Tata Motors: Back in the driver's seat

Volume growth and turnaround at JLR are positives for the stock

Sustained sales growth in the domestic market and JLR’s turnaround are positive signs for Tata Motors, India’s largest commercial vehicle maker. Over the last one year, the company had been struggling to steady the ship, with problems ranging from repayment of loans taken for buying JLR to collapsing demand at home and overseas, besides the hiccups faced by its small car project. The last two quarters have indicated a reversal in fortunes.

First, the volumes. While domestic volumes have been rising consistently, the company’s UK-based subsidiary saw a healthy 28 per cent jump in the December quarter on the back of a pick-up in demand for the new Range Rover models. While Range Rover, which accounts for over three-fourth sales in volume terms, saw a 32 per cent jump in sales, Jaguar registered 11.5 per cent volume growth.

 

Higher volumes led to a 23 per cent sequential growth in consolidated sales to Rs 26,000 crore for the December quarter. Volume growth, higher realisations due to a better product mix and lower incentives helped JLR achieve a 38 per cent rise in revenue to Rs 13,524 crore. Earnings before interest, depreciation, tax and amortisation margins at JLR improved to 9.8 per cent (from 3 per cent in the September quarter) as operating leverage and benefits of cost-cutting measures kicked in. Despite the doubling of depreciation charges, JLR managed to post a profit of Rs 379 crore, as compared to a loss of Rs 414 crore in the September quarter. JLR will now pin hopes on the launch of its Jaguar XJ model to boost revenues and profits in the coming quarters.

Consequently, Tata Motors’ consolidated net profit was Rs 650 crore in the December quarter, as compared to Rs 22 crore in the September quarter (Rs 2,600 crore loss in the December 2008 quarter).

The stock has multiplied six times from its March 2009 lows, say analysts. At Rs 811, it is currently trading at a reasonable 14 times 2010-11 earnings estimate.

With contributions from Ram Prasad Sahu and Puneet Wadhwa