Tata Motors: Exceptional losses spoil the show - Views on News from Equitymaster

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Tata Motors: Exceptional losses spoil the show

Aug 9, 2012

Tata Motors announced its results for the quarter ended June 2012 recently. The company reported a 30% YoY increase in revenues, while net profits increased by 12% YoY. Here is our analysis of the results.

Performance summary
  • Net sales grow by 30% YoY during the quarter led by higher volumes as well as a change in product mix.
  • Operating profits increase by 36% YoY as margins expand by 0.6% YoY to 13.3%. The same is largely due to lower raw material and purchase costs (as a percentage of sales).
  • Higher exceptional losses (including those on revaluation of foreign currency borrowings, deposits and loans), taxes and depreciation charges lower Tata Motor's profit growth for the quarter to 12% YoY.

Consolidated financial performance
(Rs m) 1QFY12 1QFY13 Change
Net sales 332,888 433,236 30.1%
Expenditure 290,530 375,687 29.3%
Operating profit (EBDITA) 42,358 57,549 35.9%
EBDITA margin (%) 12.7% 13.3%  
Other income 1,658 2,386 43.9%
Finance costs 8,556 8,044 -6.0%
Depreciation 11,432 15,659 37.0%
Exceptional items (570) (4,405)  
Profit before tax 23,458 31,827 35.7%
Tax 3,519 8,688 146.9%
Profit after tax/(loss) 19,939 23,139 16.0%
Share of profits of associates 96 (414)  
Minority interest (39) (276) 606.1%
Net profit after taxes 19,996 22,449 12.3%
Net profit margin (%) 6.0% 5.2%  
No. of shares (m)   3,190  
Diluted earnings per share (Rs)*   47.0  
Price to earnings ratio (x)*   5.1  
* On a trailing 12-month basis, adjusted for extraordinary items

What has driven performance in 1QFY13?
  • Tata Motors reported a revenue growth of 30% YoY. While sales from the company's standalone business declined by 10% YoY, higher sales of the Jaguar Land Rover business helped pull the overall consolidated revenues up. As per the company, weak macroeconomic parameters, excise duty increases and poor availability of freight resulted in pressure on volumes in the M&HCV segment (which forms a huge chunk of the sales volumes), thereby impacting the standalone business. In addition, competition also played its part in lowering the operating performance.

    The company's overall sales volumes (including exports) of commercial and passenger vehicles stood at 190,483 units. This figure is lower by 3.6% as compared to the corresponding quarter last year. Commercial vehicles sales for the quarter stood at 114,710 units, higher by just 1.3% YoY. At the end of the quarter, the company's market share in commercial vehicles space stood at 56.2%. Tata Motors' passenger car sales in the domestic market (including Fiat and Jaguar Land Rover vehicles) stood at 62,619 units (down by about 10% YoY).

    As for JLR's global sales, the same grew by 34.4% YoY to 83,452 units, with Jaguar contributing to about 14% of volumes and Land Rover contributing the rest. JLR business revenues grew by 57% YoY during the quarter. As can be inferred with the volume data mentioned earlier, the higher revenue growth is due to a change in product mix.

    Segmental performance (Consolidated)
    (Rs m) 1QFY12 1QFY13 Change
    Tata and other brands* 131,430 118,503 -10%
    % of sales 39% 27%  
    PBIT 9,155 7,608 -17%
    PBIT margins 7.0% 6.4%  
    Jaguar and Land Rover 198,776 312,096 57%
    % of sales 59% 72%  
    PBIT 36,560 33,598 -8%
    PBIT margins 18.4% 10.8%  
    Others 3,996 5,296 33%
    % of sales 1% 1%  
    Total# 334,202 435,896 30%
    *Includes vehicles / spares and financing thereof;
    #Excludes inter segment revenues

  • Tata Motors' consolidated operating profits grew at a faster pace of 36% YoY as compared to the 30% YoY increase in revenues. Lower input costs played a major role in this margin expansion of 0.6% YoY to 13.3% during 1QFY13. Coming to the profitability of the two businesses - standalone and JLR - it seems that JLR had a tough period as its PBIT margins declined sharply as compared to last year. However, on a QoQ basis, PBIT margins remained at similar levels. Profitability of the company's standalone operations remained relatively stable as compared to last year.

    Segmental performance (Consolidated)
    (Rs m) 1QFY12 1QFY13 Change
    Raw materials/ purchases 219,352 277,494 26.5%
    % sales 65.9% 64.1%  
    Staff cost 25,925 37,897 46.2%
    % sales 7.8% 8.7%  
    Product development expenses 2,259 4,797 112.4%
    % sales 0.7% 1.1%  
    Other expenditure* 42,994 55,499 29.1%
    % sales 12.9% 12.8%  
    Total expenditure 290,530 375,687 29.3%
    *Including amount capitalized

  • Tata Motors' net profits increased by 12% YoY. The company's profit growth has been pulled down by higher depreciation charges, higher exceptional losses as well as a higher tax outgo. However, on excluding exceptional items for both the periods, the profit growth stood at about 31% YoY.

What to expect?
At the current price of Rs 228, the stock trades at a multiple of 15.5 times our estimated FY14 cash flow per share on a standalone basis. Going forward, demand could be impacted by slower industrial growth and a weak economic outlook. However, the company expects interest rates to moderate. The company has observed demand pressure for MHCVs but LCVs 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 company expects customer preference to continue for diesel vehicles. Overall, the company intends to launch new products both in the CV and passenger vehicles space. As far as JLR is concerned, focus will be on investments in future capacities, new products and technologies. The company has outlined a capex of about GBP 2 bn in FY13 for JLR. Overall, we maintain our negative view on the stock.

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