JLR vrooms even faster, drives Tata Motors' performance

Company expects performance to sustain on launches, existing base

Buoyed by high demand for new cars at subsidiary Jaguar Land Rover (JLR), Tata Motors posted impressive numbers for the December 2013 quarter. The UK-based subsidiary, which accounts for 85 per cent of its consolidated revenues, grew its revenue by 40 per cent year-on-year, thanks to a 27 per cent growth in volumes, especially from the new Range Rover, Range Rover Sport and Jaguar F-type, as well as refreshes. Its profit grew at a faster pace. At £619 million, the profit in the December quarter was 76 per cent of the profits recorded in the first six months of the financial year.

Importantly, the company expects the sales momentum to continue, on the back of recently launched F-Type Coupe and other new models launched earlier. Analysts say the firm could also grow more than its global luxury car peers for FY15, a trend seen in FY14. While the revenue growth was driven by the launches, the surprise came on account of higher margins at the JLR level.

Ebitda margins grew 390 basis points to 17.9 per cent on higher realisations, improved content mix and geographic mix. China, one of its most profitable markets, saw sales volume growth of 46 per cent, with the country’s share of overall volumes growing over 300 basis points to 25 per cent. In fact, strong JLR margins led to consolidated 16.5 per cent, way ahead of 14.5-15 per cent expected by analysts.

 

For FY15, given the higher capex of £3.5 billion, free cash flows could be negative. With sharp improvement in operating performance, the firm says it is well funded to finance capex with cash and financial deposits of £3.2 billion and undrawn long-term committed bank lines of £1.3 billion. While JLR excelled, the Indian operations continue to suffer due to weak demand, with volumes falling 36 per cent y-o-y leading to a 27 per cent fall in revenues. The slowdown could continue for two quarters and keep standalone performance under pressure. Had it not been for one-offs such as restructuring, the standalone business would have reported a loss, rather than a profit of Rs 1,251 crore. Thanks to the strong JLR show and good outlook, the stock could see a jump on opening trades on Tuesday. Most analysts continue to have a ‘Buy’ on the scrip.