Range Rover sales, forex peg back Tata Motors' Q1 show

Adjusted for forex changes, operating profit margins came in line with estimates

Tata Motors' operational performance at the consolidated level was in line with expectations. Driven by 12 per cent volume growth year-on-year, consolidated revenues were up nine per cent at Rs 65,895 crore. This was above consensus estimates of Rs 65,100 crore. While standalone volumes, up eight per cent, were boosted by higher commercial vehicle sales, JLR sales, up 17 per cent, were boosted by higher Jaguar sales. Around 80 per cent of the consolidated entity’s revenues and operating profits comes from JLR.

While Jaguar’s numbers were strong, Range Rover sales were below estimates. The latter’s sales growth at seven per cent for the June quarter was the lowest over the past few quarters. Volumes at the standalone (India) entity were higher both due to heavier trucks and light commercial vehicles. Strong demand for Tiago boosted the company’s car sales by 15 per cent.

The disappointment was at the operating level as reported margins for the consolidated entity came in at 11.6 per cent, down 650 basis points from the year-ago quarter. The company indicated that lower margin performance was due to adverse forex movement to the tune of 207 million pounds and lower market incentives, down from 50 million pounds to 10 million pounds. The company indicated that the June 2015 quarter was an exceptionally good one with favourable forex movement as well as higher market incentives. Adjusted for the two, operating profit margins came in at 14 per cent, which is marginally lower than expectations. While higher raw material and employee cost, too, played their part, a key variable that has pegged back the margins are the other expenses which were up 48 per cent. The cost spurt was due to higher promotional expenses given new product launches both at India and JLR operations. Margins at the India unit were higher by 60 basis points to 6.7 per cent due to better product mix as increased sales of trucks improved realisations.

Weaker consolidated margin performance coupled with higher depreciation, which was up 21 per cent, and lower other income pegged back net profits that came in 57 per cent lower to Rs 2,236 crore. Consensus estimates had pegged it around the Rs 2,500-crore mark. Net profit, however, would have been lower had it not been for lower taxes, higher profit share of joint ventures and insurance payment JLR received in the quarter after the loss suffered at Tianjin, China.

The June quarter numbers at JLR were below par, but there should be an uptick in growth going ahead. JLR volume growth is expected to be driven by Discovery Sport, Jaguar XE and F-Pace. However, the key worry for the Street will be volumes in China (which were strong in July) and its impact on luxury car spending. India volume growth, however, is expected to be strong given the continuing momentum from the commercial vehicle segment due to good monsoons, fleet replacements and advancement of sales due to implementation of BS-IV norms from April 1, 2017.