Tata Motors Q1 show marred by China woes

India revenues grow 21% on higher commercial vehicle and passenger vehicles sales

Slowing sales and activism by dealers in China have hurt Tata Motors’ June quarter numbers, with consolidated net profit falling 49 per cent to Rs 2,768 crore. The declining sales of Jaguar Land Rover in China and a less favourable product mix have impacted consolidated revenues, too, which declined six per cent year-on-year (y-o-y) to Rs 61,020 crore.

In China, JLR has been facing customers’ ire over product recalls and pricing of the locally manufactured Evoque, which has hurt sales. Other than this, dealers, too, have come together to form and alliance, which has forced JLR to renegotiate sales targets and dealer margins. All this put together has hurt sales and profitability. China is critical to JLR's growth and this quarter's performance only accentuates the fact that the company needs to get its strategy right there. During the quarter, China’s share in JLR sales has fallen to 14 per cent from 29 per cent in the year-ago period.

During the quarter, Land Rover retail volumes rose 0.8 per cent to 96,800 units. Jaguar retail volume of declined 7.4 per cent to 18,100 on lower sales of XF and XJ ahead of all new XF and XJ launch. China as a market has a preference for Land Rover compared to Jaguar. Given the issues facing the brand in China, JLR expects sales in the current year to be lower compared to previous years. JLR’s profitability has been severely hit compared with the corresponding quarter last year, with operating margins dipping 382 basis points y-o-y to 16.5 per cent. Issues at JLR have dragged consolidated margins down, too. Analysts expect margins to remain under pressure till volumes pick up in China.

 

On the other hand, the domestic business has come to the rescue in the June quarter, with net revenues growing 21 per cent y-o-y to Rs 9,290 crore. According to the company, fleet replacement demand mainly in the high tonnage segment, continued to support sales growth in the domestic medium and heavy commercial vehicles segment in the quarter. Light commercial vehicles continued to decline during the quarter. On the back of strong demand and lower raw material prices, the domestic business has reported a net profit of Rs 260 crore. The operating margin at the standalone level stood at 4.7 per cent, up 196 basis points sequentially. This is higher than the Street's estimates. Nitesh Sharma of Phillip Capital says: “The standalone business surprised positively with Ebitda (earnings before interest, taxes, depreciation and amortisation) margin of 4.7 per cent against an estimate of 2.2 per cent. Despite the challenges faced by JLR in China, JLR results were in line with our estimates and should allay some investor concerns on margins due to deteriorating product/country mix.”