Tata Motors: Getting a JLR boost

Record sales at JLR, with strong growth in truck volumes, will lead to good revenue growth

If the sales performance of Tata Motors in March month is anything to go by, the company could report a strong show in the March quarter. The company ended FY16 on a high, with both its domestic and international operations reporting robust double-digit growth. While its UK-based subsidiary, JLR (Jaguar Land Rover), has reported record March volumes, truck sales in the domestic operations, too, have been robust. JLR's volumes grew 29 per cent year-on-year, with China sales up 43 per cent (about half came from the China joint venture).

Analysts at Kotak Institutional Equities expect volume growth in China to remain strong, led by low base effect, ramp-up in local production of the Discovery Sport and the launch of the new Discovery Sport. JLR's highest volume contributor, China's monthly volumes, had come down sharply due to a slowdown, higher costs, and the setting up of the local manufacturing unit. Monthly China sales at 10,288 units are now the fourth largest after that of the UK, Europe, and the US.

On the domestic front, Tata Motors reported a 25 per cent growth in medium and commercial vehicle sales while light commercial vehicle (LCV) growth was strong at 15 per cent for March. While stand-alone revenues in the March quarter are likely to move up 15 per cent year-on-year, Religare Capital Markets believes the company is likely to report the highest operating profit growth on a sequential basis. Operating profit margins are expected to be up 220 basis points over the December quarter due to operating leverage.

On a consolidated basis, earnings are expected to see an 80 per cent growth year-on-year. India revenues account for 15 per cent of consolidated revenues and 10 per cent at the net profit level. Led by launches, JLR is expected to post 14 per cent annual growth over FY16-18.

Kotak analysts do not see meaningful pricing pressure in the China market as lower-end models such as the Discovery Sport and the Jaguar XF will become more competitive with 20-25 per cent price cuts after the start of production at the China joint venture. While strong sales in heavier trucks are likely to continue, continuing recovery in LCV sales will add to the volume growth. Further, the launch of products will add to volume gains for the passenger vehicle business.