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Tata Motors disappointed the Street with its second-quarter numbers. While the Street had an inkling about the operational performance, expected to be weak on lower volume growth, several unexpected items affected the profitability. A tax provision in the standalone business and “unfavourable revaluation of foreign currency debt and unrealised hedges at Jaguar Land Rover (JLR)” adversely impacted the company’s consolidated net profit, which declined seven per cent to Rs 3,291 crore over a year. However, operating margins at the consolidated level expanded 70 basis points over a year to 17 per cent owing to a strong margin expansion at JLR.
So far, Tata Motors’ consolidated numbers have entirely been driven by JLR. However, after the current quarter, analysts believe some caution is warranted, as demand in China and Europe might be affected in the coming months. Consolidated sales grew 6.5 per cent to Rs 60,564 crore during the quarter. The domestic business continues to be a drag for the company, as volume growth dropped 8.5 per cent to 32,407 units, in a period when the passenger vehicle industry grew 10 per cent. The commercial vehicle segment also saw volumes decline over a year basis by 21 per cent to 80,724 units. While the medium and heavy commercial vehicle segment has shown a 14 per cent growth, it was not enough to turn around the company’s losses. Domestic business saw sales fall by one per cent and losses widen to Rs 1,846 crore during the quarter from Rs 804 crore a year ago. The India business continues to report negative margins. Compared to the two per cent operating margin last year, Tata Motors’ domestic margins are now -1.7 per cent.
During the quarter, wholesale volumes of JLR grew two per cent to 1,03,975 units, while retail volumes rose eight per cent to 1,10,781 units. Although JLR’s post-tax profit has declined 11.2 per cent, operating margins have expanded on improved realisations, by 190 basis points to 19.4 per cent. Analysts are not sure if this is sustainable but it is a positive surprise. The management commentary appears to be more bullish on the India prospects as the commercial vehicle cycle is turning. The company expects to build sales momentum in both brands.
