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Tata Motors: Good all round performance - Views on News from Equitymaster

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Tata Motors: Good all round performance
Aug 10, 2010

Tata Motors has announced its June quarter results. The company has reported a 63% growth in topline and a 23% fall in bottomline respectively on a standalone basis. Here is our analysis of the results.

Performance summary
  • Standalone topline grows by 63% YoY during the quarter
  • Company reports flat operating margins, resulting in a 62% growth in operating profits on a standalone basis
  • Bottomline suffers a fall of 23% YoY mainly on account of one off other income during same quarter last year. Excluding the same, net profits grow by 68% YoY
  • Consolidated bottomline reports a strong net profit of Rs 19.9 bn as against a loss of Rs 3.2 bn during same quarter last year. Topline grows by 64% YoY on a consolidated basis.


Financial performance snapshot
 
Standalone
Consolidated
(Rs m) 1QFY10 1QFY11 Change 1QFY10 1QFY11 Change
Sales 64,040 104,163 62.7% 164,730 270,556 64.2%
Expenditure 56,760 92,416 62.8% 158,770 231,023 45.5%
Operating profit (EBDITA) 7,280 11,747 61.4% 5,959 39,533 563.4%
Operating profit margin (%) 11.4% 11.3%   3.6% 14.6%  
Other income 3,194 693 -78.3% 3,211 346 -89.2%
Interest 2,535 3,140 23.9% 5,835 5,616 -3.8%
Depreciation 2,403 3,263 35.8% 9,373 11,094 18.4%
Profit before tax 5,536 6,036 9.0% (6,038) 23,168  
Tax 343 1,419 314.0% 643 2,960 360.7%
Share of profit in associates NA NA   51 (63)  
Minority interest NA NA   3 156 5892.3%
Extraordinary income/(expense) (55) (660) 1090.6% 3,339 (414)  
Profit after tax/(loss) 5,138 3,957 -23.0% (3,288) 19,887  
Net profit margin (%) 8.0% 3.8%   -2.0% 7.4%  
No. of shares (m) 514.1 670.8   514.1 670.8  
Diluted earnings per share (Rs)   37.2     85.7  
P/E ratio (x)   27.2     11.8  

What has driven performance in 1QFY11?
  • Standalone topline was higher by 63% YoY during the quarter. This was led by both improved realisations as well as higher volumes, with the latter being the major contributor. Overall standalone volumes increased by 49% YoY with the CV portfolio coming in higher by 39% and the passenger vehicle portfolio (incl sales of FIAT and JLR vehicles) growing by a strong 56% YoY. Exports also grew handsomely as revival in key exports markets helped push its growth by 135% YoY. Although the company lost market share in the CV segment during the quarter, it gained market share in passenger cars as models like Nano and Indigo Manza helped boost passenger car volumes substantially. Its market share in utility vehicles also took a marginal beating.

  • On the consolidated front, topline was higher by an impressive 64% YoY, thanks mainly to more than doubling of revenues of its overseas subsidiary JLR (in British Pound terms). Revival in economic activity in its key markets, favourable currency movements and better product mix helped drive the robust topline growth in JLR. JLR wholesale volumes (company sales to dealers) were higher by 65% YoY whereas retail volumes (dealer sales to end consumers) came in higher by 25% YoY, led by more than doubling of volumes in China and also strong growth in other regions like the US and Europe.

    Cost break-up...
     
    Standalone
    Consolidated
    (Rs m) 1QFY10 1QFY11 Change 1QFY10 1QFY11 Change
    Raw materials 36,069 53,821 49.2% 92,768 145,209 56.5%
    % sales 56.3% 51.7%   56.3% 53.7%  
    Staff cost 3,984 5,098 28.0% 20,437 21,489 5.1%
    % sales 6.2% 4.9%   12.4% 7.9%  
    Other expenditure 16,708 33,497 100.5% 45,565 64,325 41.2%
    % sales 26.1% 32.2%   27.7% 23.8%  

  • Although the operating margins remained flat on a standalone basis, there was a very strong improvement in the same of the consolidated entity. From 3.6% in 1QFY10, operating margins went up to as much as 14.6% in 1QFY11, resulting into more than six fold jump in consolidated operating profits. There was a fall in all the cost heads as a percentage of sales with the maximum fall taking place in staff costs, a result of greater economies of scale and manpower reduction exercise undertaken by JLR. Raw material costs also came in quite lower as a percentage of sales on account of favourable exchange movements and significant cost reduction initiatives undertaken by the company.

  • Net profits on a standalone basis have come in lower by 23% YoY. It should be noted that the company booked a one time other income to the tune of more than Rs 3 bn during same quarter last year. With the same being absent this year, it has impacted net profits. Furthermore, tax outgo of the standalone entity has also jumped up appreciably. Excluding the one time other income, standalone net profits are higher by 68% YoY. However, no such exclusion is necessary on the consolidated front, where profits have seen a huge turnaround. Thanks to yet another profitably quarter from JLR, net profits of consolidated entity have zoomed up to Rs 19.9 bn as against a loss of Rs 3.2 bn during same quarter last year. Besides the high operating leverage, what also helped bottomline growth was lower interest charges and less than proportionate growth in both depreciation as well as tax outgo. Furthermore, all the other subsidiaries of the company also turned in a strong performance.

What to expect?
At the current price of Rs 1,013 the stock trades at a multiple of around 10x its standalone FY13 expected cash flow per share. While it has been doing well on the standalone front for quite some time now, the strong improvement in JLR operations has indeed come as a surprise. However, it should be noted that it is times such as these where the tendency to value JLR on the basis of its recent performance is at its highest. Notwithstanding its current performance, the JLR business is indeed quite cyclical in nature and also a capital intensive one at that. Thus, the temptation to view it on the basis of just its recent financials should be avoided and instead, a long run view should be taken. In view of this and the recent run up in its stock price, we feel that there is only a small upside (RPro subscribers click here) left from the current levels.

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