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Tata Motors cons. 3QFY10: JLR shines - Views on News from Equitymaster
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Tata Motors cons. 3QFY10: JLR shines
Feb 26, 2010

Performance summary
  • Consolidated topline grows 47% YoY during the quarter as JLR puts in a strong performance
  • Operating profits come back into the black and margins show a strong improvement as opposed to a small loss during same quarter last year
  • Lower extraordinary losses and strong operating show results into a profit of Rs 6.5 bn at the net level as compared to a huge loss of Rs 26 bn during same quarter last year
  • Consolidated bottomline for the nine month period also swings into profit on the back of a 15% YoY growth in topline

(Rs m) 3QFY09 3QFY10 Change 9mFY09 9mY10 Change
Net sales 177,033 260,443 47.1% 551,849 635,415 15.1%
Expenditure 183,456 230,725 25.8% 527,379 585,610 11.0%
Operating profit (EBDITA) (6,423) 29,718   24,470 49,805 103.5%
EBDITA margin (%) -3.6% 11.4%   4.4% 7.8%  
Other income 1,206 47 -96.1% 7,969 7,325 -8.1%
Interest (net) 7,142 5,458 -23.6% 16,338 16,883 3.3%
Depreciation 6,522 13,072 100.4% 16,580 29,994 80.9%
Profit before tax (18,881) 11,235   (479) 10,253  
Extraordinary income/(expense) (8,445) (2,342) -72.3% (26,622) (1,186) -95.5%
Tax (1,187) 2,429 -304.7% 811 5,966 636.0%
Profit after tax/(loss) from ord. activity (26,139) 6,464   (27,912) 3,101  
Share of minority interest (332) 155   57 62  
Profit/(Loss) from inv. in ass. Cos (181) 194   (240) 393  
Profit after tax/(loss) (25,988) 6,503   (28,209) 3,433  
Net profit margin (%) -14.7% 2.5%   -5.1% 0.5%  
No. of shares (m) 514.1 544.0   514.1 544.0  
Diluted earnings per share (Rs)*         (91.6)  
Price to earnings ratio (x)*         n.a.  
* on trailing twelve months earnings

What has driven performance in 3QFY10?
  • The 47% YoY growth in the consolidated topline has been led by both the domestic operations as well as the company’s biggest subsidiary Jaguar Land Rover. While standalone revenues had come in higher by 63% YoY, JLR revenues witnessed a growth of 38% YoY as improved market confidence in the automotive sector and new model launches helped boost volumes. As far as the other subsidiaries are concerned, there was a mixed picture that emerged. While a couple of subsidiaries like Tata Daewoo and Tata Technologies witnessed a small fall in revenues, others like Tata Motorfinance and HV Transmissions and HV Axles witnessed a pretty strong jump in topline.

    Cost break-up…
    (Rs m) 3QFY09 3QFY10 Change 9mFY09 9mY10 Change
    Raw materials 116,186 174,368 50.1% 368,884 427,464 15.9%
    % sales 65.6% 67.0%   66.8% 67.3%  
    Staff cost   20,421   22,751 11.4% 54,434   66,164 21.5%
    % sales 11.5% 8.7% 9.9% 10.4%
    Other expenditure   46,849   33,606 -28.3% 104,060   91,982 -11.6%
    % sales 26.5% 12.9% 18.9% 14.5%  

  • A massive reduction in other expenditure as a percentage of sales has seen the consolidated operating margins jump to a strong 11.6% during the quarter as opposed to a negative 3.6% during corresponding previous quarter. While the reasons behind the same has not been articulated by the management, it should be noted that most of this reduction must have come at the JLR level as other expenses for standalone entity had actually shown a significant rise during the quarter. The company has also managed to bring down employee costs, thus further boosting its margins. The fall in employee costs seemed a consequence of the workforce reduction that has taken place at JLR.

  • Notwithstanding the huge jump in depreciation charges and a fall in other income, the company has managed to post a profit of Rs 6.5 bn during the quarter as opposed to a loss of Rs 26 bn during the same quarter last year. Besides strong operating performance, significantly lower other expenses have also contributed towards the consolidated bottomline.

What to expect?
At the current price of Rs 806, the stock trades at a discount of around 7% to the sum of the parts valuation of Rs 870 from a medium term perspective. While the improvement at JLR is indeed heartening, it should be noted that we have valued JLR on an asset valuation method rather than using earnings valuation. And since the company is still in early stages of its revival and also taking into account its strong capex needs, we do not feel the need to revise our valuations for JLR. Furthermore,

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