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Tata Motors: High input costs take toll
Aug 18, 2011

Tata Motors announced the first quarter results of financial year 2011-2012 (1QFY12). The company’s consolidated revenues grew by 24% YoY during the quarter, while profits rise by 1% YoY. Here is our analysis of the results.

Performance summary
  • Consolidated revenues rise by 24% YoY during 1QFY12 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 18% YoY during the quarter, while JLR’s revenues grow by 29% YoY (not adjusted for intersegment revenues).
  • Operating profit growth at 10% YoY is slower than the growth in sales due to decline in operating margins to 12.6% during the quarter.
  • Consolidated profits rise by a mere 1% YoY during the quarter due to a subdued performance at the operating level coupled with higher interest costs and depreciation charges.


Consolidated financial performance
(Rs m) 1QFY11 1QFY12 Change
Sales 270,556   335,725 24.1%
Expenditure 232,002 293,366 26.4%
Operating profit (EBDITA) 38,554 42,358 9.9%
Operating profit margin (%) 14.2% 12.6%  
Other income 346 761 120.2%
Interest (net) 5,616 7,659 36.4%
Depreciation  10,115  11,432 13.0%
Exceptional items  (414) (570)  
Profit before tax 22,754 23,458 3.1%
Tax 2,960 3,519 18.9%
Share of profit in associates 156 96 -38.2%
Minority interest (63) (39)  
Profit after tax/(loss) 19,887 19,996 0.5%
Net profit margin (%) 7.4% 6.0%  
No. of shares (m)   634.8  
Diluted earnings per share (Rs)*   142.9  
P/E ratio (x)*   5.5  
* on a trailing 12 months basis

What has driven performance during 1QFY12?
  • Tata Motors' consolidated revenues increased by 24% YoY during the quarter. The revenue growth was led by the standalone business (up 18% YoY) as well as the Jaguar Land Rover (JLR) business (up 29% YoY). The company's standalone business was driven by the commercial vehicle segment, whose volumes increased by 13% YoY. Within the CV space, volumes were driven by the LCV segment (17% YoY), while volumes in the MHCV segment grew by 3.6% YoY. Rising interest rates, high inflation, slower industrial output coupled with high base effect moderated the growth in the CV segment. On the other hand, passenger vehicle and utility vehicle volumes (including JLR vehicles) in the domestic market fell by 11% YoY during the quarter. Other than the Nano and Jaguar, which witnessed a strong growth in sales, most other segments in the passenger vehicles space witnessed a decline. There was a 21.5% YoY increase in exports during the quarter as well, led by higher CV volumes (up 31% YoY). Tata Motors' market share in the commercial vehicle space stood at 60.1% while that in passenger vehicles was 11.9% during the quarter. Realisations improved as the company took cumulative price increases of 2.5% and 2% on commercial vehicles and passenger cars respectively during the quarter.

    As for the JLR business, global retail volumes during the quarter witnessed a growth of 7% YoY. While Jaguar volumes decreased by 10% YoY, Land Rover volumes increased by 12% YoY. Both the brands did well in China and Russia. UK, however, witnessed a decline in sales.

    Segmental performance
    (Rs m) 1QFY11 1QFY12 Change
    Tata and other brands* 115,165 136,109 18%
    % of sales 42% 40%
    PBIT 11,353 9,289 -18%
    PBIT margins 10% 7%  
    Jaguar and Land Rover 153,869 197,763 29%
    % of sales 56% 59%  
    PBIT 16,829 21,134 26%
    PBIT margins 11% 11%  
    Others 3,487 3,996 15%
    % of sales 1% 1%  
    Total# 272,521 337,868 24%
    *Includes vehicles / spares and financing thereof; #Excludes inter segment revenues

  • Tata Motors' consolidated operating profits grew by 10% YoY, slower than the growth in sales as operating margins contracted to 12.6% in 1QFY12 as compared to 14.2% during 1QFY11. Higher input cost was the culprit as raw material prices increased from 63% of sales in 1QFY11 to 65.3% of sales in 1QFY12. While the standalone business' profitability was under pressure this quarter (on the back of rising input costs), JLR's margins remained stable. The company had upped prices during the quarter which helped in softening the pressure from high input costs to some extent.

    Cost break-up...
    (Rs m) 1QFY11 1QFY12 Change
    Raw materials 170,472 219,352 28.7%
    % of sales 63.0% 65.3%  
    Staff cost 21,489 25,925 20.6%
    % of sales 7.9% 7.7%  
    Product development expenses 979 2,259 130.7%
    % of sales 0.4% 0.7%  
    Other expenditure* 39,062 45,831 17.3%
    % of sales 14.4% 13.7%  
    Total 232,002 293,366 26.4%
    *Including amount capitalised

  • Tata Motors' consolidated net profits increased by a mere 1% YoY during 1QFY12. Besides the slower pace of growth in operating profits, higher interest costs and depreciation charges put pressure on the net profits of the company.

What to expect?
At the current price of Rs 789, the stock is trading at a multiple of 5.5 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, while it has improved, we 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. Although the growth prospects for the company look good from a long term perspective, valuations at the current levels do not leave much on the table for investors.

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