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Tata Motors: JLR drives performance
Jun 1, 2013

Tata Motors announced its results for the quarter ended March 2013 recently. The company reported a 10% YoY increase in revenues, while net profits fell by 37% YoY on a consolidated basis. Here is our analysis of the results.

Performance summary
  • Net sales grow by 10% YoY on a consolidated basis during the quarter largely on account of strong growth in revenues from Jaguar Land Rover (JLR).
  • Operating profits grow by 16% YoY as margins improve by 0.7% YoY to 13.9%.
  • Despite the growth in operating profits, net profits plunge 37% YoY on account of a substantial rise in depreciation charges as well as higher interest costs.

Consolidated financial performance
(Rs m) 4QFY12 4QFY13 Change FY12 FY13 Change
Net sales 509,079 560,016 10.0% 1,656,545 1,888,176 14.0%
Expenditure 441,634 482,001 9.1% 1,433,433 1,642,703 14.6%
Operating profit (EBDITA) 67,445 78,015 15.7% 223,112 245,473 10.0%
EBDITA margin (%) 13.2% 13.9%   13.5% 13.0%  
Other income 1,586 1,775 11.9% 6,618 8,115 22.6%
Finance costs 7,721 9,670 25.2% 29,822 35,533 19.2%
Depreciation 15,354 23,391 52.3% 56,254 75,693 34.6%
Exceptional items (1,713) 215   (8,315) (6,027)  
Profit before tax 44,243 46,943 6.1% 135,339 136,335 0.7%
Tax (18,261) 8,827   (400) 37,710  
Profit after tax/(loss) 62,504 38,117 -39.0% 135,739 98,625 -27.3%
Share of profits of associates 75 1,517   249 1,138 356.6%
Minority interest (239) (178)   (823) (837)  
Net profit after taxes 62,340 39,455 -36.7% 135,165 98,926 -26.8%
Net profit margin (%) 12.2% 7.0%   8.2% 5.2%  
No. of shares (m)         3,189.9  
Diluted earnings per share (Rs)*         32.9  
Price to earnings ratio (x)*         9.5  
(* On a trailing 12-month basis, adjusted for extraordinary items)

What has driven performance in FY13?
  • Tata Motors reported a revenue growth of 14% YoY for the full year and this was primarily on account of better sales of the Jaguar Land Rover business as operations in India continued to face pressure. As far as the Indian operations are concerned, as per the company, sluggish economic activity, weak macro environment affected freight availability which in turn put pressure on volumes in the M&HCV segment (which forms a huge chunk of the sales volumes). Revenues from the passenger vehicles business was also adversely impacted on account of the slowdown and intense competition.

    Commercial vehicles sales for the year stood at 536,232 units, higher by a mere 1% YoY. This was largely led by the healthy growth in LCVs, even as volumes of MHCVs plunged. At the end of the year, the company's market share in commercial vehicles space stood at 59.5%. Tata Motors' passenger car sales in the domestic market (including Fiat and Jaguar Land Rover vehicles) plunged 31% YoY to 229,325 units during the year. The company's market share in this space stood at 8.9% for the period till March 2013.

    As for JLR's global sales, volumes grew by 18% YoY to 372,062 units. This was a result of strong demand, recent product actions and growth in China. Product actions involved strong growth in Range Rover Evoque, launch of the all new Range Rover and smaller engine options for the Jaguar models XF and XJ. In terms of geographies, China continued to grow strongly accounting for 21.4% of wholesale volumes in FY13 (as against 17.3% in FY12).

  • Tata Motors' consolidated operating profits grew at a lower rate of 10% YoY as operating margins dropped by 0.5% to 13% during the year. While raw material costs during the year fell by 2.4% to 63.7% of sales, there was an increase in staff costs, product development expenses and other expenditure (all as a percentage of sales). The latter especially increased on account of higher marketing spends in a highly competitive environment.

    Cost break-up...
    (Rs m) 4QFY12 4QFY13 Change FY12 FY13 Change
    Raw materials/ purchases 333,991 351,791 5.3% 1,094,676 1,203,211 9.9%
    % sales 65.6% 62.8%   66.1% 63.7%  
    Staff cost 36,332 44,224 21.7% 122,985 165,841 34.8%
    % sales 7.1% 7.9%   7.4% 8.8%  
    Product development expenses 4,346 5,279 21.5% 13,892 20,216 45.5%
    % sales 0.9% 0.9%   0.8% 1.1%  
    Other expenditure* 66,965 80,707 20.5% 201,880 253,436 25.5%
    % sales 13.2% 14.4%   12.2% 13.4%  
    Total expenditure 441,634 482,001 9.1% 1,433,433 1,642,703 14.6%

  • Tata Motors' net profits fell by 27% YoY during the year on account of higher interest costs and substantial increase in depreciation charges.

What to expect?
At the current price of Rs 313, the stock trades at a multiple of 9.5 times its trailing twelve month earnings on a consolidated basis. Going forward, MHCVs are expected to witness pressure at least in the first half of FY14 as a significant economic recovery is yet to happen. LCVs, however, are expected to grow at a healthy pace. On the passenger vehicles front, headwinds will continue to exist in the form of intense competition, fuel price increases and increasing costs. The latter will especially be on higher marketing spends as the company aims to keep the demand for its products up against a highly competitive backdrop. Tata Motors also intends to improve distribution networks, customer engagement levels as well as refresh products. As far as JLR is concerned, the company has outlined capex of GBP 2.75 bn for FY14. Focus of this will be on new products, technologies and growing its manufacturing footprint in China. In light of the current valuations, we have a 'Sell' view on the stock.

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