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Tata Motors Ltd: Dismal Quarter, Long way to go! - Views on News from Equitymaster
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Tata Motors Ltd: Dismal Quarter, Long way to go!
Feb 16, 2017

Tata Motors Ltd has announced its financial results for the third quarter of the financial year 2016-17 (3QFY17). The quarter came as a big surprise and consolidated revenue for the quarter was down by 4.3% YoY and net profits were down by 96%.

Performance summary
  • For 3QFY17, on a consolidated basis, revenue was down by 4.3% YoY. Both the Indian and Jaguar & Land Rover (JLR) operations disappointed during the quarter. While the India business was badly impacted by the demonetisation, the JLR disappointment was a surprise.
  • On a consolidated basis, volumes were up by 1.4% (India - up 8.4%, JLR - down 5%) YoY. However, realisations were down 5.6% (India - down 6.1%, JLR - up 19%).
  • The disappointment in the India business was largely due to the demand shrinkage in the Commercial Vehicle segment which was severally impacted by the demonetisation (partially offset by good response in the passenger vehicle segment, up 22% YoY).
  • Even though the whole sale volumes for the JLR were down by 5% YoY, the retail volumes were up by 8% YoY. The wholesale sales were largely impacted by the phase out of 'Discovery'. For the quarter Jaguar sales were up 63% YoY and Land Rover sales were down 22% (due to discovery phase out).
  • The surprise came on the operating profits side. Operating profits for the quarters declined by 41.7% YoY with margins contracting by 490 bps to 8%. This was on the back of several reasons i.e. 1) Negative operating leverage in the domestic business; 2) Unfavourable product mix in the JLR business (phase out of high margin 'Discovery'); 3) High product development and marketing cost; 4) Hedging loss and 5) Extended 16MY run out expenses in the US.
  • The subdued operating performance led to pressure in the net profits. On a consolidated basis net profits were down by 96% YoY.

    Consolidated Financial Performance Snapshot
    (Rs m) 3QFY16 3QFY17 Change
    No. of Vehicles sold 259,977 263,567 1.4%
    Net sales 705,921 675,313 -4.3%
    Expenditure 617,376 623,701 1%
    Operating profit (EBDITA) 88,545 51,612 -41.7%
    EBDITA margin (%) 13% 8% -490.05
    Other income 1,928 1,674 -13.2%
    Depreciation 42,620 42,300 -0.8%
    Interest 11,383 8,707 -23.5%
    Profit before tax 36,471 2,280 -93.7%
    Exceptional Items (Tinjn Blast Recovery) -2,332 3,706 -
    Profit before tax 34,139 5,986
    Tax 6,689.80 8,669.50 29.6%
    Profit after tax / (loss) 27,449 -2,684 -109.8%
    Minority Interest -186.20 -178.00 -4.4%
    Shares of Associates 2,078 3,799 82.8%
    Adj. Net Profit 29,341 937.7 -96.8%
    Net profit margin (%) 3.9% -0.4% -428.57
    No. of shares (m) 3,395.9
    Diluted earnings per share (Rs)* 24.5
    Price to earnings ratio (x)* 17.81

    *trailing twelve-month earnings

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