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Tata Motors cons. 1QFY10: JLR dampener - Views on News from Equitymaster
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Tata Motors cons. 1QFY10: JLR dampener
Aug 31, 2009

Performance summary
  • Consolidated topline grows 13% YoY during the quarter as the full impact of JLR (Jaguar Land Rover) acquisition kicks in
  • Operating margins plunge by more than 8% on account of huge jump in costs at JLR
  • Bottomline suffers a loss during the quarter as depreciation and interest charges come in significantly higher
  • PBT for the previous quarter could have been higher by Rs 2.8 bn had the company followed its new accounting policy related to foreign currency assets/liabilities


Financial picture
Rs m) 1QFY09 1QFY10 Change
Net sales 144,902 163,970 13.2%
Expenditure 127,927 158,011 23.5%
Operating profit (EBDITA) 16,974 5,959 -64.9%
EBDITA margin (%) 11.7% 3.6%  
Other income 2,505 3,211 28.2%
Interest (net) 3244 5835 79.9%
Depreciation 3,732 9,373 151.1%
Profit before tax 12,503 (6,038)  
Extraordinary item (3,952) 3,339  
Tax 1,124 643 -42.8%
Profit /(loss) from ordinary activity after tax 7,427 (3,341)
Share of minority interest 248 (51)  
Profit in respect of inv. in ass. Companies (18) (3)  
Net profit/(loss) 7,197 (3,288)  
Net profit margin (%) 5.1% -2.0%  
No. of shares (m) 385.5 514.1  
Diluted earnings per share (Rs)*   (69.1)  
Price to earnings ratio (x)*   N.A.  
*12 months trailing earning

What has driven performance in 1QFY10?
  • While not like to like comparable due to the JLR acquisition, Tata Motors reported a consolidated topline growth of 13% YoY. While the standalone sales had declined by 8% YoY during 1QFY10, the subsidiaries saw a growth of 32% YoY.

  • The volumes of JLR on the retail front were down 35% YoY. However, some improvement was witnessed on the QoQ basis. While North America (up 11% QoQ), China (up 57% QoQ) and Europe (up 13% QoQ) saw improvement in demand, UK (down 23% QoQ) and Russia (down 38% QoQ) were the laggards, thus affecting its performance.

  • The wholesale volumes however, declined by a staggering 52% YoY led by adverse market condition. JLR’s wholesale sale stood at 35,900 units while retail sale stood at 47,200 units. The company also took steps to adjust inventory levels and bring demand and supply in balance with the external environment. On a quarter on quarter basis, the wholesale volumes improved by 10%. The management expects the new models of JLR, which will be available in the second half of 2009, to boost the company’s sales.

    Cost break-up…
    (Rs m) 1QFY09 1QFY10 Change
    Raw materials 97,479 112,597 15.5%
    % sales 67.3% 68.7%  
    Staff cost 12,433 20,437 64.4%
    % sales 8.6% 12.5%  
    Other expenditure 18,016 24,976 38.6%
    % sales 12.4% 15.2%  

  • The operating profits declined by 65% YoY during the quarter mainly led by higher staff and other expenses. The staff costs jumped 64% YoY. JLR has slashed 2,200 jobs in recent months, reducing the workforce to 14,500. JLR will further reduce 300 jobs in a factory near Liverpool. The staff reduction along with aggressive implementation of cost reduction initiatives taken by the company recently is likely to improve its profitability in the coming quarters.

  • Higher depreciation and interest costs due to increased borrowing to support investments and new product development led to the company report consolidated loss after tax (post minority interest and profit in respect of investments in associate companies) for the quarter under review. Excluding the extraordinary item (Notional exchange loss / gain), the loss stood at Rs 6.6 bn. For the quarter, JLR reported a loss before tax of £62 m (approx Rs 5 bn). This is mainly due to the impact of lower volumes. However, some improvement is witnessed on a QoQ basis.

  • The debt stood at Rs 339 bn as on 30th June 2009 of which Rs 76 bn is for the vehicle finance portfolio. JLR took a £150 m (Rs 12 bn) loan in the quarter for its working capital requirements. It is planning to raise another £340 m (Rs 27 bn) loan from the European Investment Bank (EIB) for its working capital requirements. It has finalised four banks for the loan and is likely to make the announcement soon. The management indicated of bringing the debt levels down.

  • The other key subsidiaries of the company also witnessed lower sales. Tata Daewoo volumes declined by 25% YoY during 1QFY10. However, marginal pick up in the economic activities did benefit with volumes reporting a 58% growth as compared to 4QFY09. The construction equipment subsidiary, Telcon too witnessed a subdued quarter. The management expects better times ahead from increased infrastructure activities.

What to expect?
At the current price of Rs 503, the stock trades at a multiple of 7.6x its FY12 expected standalone cash flow per share. The management has indicated of environment to continue to be challenging. While volumes in the domestic region are expected to pick up, the volumes of JLR witnessed in the past may be difficult to achieve. While the company is taking cost reduction initiatives, the huge debt on the books would continue to pressurize the cash flows.

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