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Tata Motors: Weighed down by costs

Nov 1, 2008

Performance summary
  • Standalone topline registers a growth of 6% YoY during 2QFY09 despite a 1% YoY drop in volumes.

  • Operating margins decline by 3.8% and operating profits fall 28% YoY on the back of steep increase in costs.

  • Despite huge jump in other income, bottomline falls 34% YoY during the quarter. PBT, which excludes the impact of exceptional items, grows by a decent 9% YoY during the quarter.

  • Half yearly bottomline falls 32% YoY despite a 10% YoY growth in topline

Standalone results
(Rs m) 2QFY08 2QFY09 Change 1HFY08 1HFY09 Change
Units sold (000's) (incl.traded vehicles) 136,573 135,037 -1.1% 264,668 268,116 1.3%
Net sales 66,727 70,789 6.1% 127,295 140,073 10.0%
Expenditure 58,778 65,035 10.6% 113,883 129,015 13.3%
Operating profit (EBDITA) 7,948 5,754 -27.6% 13,411 11,058 -17.5%
EBDITA margin (%) 11.9% 8.1%   10.5% 7.9%  
Other income 705 4,293 508.6% 1,588 7,449 369.0%
Interest (net) 965 1,483 53.7% 1,781 2,606 46.4%
Depreciation 1,785 2,133 19.5% 3,453 4,021 16.4%
Profit before tax 5,903 6,430 8.9% 9,766 11,880 21.6%
Extraordinary income/(expense) 309 (2,850)   2,367 (4,849)  
Tax 944 110 -88.3% 2,197 300 -86.3%
Profit after tax/(loss) 5,268 3,470 -34.1% 9,936 6,731 -32.3%
Net profit margin (%) 7.9% 4.9%   7.8% 4.8%  
No. of shares (m) 385.5 385.7   385.5 385.7  
Diluted earnings per share (Rs)*         44.3  
Price to earnings ratio (x)*         3.8  

What has driven performance in 2QFY09?
  • Tata Motors has reported a 6% YoY growth in topline during 2QFY09. This is against the backdrop of 1% decline in volumes, thus indicating that price hikes and better product mix has helped the company avoid a similar de-growth in value terms. Coming back to volumes, although the difficult financing environment continued to cast its spell, the company was able to counter the same through new product launches, virtually across all segments. Among these are several models of M&HCV (medium and heavy commercial vehicles) trucks and buses, LCV (light commercial vehicles) passenger carriers like Magic, Winger and buses, and passenger vehicles, like the Indigo CS, Sumo Grande and the recently launched new generation Indica Vista.

  • On the margins front, inflationary pressures have wreaked havoc on the cost structure of the company, denting its operating margins by as much as 3.8% during the quarter. Raw material costs as a percentage of sales have come in higher by 3.9% and have been the key culprit behind the margin fall. Staff costs have also played spoilsport, rising by as much as 13% on a YoY basis.

    Cost break-up…
    (Rs m) 2QFY08 2QFY09 Change 1HFY08 1HFY09 Change
    Raw materials 46,037 51,622 12.1% 88,242 101,511 15.0%
    % sales 69.0% 72.9%   69.3% 72.5%  
    Staff cost 3,694 4,158 12.5% 7,213 8,167 13.2%
    % sales 5.5% 5.9%   5.7% 5.8%  
    Other expenditure 9,048 9,256 2.3% 18,428 19,337 4.9%
    % sales 13.6% 13.1%   14.5% 13.8%  

  • Despite a 28% YoY fall in operating profits during 2QFY09, growth in profit before tax (PBT) stood at 9% YoY. This was mainly due to a more than six fold jump in other income. During the quarter, the company sold part of its long-term investments. The resultant profit of the divestment of Rs 3.6 bn is included in the other income, thus giving it a boost. Excluding the impact of other income, PBT falls by a steep 59% YoY, led mainly by operating margin erosion.

  • Tata Motors’ bottomline witnessed a fall of 34% YoY during the quarter. This is significantly lower than the 9% growth in PBT, mainly due to forex valuation loss of Rs 2.9 bn arising out of company’s long-term foreign currency debt.

What to expect?
    At the current price of Rs 170, the stock is trading at 2.7 times our estimated FY11 standalone cash flow. Although concerns have risen with respect to the highly leveraged consolidated balance sheet of the company, we believe the company’s India operations are strong enough to see it through the present crisis. Moreover, we believe the JLR (Jaguar-Land Rover) deal to be a long term positive for the company. At current valuations, the stock looks a compelling buy from a 2-3 year perspective.

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Mar 22, 2019 (Close)


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