One-offs dent Tata Motors Q3 performance

Analysts expect volumes and operating profit margin to pick up for JLR and India unit both

Tata Motors gave a disappointing performance for December quarter (Q3) as lower volumes, lower realisations from sales, and higher costs saw consolidated net profit falling to Rs 112 crore from Rs 2,953 crore a year ago. Volumes were lower at UK-based subsidiary Jaguar Land Rover and Indian unit. JLR wholesale volumes were down five per cent as they ran out of units made in 2016 due to preparations for Discovery launch in Q4FY17. Retail demand for JLR products continues to be strong on higher orders from China, North America, and Europe, led by Discovery Sport, F-Pace, and Jaguar XFL models.

Volumes in Indian unit were disappointing as the key segment of medium and heavy commercial vehicles (M&HCV) saw sales decline nine per cent in Q3. While light commercial vehicle volumes were flat, some pressures were offset by high demand for Tiago, which helped car sales volumes improve 25 per cent year over year. Export volumes grew a robust 34.5 per cent. Analysts say the phase of subdued new product launches for Tata Motors is over, and given new launches and refreshes in passenger and commercial vehicles both, they expect India volumes to improve substantially.

Consolidated revenue at Rs 70,567 was 4.4 per cent year over year on lower volumes and currency-translation impact of Rs 10,670 crore. JLR revenue at £6.5 billion was up 13 per cent year on year, and on expected lines. But, a number of one-offs impacted operating profitability. Operating profit margin for JLR at 9.3 per cent compared to 14.4 per cent a year ago was due to inferior product mix and negative leverage on lower volumes, higher variable marketing mix, new model launch costs, unfavourable forex movements, biennial pay negotiation settlement, and others. Adjusted for foreign-exchange effect, margin would have been 10.1 per cent. Analysts say many of these are one-offs and margin is expected to bounce back.

Net profit for JLR at £167 million as against £440 million a year ago was due to higher depreciation and amortisation and movements of foreign exchange, commodity, and US debt. The positives for JLR are higher recoveries on Tianjin losses, improving China venture profitability, and lower net finance expenses. Though overall India volumes were up 7.5 per cent, revenues were flat at Rs 10,167 crore. Given operating profit of Rs 153 crore, the company is barely making money. Higher discounts also hit operating performance. Higher variable marketing expenses, commodity costs, depreciation, as well as finance costs led to the Indian unit reporting a loss of Rs 1,046 crore as against a loss of Rs 137 crore a year ago.