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Tata Motors: JLR drives growth - Views on News from Equitymaster
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Tata Motors: JLR drives growth
Aug 20, 2014

Tata Motors has announced its results for the first quarter ended June 2014 recently. Revenues and net profits grew by 38% YoY and 213% YoY respectively on a consolidated basis. Here is our analysis of the results.

Performance summary
  • Net sales grow by 38% YoY on a consolidated basis during the quarter largely on account of strong performance by Jaguar Land Rover (JLR).
  • Operating margins improve by 3.9% to 17.2% YoY during the quarter on account of the decline in all cost heads (as percentage of sales).
  • Led by the impressive growth in operating profits and lower interest costs, net profits surge by 213% YoY. Excluding the impact of extraordinary items during both the periods, net profit growth stands at 179% YoY.

Performance Snapshot
(Rs m) 1QFY14 1QFY15 Change
Net sales 467,965 646,828 38.2%
Expenditure 405,630 535,405 32.0%
Operating profit (EBDITA) 62,335 111,424 78.7%
EBDITA margin (%) 13.3% 17.2%  
Other income 1,830 2,132 16.5%
Finance costs 9,489 9,416 -0.8%
Depreciation 23,555 29,796 26.5%
Exceptional items (1,786) 940  
Profit before tax 29,336 75,285 156.6%
Tax 11,655 21,151 81.5%
Profit after tax/(loss) 17,680 54,134 206.2%
Share of profits of associates (222) 48  
Minority interest (198) (200)  
Net profit after taxes 17,261 53,982 212.7%
Net profit margin (%) 3.7% 8.3%  
No. of shares (m)   3,189.9  
Diluted earnings per share (Rs)*   54.1  
Price to earnings ratio (x)*   9.6  
(* On a trailing 12-month basis, adjusted for extraordinary items)

What has driven performance in 1QFY15?
  • Tata Motors reported a revenue growth of 38% YoY for the quarter. The growth was mainly driven by JLR while the standalone entity posted a decline of 15% YoY.

    For the standalone entity (Indian operations), the sales volumes (including exports) in both commercial and passenger segment considerably declined during the quarter. The domestic scenario remained weak due to slowdown in economic activity and a high interest rate environment. The LCV industry in particular was severely impacted on account of financiers pull back. Overall, in the CV segment, the company's market share stood at 50.2% during the quarter. The passenger vehicles segment was also adversely impacted during the quarter. The company underperformed the industry mainly to correct the inventory across the channels for providing maximum room for the upcoming new products viz., Zest in 2QFY15.

  • The wholesale and retail sales volumes for JLR grew by 27% YoY and 22% respectively for the quarter led by strong growth in Range Rover Sport, Range Rover and Jaguar F Type. In terms of geographies, strong growth was seen in China, which accounted for 29.5% of sales during the quarter as against 21.2% in 1QFY14.

  • The overall operating margins improved by 3.9% to 17.2% YoY on account of the decline in all cost heads (as percentage of sales). EBIDTA margins of JLR particularly expanded on account of increase in volumes, a rich product mix and a favourable geographical mix.

  • Led by the impressive growth in operating profits and lower interest costs, net profits surged by 213% YoY. Excluding the impact of extraordinary items during both the periods, net profit growth stood at 179% YoY.
What to expect?
At the current price of Rs 520, the stock trades at a multiple of 9.6 times its trailing twelve month earnings on a consolidated basis (excluding extraordinary items). The company's CV sales are expected to ramp up once the economy picks up. However, given the intense competitive pressure in passenger vehicles, the turnaround of this business is likely to remain gradual. One of the reasons why Tata Motors has lost market share in the PV segment is lack of new product launches as compared to its peers and the company is looking to correct this with the help of some new launches going forward. Thus, marketing costs are expected to stay high.

As far as JLR is concerned, sales momentum is likely to continue with new product launches. The management expects capital spending to increase to around GBP 3.5-3.7 bn for FY15. The company will be investing in new products and technologies as well as capacity expansion. In light of the current valuations, we are of the view that investors should not buy the stock at the current price levels.

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