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Tata Motors: JLR comes to the rescue - Views on News from Equitymaster
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Tata Motors: JLR comes to the rescue
Nov 18, 2013

Tata Motors announced its results for the quarter ended September 2013 recently. The company reported a robust 31% YoY increase in revenues, while net profits grew by 71% YoY on a consolidated basis. Here is our analysis of the results.

Performance summary
  • Net sales grow by 31% YoY on a consolidated basis during the quarter largely on account of strong growth in revenues from Jaguar Land Rover (JLR).
  • Operating margins improve by 2.9% to 15.2% YoY during the quarter on account of a fall in raw material costs (as percentage of sales).
  • Led by the strong growth in revenues and operating profits, net profits grow by 71% YoY. Excluding the impact of extraordinary items during both the periods, net profit growth stands at 83% YoY.

Consolidated financial snapshot
(Rs m) 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change
Net sales 434,029 568,823 31.1% 867,265 1,036,669 19.5%
Expenditure 380,693 482,472 26.7% 756,380 888,126 17.4%
Operating profit (EBDITA) 53,336 86,351 61.9% 110,885 148,543 34.0%
EBDITA margin (%) 12.3% 15.2%   12.8% 14.3%  
Other income 2,068 2,321 12.2% 4,454 4,144 -7.0%
Finance costs 8,474 11,117 31.2% 16,517 20,600 24.7%
Depreciation 15,944 27,293 71.2% 31,603 50,769 60.6%
Exceptional items (101) (2,738)   (4,506) (4,525)  
Profit before tax 30,886 47,524 53.9% 62,713 76,794 22.5%
Tax 9,876 11,934 20.8% 18,565 23,576 27.0%
Profit after tax/(loss) 21,010 35,590 69.4% 44,148 53,218 20.5%
Share of profits of associates (32) (65)   (445) (234)  
Minority interest (230) (106)   (507) (304)  
Net profit after taxes 20,747 35,419 70.7% 43,196 52,679 22.0%
Net profit margin (%) 4.8% 6.2%   5.0% 5.1%  
No. of shares (m)         3,189.9  
Diluted earnings per share (Rs)*         35.9  
Price to earnings ratio (x)*         10.8  
(* On a trailing 12-month basis, adjusted for extraordinary items)

What has driven performance in 2QFY14?

  • Tata Motors reported a robust revenue growth of 31% YoY for the quarter and this was primarily on account of strong sales posted by the Jaguar Land Rover business as operations in India continued to face pressure. As far as the Indian operations are concerned, as per the company, the CV industry was impacted by a host of factors such as slowdown in the economy, low freight rates, tight financing environment and diesel price hikes. Tata Motors, being the market leader, was thus impacted as well. Revenues from the passenger vehicles business was also adversely impacted on account of the slowdown and intense competition.

    Commercial vehicles volume sales fell by 25% YoY during the quarter. Tata Motors' passenger vehicles sales in the domestic market (including Fiat and Jaguar Land Rover vehicles) plunged 50% YoY during the quarter.

    As for JLR's global sales, while wholesale volumes were up 32% YoY, retail volumes were up 21% YoY. As far as retail volumes were concerned, growth was largely on account of a surge in Jaguar volumes by 56% YoY. Land Rover retail volumes in contrast grew by 15% YoY during the quarter. Geography wise, growth for JLR was strong in regions such as North America, China and Asia Pacific.

  • Tata Motors' consolidated operating profits grew robustly by 62% YoY as operating margins improved by 2.9% to 15.2% during the quarter. This was largely on account of decrease in raw material costs (as a percentage of sales). Other expenditure, however, increased on account of higher marketing spends in a highly competitive environment. Product development expenses remained stable at 1.1% of sales.

    Cost break-up...
    (Rs m) 2QFY13 2QFY14 Change 1HFY13 1HFY14 Change
    Raw materials/ purchases 277,213 346,217 24.9% 554,706 635,073 14.5%
    % sales 63.9% 60.9%   64.0% 61.3%  
    Staff cost 40,191 51,790 28.9% 78,088 96,402 23.5%
    % sales 9.3% 9.1%   9.0% 9.3%  
    Product development expenses 5,274 6,378 20.9% 10,072 11,720 16.4%
    % sales 1.2% 1.1%   1.2% 1.1%  
    Other expenditure* 58,015 78,086 34.6% 113,515 144,931 27.7%
    % sales 13.4% 13.7%   13.1% 14.0%  
    Total expenditure 380,693 482,472 26.7% 756,380 888,126 17.4%

  • Led by the strong growth in revenues and operating profits, net profits grew by 71% YoY. Excluding the impact of extraordinary items during both the periods, net profit growth stood at 83% YoY.
What to expect?
At the current price of Rs 386, the stock trades at a multiple of 10.8 times its trailing twelve month earnings on a consolidated basis. Going forward, the outlook for the CV industry remains bleak for the rest of the fiscal. According to the Tata Motors management, it could be another 3-4 quarters before a significant recovery in the CV space takes place. On the passenger vehicles front, headwinds will continue to exist in the form of intense competition and increasing costs. The latter will especially be on higher marketing spends as the company aims to keep the demand for its products up against a highly competitive backdrop. Tata Motors also intends to improve distribution networks, customer engagement levels as well as refresh products. As far as JLR is concerned, the company has maintained its capex plan of GBP 2.75 bn for FY14. Focus of this will be on new products and technologies and meeting regulatory environmental standards among others. In light of the current valuations, we have a 'Sell' view on the stock.

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