|
| Tata Motors: On road to recovery |
| Shobhana Subramanian / Mumbai Jul 28, 2009, 00:15 IST |
|
The drop in prices of raw materials has led to a smart gain in operating margins.
Tata Motors’ profitability has seen a smart turnaround with the operating profit margin (OPM) in the June 2009 quarter up 430 basis points year-on-year at 11.4 per cent. This has resulted in its EBITDA (earnings before interest, tax and depreciation) soaring by 48 per cent to Rs 728 crore.
 The jump in margin has been driven primarily by a steep fall in raw material costs by nearly 500 basis points to around 67 per cent of sales from just over 72 per cent of sales in the June 2008 quarter. In fact, the operating margins have improved sharply even sequentially and is also the result of better sales of high-margin medium and heavy commercial vehicles (M&HCVs).
The improvement in margins is creditable given that the top line showed a fall of 7 per cent to Rs 6,405 crore, given lower volumes sold during the quarter. The management had indicated after the annual results for 2008-09 that demand for M&HCVs would continue to be weak. Industry watchers point out that prices of some raw materials have been moving up. If margins were to be sustained at levels of 11 per cent, sales of bigger trucks, which command better margins, needed to pick up towards the second half of the year.
With the home market expected to recover over the next six months on the back of several government programmes and stimulus packages and the management indicating that exports should also pick up in the coming months, Tata Motors should be able to clock better volumes in the rest of the year.
The Tata Motors stock has gained 150 per cent since March this year compared with a rise of 65 per cent for the Sensex. While concerns about the high debt on the balance sheet and Jaguar and Land Rover (JLR) business remain, the stock is now likely to be viewed more favourably.
|
|
|
|
|
|
|
|
|
|
 Read Business news in |  |
|
|
|
|
|
|
Advertisements |
|
|
|
|
|
|
|
|
|
|
Content Guide
