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Tata Motors: Strong show at JLR
Feb 12, 2014

Tata Motors has announced its results for the quarter ended December 2013 recently. The company reported a robust 38.6% YoY increase in revenues, while net profits grew by 195.2% YoY on a consolidated basis. Here is our analysis of the results.

Performance summary
  • Net sales grow by 38.6% YoY on a consolidated basis during the quarter largely on account of strong performance by Jaguar Land Rover (JLR).
  • Operating margins improve by 3.3% to 15.6% YoY during the quarter on account of overall decline in the operating costs.
  • Led by the strong growth in revenues and operating profits, net profits grow around three fold on a year on year basis. Excluding the impact of extraordinary items during both the periods, net profit growth stands at 173.7% YoY.

Consolidated financial summary
(Rs m) 3QFY13 3QFY14 Change 9mFY13 9mFY14 Change
Net sales 460,895 638,768 38.6% 1,328,160 1,675,438 26.1%
Expenditure 404,322 539,283 33.4% 1,160,702 1,427,410 23.0%
Operating profit (EBDITA) 56,573 99,485 75.9% 167,458 248,028 48.1%
EBDITA margin (%) 12.3% 15.6%   12.6% 14.8%  
Other income 1,886 1,575 -16.5% 6,341 5,719 -9.8%
Finance costs 9,346 10,012 7.1% 25,863 30,612 18.4%
Depreciation 20,700 28,527 37.8% 52,302 79,296 51.6%
Exceptional items (1,735) (1,243)   (6,242) (5,768)  
Profit before tax 26,679 61,277 129.7% 89,391 138,071 54.5%
Tax 10,318 13,086 26.8% 28,883 36,662 26.9%
Profit after tax/(loss) 16,360 48,191 194.6% 60,508 101,409 67.6%
Share of profits of associates 67 -58   -379 -292  
Minority interest -152 -85   -658 -389  
Net profit after taxes 16,275 48,048 195.2% 59,471 100,727 69.4%
Net profit margin (%) 3.5% 7.5%   4.5% 6.0%  
No. of shares (m)         3,218.9  
Diluted earnings per share (Rs)*         43.5  
Price to earnings ratio (x)*         8.7  
(* On a trailing 12-month basis, adjusted for extraordinary items)

What has driven performance in 3QFY14?
  • Tata Motors reported a robust revenue growth of 38.6% YoY for the quarter. The growth was mainly driven by JLR while the standalone entity posted a decline of 26.9% YoY.

  • For the standalone entity (Indian operations), the sales volumes (including exports) in both commercial and passenger segment declined by 35.7% YoY. The domestic scenario remained weak due to slowdown in economic activity and a high interest rate environment. Besides, the domestic industry was adversely impacted on account of fuel price increases, lower fleet utilization, tight financing environment, lower vehicle resale prices and stagnant freight rates. In the M&HCV segment, the market share of the standalone entity improved by 2% YoY during the quarter on account of value added services and new launches.

  • The wholesale and retail sales volumes for JLR grew by 22.7% YoY and 26.5% YoY respectively. The growth was registered both on account of new launches and higher volumes in the newer XF and XJ derivatives. Overall, a richer product mix and a better geographic mix also helped matters.

  • The overall operating margins improved by 3.3% to 15.6% YoY on account of efficient cost control. The raw material cost declined to 62.6% during the quarter versus 64.4% in 3QFY13 (both as a % of sales). Other expenses, product development costs and employee expenses (all as percentage of sales) were also lower on a YoY basis.

    Cost break-up
    (Rs m) 3QFY13 3QFY14 Change 9mFY13 9mFY14 Change
    Raw materials/ purchases 296,714 399,607 34.7% 851,420 1,034,680 21.5%
    % sales 64.4% 62.6%   64.1% 61.8%  
    Staff cost 43,529 58,503 34.4% 121,617 154,905 27.4%
    % sales 9.4% 9.2%   9.2% 9.2%  
    Product development expenses 4,865 6,167 26.8% 14,937 17,886 19.7%
    % sales 1.1% 1.0%   1.1% 1.1%  
    Other expenditure* 59,214 75,007 26.7% 172,729 219,939 27.3%
    % sales 12.8% 11.7%   13.0% 13.1%  
    Total expenditure 404,322 539,283 33.4% 1,160,702 1,427,410 23.0%
    % sales 87.7% 84.4%   87.4% 85.2%  

  • Led by the strong growth in revenues and operating profits, net profits zoomed nearly threefold with net profit margins at 7.5% in 3QFY14 as compared to 3.5% in 3QFY13. Exlcuding extraordinary items, the net profits grew by 173.7% YoY. While the standalone entity registered losses at the operating level, a surge in the other income led to net profits (for the standalone entity) of Rs 12.5 bn in 3QFY14, as compared to net losses of Rs 4.6 bn in 3QFY13.
What to expect?

At the current price of Rs 377, the stock trades at a multiple of 7.4 times its trailing twelve month earnings on a consolidated basis. As per the management, in the domestic segment, weak economic sentiments are likely to keep the industry under pressure for FY14 and early FY15. High competition in the domestic segment is likely to keep marketing costs high. The company expects recent product launches to drive growth and will be focusing on export potential and new product launches.

As far as JLR is concerned, sales momentum is likely to continue with new product launches. The management expects capital spending to increase to around GBP 3.5-3.7 bn. In the light of current valuations, we have a 'Sell' rating on the stock.

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