Tata Motors set for earnings upgrades after Q2

JLR's operating margins up 300 bps YoY to 18%, helps company beat profit estimates

Tata Motors may be India's largest auto company, but it's the global market that has helped the company earn its feathers. Robust demand for Jaguar and Land Rover vehicles across the world has helped Tata Motors shrug off the abysmal performance at home even in the second quarter. Strong growth in Jaguar Land Rover's sales has helped Tata Motors report a 70% year-on-year growth in its net profit to Rs 3,542 crore. The Street was expecting the company to report a net profit of Rs 3200 crore, but the company has beaten estimates due to a sharp uptick in JLR's margins.

Tata Motors has stunned the Street with a 300 basis point year-on-year jump in JLR's operating margin to 17.8%. Tata Motor's consolidated operating margins came in at 16% as a result of this as the domestic margins are at 2%, down from 5.9% in the year ago period. After the second quarter numbers, analysts believe that Tata Motors is due for an upgrade as JLR is trading at attractive valuations compared to other global luxury carmakers. Yaresh Kothari of Angel Broking says 17.8% are the highest-ever clocked by JLR after Tata Motors took over the company.

In the second quarter, Jaguar Land Rover's wholesale and retail volumes grew by 31% (101,931 units) and 21% (102644), respectively, compared to the corresponding quarter last year. Jaguar's retail volumes grew by 91.6% year-on-year and retail grew by 56.5%. Land Rover's wholesale and retail volumes grew 23% and 15% over corresponding quarter last year. Analysts say the launch of the smaller engines have also helped aid the company's growth. The strong demand for JLR vehicles has given the company pricing power too.

Thanks to the popularity of its new launches, Jaguar Land Rover is growing way ahead of other global luxury car makers this year. After the spectacular success of Evoque, the new Range Rover, Range Rover Sport and Jaguar F-TYPE has done exceedingly well. China continues to grow and is the largest market for JLR. The demand for JLR's new products has pushed up not only volumes but also profitability. Jaguar Land Rover reported a 69% jump in its operating profit. Going by the pipeline of products for the next two years, analysts say that the company's earnings are set for an upgrade.