The December quarter was expected to be good for Tata Motors, due to robust sales of the newly launched Evoque. Even as the domestic business is faced with sluggish demand, sales of Jaguar Land Rover (JLR) grew 36.7 per cent to 86,322 units. In contrast, volumes in the domestic market grew 15.5 per cent y-o-y to 131,220 units. Analysts have started re-rating the stock, going by the strong demand for Evoque. The company’s six-month production line-up of Evoque has sold out in less than three months. The car maker calls this an “over-whelming response”.
The improved mix of products and new geographies have driven JLR’s performance. China now accounts for 17.2 per cent of JLR’s global sales, compared to 13 per cent in the corresponding period a year ago. These factors have also helped improve operating profit margins, both sequentially and on a y-o-y basis. Given that the stock has run up to Rs 267 levels, analysts also believe the company will now be able to convert its foreign currency convertible bonds into equity, thereby reducing its debt of Rs 15,000 crore.
Profitability has clearly been driven by the JLR business. The company’s net profit has grown 40 per cent y-o-y to Rs 3,405 crore, beating market estimates by a long shot. Higher costs and marketing spends have eaten into the company’s standalone profit, which fell 57 per cent y-o-y to Rs 173 crore. Consolidated Ebitda margins for the December quarter stood at 16 per cent, compared to 15.3 per cent in the corresponding quarter last year and 13.3 per cent in the September quarter. JLR margins have also improved dramatically in the quarter also due to a one-off benefit of £60 million due to currency movements. The benefit has come both through trade receivables and revenues.
While consolidated margins have improved, those for the domestic business continue to weaken. The Ebitda margin in Q3 stood at 6.7 per cent, compared to 10.8 per cent recorded a year ago. Despite the one per cent increase in prices in India, the company has not been able to mitigate the cost push. Higher costs and marketing spends have eaten into net profit, which fell by 57 per cent y-o-y to Rs 173 crore. The passenger-car business has been taking a hit, due to increased competition and lower utilisation levels. These factors have also played a role in margin erosion. However, the commercial vehicle business continued to show good growth. The company expects JLR’s robust performance to continue in the coming quarters.