Tata Motors shares falter as earnings again disappoint

TATAMOTORS-RESEARCH-CREDITSUISSE:Tata Motors shares falter as earnings again disappoint

Shares in Tata Motors fell as much as 3.6 percent on Friday after the auto maker missed estimates with its first-quarter results, and as analysts cast renewed doubts on the sales outlook for its key Jaguar Land Rover subsidiary.

The results on Thursday marked the second straight quarter in which the country's biggest auto maker by revenue has disappointed investors with its earnings and failed to inspire confidence in the outlook for its luxury auto unit.

Although analysts had already expected weak earnings, they had hoped for some signs of a turnaround at a time of growing reservations about weakening auto sales in JLR's key markets of China and Europe.

Credit Suisse downgraded Tata Motors to "underperform" from "neutral" after cutting its volumes forecast and increasing its tax rate assumption for JLR following the results.

"We don't see any positive trigger for the company before the launch of the new Range Rover in Dec and there could be a negative surprise in China from higher discounts or adverse legislation on emission norms," Credit Suisse wrote.

Tata reported a 12 percent rise in net profit in the April-June quarter on Thursday, with margins slipping at both JLR and its domestic business.

The auto maker has now slumped around 15 percent since first ringing alarm bells over quarterly profits at its JLR unit on May 29, underperforming a gain of nearly 7 percent in the benchmark BSE index during the same period.

JLR, which Tata bought for $2.3 billion in 2008, accounted for 91 percent of net profit during the June quarter, making it critical for the future of the auto maker, especially as income from the domestic business has halved.

Tata said on Thursday it expected growth in China would continue to boost JLR, where the fall in the operating margin was modest, to 14.5 percent from 14.6 percent, unlike the previous quarter's slide from 20.1 percent.

China accounted for 22.2 percent of JLR's volumes in the June quarter.

However, analysts warn that both Europe and China face uncertain economic outlooks. China on Friday reported imports in July rose 4.7 percent from a year earlier, the weakest pace since April and well short of expectations for an increase of 7.2 percent.

"Macro headwinds in Europe and a slower-than-expected ramp up in China are likely to impact JLR's volumes in FY13," Standard Chartered analysts said in a note after the results, maintaining their "in-line" rating.

Shares in the automaker, part of the $83 billion salt-to-steel Tata Group conglomerate, fell 2.3 percent by 02:15 p.m., compared to a flat day on the main NSE index.