margins, too, expanded to 14.5 per cent from 13.4 per cent. However, sequentially, margins remained flat. Overall, JLR’s growth was driven by robust demand for new products across regions. Volumes in China grew 91 per cent (y-o-y), driven by new launches. Owing to such demand, China is now JLR’s largest wholesale market, and accounts for 22 per cent of its volumes. The divergence in the performance of JLR and the Tata Motors’ standalone business hit the consolidated numbers.
Tata Motors expects the medium and heavy commercial vehicles business to continue to remain under pressure, as industrial growth continues to be weak and freight rates, too, have dipped. Excise duty increases and concern on diesel price deregulation have dampened sentiment. The company does not expect any material rise in raw material and component costs. The management expects demand for light commercial vehicles to hold up, with the proliferation of the hub-and-spoke model. Given there are few demand triggers in the domestic market, analysts believe a lot depends on the outlook for JLR products globally.