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Tata Motors: The good times continue
Feb 11, 2011

Tata Motors announced its results for the quarter ended December 2010. The company’s consolidated revenues grew by 22% YoY during the quarter, while profits rise by 273% YoY. Here is our analysis of the results.

Performance summary
  • Consolidated revenues rise by 22% YoY during the quarter, 38% YoY during 9mFY11. Growth during the quarter led by both, the standalone and Jaguar Land Rover businesses.
  • Revenues of Tata (and other brands; including spares and financing) increase by 23% YoY during the quarter, while JLR’s revenues grow by 26% YoY (not adjusted for intersegment revenues).
  • Operating profits grow by 48% YoY during the quarter as margins expand by 2.5% YoY to 13.7%. Margin expansion is mainly on account of lower input and employee expenses during both the periods (1QFY11 and 1HFY11; as a percentage of sales).
  • Similar to the previous quarter, margins expansion is mainly on the back of the improving operating performance of the JLR business.
  • Consolidated profits rise by 273% YoY during the quarter led by a strong operating performance, coupled with higher other income, lower interest & depreciation costs as well as lower exceptional losses. On excluding the latter, net profits are higher by 178% YoY.


Consolidated financial performance
(Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
Sales 259,096 315,063 21.6% 631,528 869,551 37.7%
Expenditure 230,024 271,966 18.2% 585,551 751,771 28.4%
Operating profit (EBDITA) 29,071 43,097 48.2% 45,977 117,780 156.2%
Operating profit margin (%) 11.2% 13.7%   7.3% 13.5%  
Other income 693 1,888 172.3% 11,153 6,316 -43.4%
Interest (net) 5,458 4,993 -8.5% 16,883 15,922 -5.7%
Depreciation 13,072 12,388 -5.2% 29,994 33,452 11.5%
Exceptional items (2,342) (327) (1,186) 536 -145.2%
Profit before tax 8,893 27,277 206.7% 9,067 75,259  
Tax 2,429 3,188 31.3% 5,966 9,280 55.6%
Share of profit in associates 194 263 35.9% 393 666 69.3%
Minority interest (155) (108) -30.3% (62) (284) 356.8%
Profit after tax/(loss) 6,503 24,244 272.8% 3,433 66,361 1833.3%
Net profit margin (%) 2.5% 7.7%   0.5% 7.6%  
No. of shares (m)         633.0  
Diluted earnings per share (Rs)*         145.2  
P/E ratio (x)*         7.9  
*Adjusted for exceptional items

What has driven performance in 3QFY11?
  • Tata Motors' consolidated revenues increased by 22% YoY during the quarter ended December 2010. The revenue growth was led by the standalone business (up 28% YoY) as well as the Jaguar Land Rover (JLR) business (up 26% YoY). The company's standalone business was driven by the commercial vehicle segment, whose volumes increased by 21% YoY and formed about 59% of the total volumes. Total sales volumes stood at over 194,000 units. Within the CV space, volumes were driven by the LCV segment (24% YoY), while volumes in the M&HCV segment grew by 17% YoY. Passenger vehicle and utility vehicle volumes (including JLR vehicles) increased by 5% YoY during the quarter. There was a strong 55% YoY increase in exports during the quarter as well, led by higher CV volumes. Tata Motors gained some market share in the commercial vehicle space during the quarter.

    As for the JLR business, the revenue surge was led by both higher volumes coupled with better realisations as the product mix changed in favour of the company. This also led to a better than expected performance at the operating level as the company's EBIDTA margins stood in the region of 17% plus. In terms of wholesale volumes, total JLR sales were up by 11% YoY. Land Rover volumes were up by 15% YoY during the quarter, while that of Jaguar were flat.

    Segmental performance
    (Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
    Tata and other brands* 103,678 127,170 23% 268,871 366,617 36%
    % of sales 40% 40%   42% 42%  
    PBIT 11,550 10,717 -7% 25,106 32,249 28%
    PBIT margins 11% 8%   9% 9%  
    Jaguar and Land Rover 149,472 188,344 26% 347,727 503,938 45%
    % of sales 57% 59%   54% 57%  
    PBIT 4,824 21,575 347% (6,339) 56,898  
    PBIT margins 3% 11%   -2% 11%  
    Others 8,541 3,771 -56% 23,371 10,928 -53%
    % of sales 3% 1%   4% 1%  
    Total# 261,691 319,286 22% 639,969 881,483 38%
    *Includes vehicles / spares and financing thereof; #Excludes inter segment revenues

  • Tata Motors' consolidated operating profits increased by a strong pace of 172% YoY as operating margins expanded to 13.7% as compared to 11.2% during 3QFY10. As seen from the table displayed above, the performance at the PBIT level was driven by the improvement in the operating performance of JLR. On an overall basis, the company was able to keep the input cost component (the main cost head) under control, which helped it improve its margins. While the standalone business' profitability was under pressure this quarter (on the back of rising input costs), JLR's performance was driven by higher sales volumes as well as better realisations. The company's senior management also stated that raw material prices were hurting margins. However, the company had upped prices which helped in softening the pressure from high input costs.

    JLR's PBIT margins came in at about 11% as compared to 3% last year. On the other hand, the standalone business' PBIT margins declined at about 8% from 11% during the corresponding period last year.

    Cost breakup...
    (Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
    Raw materials 174,279 202,424 16.1% 427,307 557,391 30.4%
    % of sales 67.3% 64.2%   67.7% 64.1%  
    Staff cost 22,751 24,266 6.7% 66,164 68,497 3.5%
    % of sales 8.8% 7.7%   10.5% 7.9%  
    Product development expenses 857 3,337 289.2% 2,645 6,139 132.1%
    % of sales 0.3% 1.1%   0.4% 0.7%  
    Other expenditure* 32,137 41,940 30.5% 89,435 119,745 33.9%
    % of sales 12.4% 13.3%   14.2% 13.8%  
    Total 230,024 271,966 18.2% 585,551 751,771 28.4%
    *Including amount capitalised

  • Tata Motors' consolidated net profits increased by 273% YoY during the quarter ended December 2010. While growth was largely led by a strong operating performance, higher other income and lower exceptional items (forex losses) also boosted the PBIT figures. In addition, lower interest and depreciation charges also played their part in boosting profits. Excluding the exceptional items (during both the quarters), profits are higher by 178% YoY.

  • As for the performance during 9mFY11, the company's revenues came in higher by 38% YoY, again led by the growth in its standalone and JLR businesses. Operating profits during the period increased by 156% YoY as margins expanded to 13.5% from 7.3% last year. All costs heads were lower (as a percentage of sales) as compared to last year. Tata Motors' consolidated profits surged by over 18 times as net profit margins expanded to 7.6% as compared to 0.5% during 9mFY10.

What to expect?
At the current price of Rs 1,145, the stock is trading at a multiple of 8.3 times its trailing twelve month consolidated earnings per share. Given that many factors - rising input costs, interest rates, fuel costs - seem to be adding pressure to the auto industry's growth in recent times, Tata Motors is not looking at any more price hikes to maintain its volumes growth. The company announced a price hike in October last year and January this year. The focus forward will be on reducing costs. While the management does not expect any major price increases going forward, the fact that the company will be entering into new long term raw material contracts in the next quarter will play a key role on the company's profitability going forward.

As for JLR's performance, it continues to remain robust on the back of strong demand for the new launches from various geographies. Notwithstanding its current performance, we however stick to our view of JLR being cyclical in nature and also a capital intensive one and thus believe that viewing it on the basis of just its recent financials should be avoided.

Keeping these factors in mind, we maintain a cautious view on the stock at these levels.

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