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Tata Finance: Business under pressure

Feb 25, 2002

Tata Finance continued to report loss in the second quarter ended December 2001. Cumulative losses of the company stood at Rs 730 m for the first half of FY02. The company's business has been severely impacted after the fiasco of its wholly owned subsidiary Niskalp Investments. This is reflected from a 21% drop in Tata Finance' income from operations.

(Rs m) 2QFY01 2QFY02 Change 1HFY01 1HFY02 Change
Income from Operations 1,433 1,222 -14.7% 2,835 2,255 -20.5%
Other Income 88 49 -44.5% 128 96 -25.0%
Interest & depreciation 1,124 1,041 -7.4% 2,190 2,084 -4.9%
Net interest income 310 181 -41.4% 645 171 -73.5%
Other Expenses 210 187 -10.7% 383 383 0.3%
Operating Profit 100 (6) - 262 (213) -
Operating Profit Margin (%) 7.0% -0.5%   9.3% -9.4%  
Provisions and Contingencies 64 230 256.9% 171 242 41.4%
Profit before Tax 123 (187) - 219 (359) -
Extraordinary items - (370) - - (370) -
Tax 20 1 -96.3% 31 1 -95.9%
Profit after Tax/(Loss) 103 (558) - 188 (730) -
Net Profit Margin (%) 7.2% -45.6%   6.6% -32.4%  
No. of Shares (m) 45.5 45.5   45.5 45.5  
Diluted Earnings per share* 9.0 -49.1   8.3 -32.1  

The company's net income reported a steep decline of 74% on the back of its high cost of borrowings. Interest paid by Tata Finance in 1HFY02 declined by 6% compared to a 21% fall recorded in its topline. This coupled with a sharp rise in cost to income ratio to 144% in 1HFY02 (from 50% in 1HFY01) dragged down the company's performance. The company reported operating loss of Rs 213 m for the first half of the current fiscal as against operating profits of Rs 262 m in the comparable previous period. (Extra ordinary expenses of Rs 370 m are mainly from provision against exposure on inter corporate deposits.)

Tata Finance has initiated a restructuring exercise to revive its business. It aims to focus on its core business of auto finance and exit from all unrelated areas. The company is in the process of disposing off its stake in Tata Finance Amex (card subsidiary) and it has provided for the estimated loss in this respect.

Tata Finance, being a non-banking finance company (NBFC) is facing stiff competition from banks, which have recently forayed into this area. Banks with comparatively low cost of deposits offer loans at a much competitive rates than NBFCs. Its nearest competitor Kotak Mahindra has received the RBI's approval for converting into a bank. This will also pressurize the company's business in the coming years. The company, which traditionally enjoyed premier status in auto finance market is now facing challenging business conditions.

The company's stock price bounced back sharply from a 52 week low of Rs 13 touched in November 2001 to Rs 23 currently. The sharp rise in stock price could be on the back of general upbeat sentiment in the finance sector.

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