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Tata Motors: The JLR fright - Views on News from Equitymaster

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Tata Motors: The JLR fright
Jun 27, 2009

Performance summary
  • Tata Motors, India’s largest CV manufacturer announced its consolidated full year FY09 results yesterday. The results are not exactly comparable because this year’s results include financials for Jaguar Land Rover (JLR), the luxury car marquee that it acquired during the fiscal.
  • On a standalone basis, while the company reported a profit of Rs 10 bn for the full year, it has reported a loss of Rs 25 bn for its consolidated operations, due mainly to the poor performance of JLR.
  • The company’s consolidated operating margins have also suffered a huge blow, falling from 11.9% in FY08 to a meager 3.1% in FY09. Besides, interest costs and depreciation charges have also come in significantly higher


Consolidated results…
(Rs m) FY08 FY09 Change
Net sales 356,601 709,389 98.9%
Expenditure 314,109 687,424 118.8%
Operating profit (EBDITA) 42,492 21,965 -48.3%
EBDITA margin (%) 11.9% 3.1%  
Other income 2,675 7,990 198.7%
Interest (net) 7,431 19,309 159.9%
Depreciation 8,480 28,545 236.6%
Profit before tax 29,256 (17,900)  
Extraordinary inc/(exp) 1,607 (3,393)  
Tax 8,515 3,358 -60.6%
Profit after tax/(loss) 22,348 (24,650)  
Share of minority interest (1,323) 115  
Profit/(Loss) in respect of investments in associate 652 (517)  
Net Profit after tax/(loss) 21,677 (25,053)  
Net profit margin (%) 6.3% -3.5%  
No. of shares (m) 385.5 514.1  
Diluted earnings per share (Rs)*   (56.9)  
Price to earnings ratio (x)**   n.a.  
(* annualised, ** on trailing twelve months earnings)

What has driven performance in FY09?
  • Although JLR made a handsome profit in 2007 and also during the first half of 2008, the global meltdown that followed severely impacted the global auto industry and JLR was no exception. The company’s total volumes fell 10% during the calendar year 2008 and between June 08 and March 09, the period that it spent as a part of Tata Motors, the overall decline in volumes stood at a disappointing 32%. Since this was below the break even needed to turn operations profitable, company’s losses came in at GBP 306 m (approx Rs 24.5 bn at today’s exchange rates)

  • As per the note on the company’s results, JLR has actively responded to this situation by taking a number of urgent and long term measures. These include cutting costs drastically and working on a plan of substantial cost reduction and tight control over cash flows.

  • The company’s other subsidiaries also bore the brunt of economic slowdown. Tata Daewoo Commercial Vehicles’ profit fell 30% as volumes fell 23%, Telcon, its construction equipment business also saw profits plunge 86% from FY08 levels. Tata Motors finance, yet another subsidiary, posted losses to the tune of Rs 1.2 bn as it made higher provisions for NPAs.

What to expect?
In the short run, unless JLR volumes recover significantly, it will continue to remain drag on the company’s financial performance. However, we remain positive from a long term perspective as we believe that JLR has the portfolio of products to become self sustaining and maybe even contribute towards the group’s profits. Not to forget the enormous synergies that could accrue to Tata Motors’ domestic operations. Having said that, if the slowdown lasts longer than anticipated, the leveraged balance sheet of the consolidated entity may emerge as a cause of concern.

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