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Tata Motors: JLR ups the ante
May 27, 2011

Tata Motors announced the fourth quarter results of financial year 2010-2011 (4QFY11). The company's consolidated revenues grew by 23% YoY during the quarter, while profits rise by 273% YoY. Here is our analysis of the results.

Performance summary
  • Consolidated revenues rise by 33% YoY during the year as growth is led by both the standalone and Jaguar Land Rover businesses.
  • Revenues of Tata (and other brands; including spares and financing) increased by 30% YoY during the year, while JLR's revenues grow by 42% YoY (not adjusted for intersegment revenues).
  • Operating profits grow by a healthy 107% YoY during the year as margins expand by 4.9% YoY to 13.7% largely led by a significant ramp up in margins of the JLR business.
  • Consolidated profits rise by 220% YoY during the year (excluding extraordinary items) led by a strong operating performance and lower interest costs.

Consolidated financial performance
(Rs m) 4QFY10 4QFY11 Change FY10 FY11 Change
Sales 293,665 361,782 23.2% 925,193 1,231,333 33.1%
Expenditure 258,482 311,387 20.5% 844,033 1,063,158 26.0%
Operating profit (EBDITA) 35,183 50,395 43.2% 81,160 168,175 107.2%
Operating profit margin (%) 12.0% 13.9%   8.8% 13.7%  
Other income 6,778 (5,420)   17,931 896 -95.0%
Interest (net) 5,514 4,532 -17.8% 22,397 20,454 -8.7%
Depreciation 8,878 13,104 47.6% 38,871 46,555 19.8%
Exceptional items (1,410) 1,774   (2,596) 2,310  
Profit before tax 26,160 29,113 11.3% 35,226 104,372 196.3%
Tax 4,092 2,884 -29.5% 10,058 12,164 20.9%
Share of profit in associates 452 348 -23.0% 845 1,014 19.9%
Minority interest (241) (202)   (303) (485)  
Profit after tax/(loss) 22,278 26,375 18.4% 25,711 92,736 260.7%
Net profit margin (%) 7.6% 7.3%   2.8% 7.5%  
No. of shares (m)         637.7  
Diluted earnings per share (Rs)*         141.8  
P/E ratio (x)*         7.7  
*Adjusted for exceptional items

What has driven performance during FY11?
  • Tata Motors' consolidated revenues increased by 33% YoY during year. The revenue growth was led by the standalone business (up 30% YoY) as well as the Jaguar Land Rover (JLR) business (up 42% YoY). The company's standalone business was driven by the commercial vehicle segment, whose volumes increased by 23% YoY and formed about 55% of the total volumes. Total standalone sales volumes stood at over 836,000 units, while total global volumes stood at over 1,080,000 units for the year. Within the CV space, volumes were driven by the M&HCV segment (27% YoY), while volumes in the LCV segment grew by 20% YoY. Passenger vehicle and utility vehicle volumes (including JLR vehicles) in the domestic market also increased by 23% YoY during the year with sales of the Nano crossing the 100,000 mark. There was a strong 70% YoY increase in exports during the quarter as well, led by higher CV volumes. Tata Motors' market share in the commercial vehicle space stood at 61.8% while that in passenger vehicles was 13% during the year. Realisations also improved as the company took cumulative price increases of 5.3% and 4.6% on commercial vehicles and passenger cars respectively during the year.

    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. Improved market conditions, better market mix with strong growth in China, continued strong response to product launches and favourable exchange rates all did their bit in bolstering performance. This also led to a better than expected performance at the operating level as the company's EBIDTA margins stood in the region of 11% during the year. In terms of wholesale volumes, total JLR sales were up by 26% YoY. Land Rover volumes were up by 30% YoY during the year, while that of Jaguar were up 12% YoY.

    Segmental performance
    (Rs m) 4QFY10 4QFY11 Change FY10 FY11 Change
    Tata and other brands* 134,722 156,691 16% 403,593 523,308 30%
    % of sales 46% 44%   43% 42%  
    PBIT 12,475 11,175 -10% 37,581 43,424 16%
    PBIT margins 9% 7%   9% 8%  
    Jaguar and Land Rover 145,715 198,248 36% 493,442 702,186 42%
    % of sales 50% 55%   53% 57%  
    PBIT 6,877 20,100 192% 538 76,998  
    PBIT margins 5% 10%   0% 11%  
    Others 11,009 4,377 -60% 34,380 15,305 -55%
    % of sales 4% 1%   4% 1%  
    Total# 291,446 359,316 23% 931,415 1,240,799 33%
    *Includes vehicles / spares and financing thereof; #Excludes inter segment revenues

  • Tata Motors' consolidated operating profits increased by a strong pace of 107% YoY as operating margins expanded to 13.7% as compared to 8.8% during FY10. 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 year (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 during the year which helped in softening the pressure from high input costs to some extent. JLR's PBIT margins came in at about 11% as compared to nil last year. On the other hand, the standalone business' PBIT margins declined to about 8% in FY11 from 9% last year.

    Cost breakup...
    (Rs m) 4QFY10 4QFY11 Change FY10 FY11 Change
    Raw materials 187,647 232,692 24.0% 614,954 790,084 28.5%
    % of sales 63.9% 64.3%   66.5% 64.2%  
    Staff cost 21,354 24,930 16.7% 87,518 93,427 6.8%
    % of sales 7.3% 6.9%   9.5% 7.6%  
    Product development expenses 2,337 3,486 49.2% 4,982 9,625 93.2%
    % of sales 0.8% 1.0%   0.5% 0.8%  
    Other expenditure* 47,145 50,278 6.6% 136,579 170,023 24.5%
    % of sales 16.1% 13.9%   14.8% 13.8%  
    Total 258,482 311,387 20.5% 844,033 1,063,158 26.0%
    *Including amount capitalised

  • Tata Motors’ consolidated net profits increased by 220% YoY (excluding extraordinary items) during FY11. Growth was largely led by a strong operating performance and lower interest costs. Relatively benign increase depreciation charges also played its part in boosting profits.

What to expect?
At the current price of Rs 1,089, the stock is trading at a multiple of 8.1 times its trailing twelve month consolidated earnings per share. Going forward, Tata Motors intends to focus on improving its product portfolio and customer service in an environment where competitive pressures have increased. The focus will also be on reducing costs. Having said that, factors such as rising input costs, interest rates, fuel costs will likely add pressure to the auto industry’s growth in the medium term and Tata Motors will not be immune from the same. Entering into new long term raw material contracts 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.

The company’s sales growth has come in higher than we had estimated and we shall have to upgrade out number for the year accordingly. However, keeping the abovementioned factors in mind, we maintain a cautious view on the stock at these levels.

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