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Tata Finance: Tough road ahead

Nov 12, 2001

Tata Finance for the first time in past several quarters posed a loss of Rs 173 m for the first quarter ended September 2001. The company's reputation in the past few months was impacted severely after the fiasco of its wholly owned subsidiary Niskalp Investments. A hole in the company's image has dragged down its business.

(Rs m) 1QFY01 1QFY02 Change
Operating Income 1,402 1,033 -26.3%
Other Income 40 47 17.5%
Interest Expenses 888 854 -3.9%
Operating Profit 514 179 -65.2%
Operating profit margin (%) 36.6% 17.3%
Other expenses 280 209 -25.4%
Depreciation 178 189 6.2%
Profit before Tax 96 -172 -280.2%
Tax 10 1 -95.2%
Profit after Tax/(Loss) 85 (173) -302.7%
Net profit margin (%) 6.1% -16.7%
No. of Shares (eoy) (m) 45.48 45.48
Diluted Earnings per share* 7.5 -15.2
P/E (at current price)
*(annualised)

The company's total income declined by 25% and interest margins too fell sharply from 37% to 17% in the current quarter. Despite a decline in business activity, Tata Finance' expenses increased sharply. Its cost to income ratio stood at 176% in 1QFY02 as against 83% in the corresponding quarter of the previous year.

With the entry of commercial banks into financing retail asset, non-banking finance companies are facing stiff competition. Interest spreads are also under severe pressure with cost of borrowing on higher side compared to banks. To improve its financial performance the company aims to focus on its core business of auto finance and exit from all unrelated business areas. The reconstructing exercise includes revamping of the company's board, undertaking a comprehensive business review and bringing in fresh capital to the tune of Rs 2.5 bn.

It is planning to divest its holdings in subsidiaries such as Tata Share Registry, Tata Home Finance and Tata-Amex, the joint venture between Tatas and American Express Bank. This exercise could help the company focus aggressively on commercial vehicle financing, which presents immense growth opportunity with softer interest rates. However, it would be a challenging task for the company to gain market share amidst fierce competition from banks and financial institutions.

At the current market price of Rs 19 Tata Finance is trading near to its 52 week low of Rs 13.

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