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Tata Motors cons. 2QFY10: JLR shows hope - Views on News from Equitymaster

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Tata Motors cons. 2QFY10: JLR shows hope
Nov 30, 2009

Performance summary
  • Consolidated topline declines 8% YoY led by a 22% fall in JLR (Jaguar Land Rover) revenues
  • Operating margins improve by 100 basis points as JLR posts an operating profit of GBP (British Pound) 41 m
  • Bottomline swings into a small profit of Rs 218 m during the quarter as against a loss of Rs 9.4 bn during the same quarter last year.
  • PBT for the previous quarter could have been higher by Rs 11.1 bn had the company followed its new accounting policy related to foreign currency assets/liabilities


(Rs m) 2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
Net sales 229,914 211,002 -8.2% 374,815 374,972 0.04%
Expenditure 215,855 195,944 -9.2% 343,923 354,885 3.2%
Operating profit (EBDITA) 14,059 15,059 7.1% 30,892 20,088 -35.0%
EBDITA margin (%) 6.1% 7.1%   8.2% 5.4%  
Other income 4,259 4,067 -4.5% 6,764 7,278 7.6%
Interest (net) 5,952 5,590 -6.1% 9,196 11,426 24.2%
Depreciation 6,467 8,479 31.1% 10,058 16,922 68.2%
Profit before tax 5,899 5,056 -14.3% 18,402 (982)  
Extraordinary income/(expense) (14,226) (2,184)   (18,178) 1,156  
Tax 873 2,894 231.4% 1,997 3,537 77.1%
Profit after tax/(loss) from ord. activity (9,200) (21) -99.8% (1,772) (3,363) 89.7%
Share of minority interest 141 (42)   389 (93)  
Profit/(Loss) from inv. in ass. Cos (77) 197   (59) 200  
Profit after tax/(loss) (9,418) 218   (2,221) (3,070) 38.3%
Net profit margin (%) -4.1% 0.1%   -0.6% -0.8%  
No. of shares (m) 385.7 514.1   385.7 514.1  
Diluted earnings per share (Rs)*         (50.4)  
Price to earnings ratio (x)*         n.a.  
(* on trailing twelve months earnings)

What has driven performance in 2QFY10?
  • Tata Motors reported a consolidated topline decline of 8% YoY. The automotive segment, which includes all types of CV manufacturing as well as passenger vehicle manufacturing activity of the company saw its revenues fall by 7% during the quarter on a YoY basis. As mentioned, this fall was primarily led by the 22% fall in JLR revenues.

  • The volumes of JLR on the retail front were down 1% YoY, a sharp improvement over the previous quarter where they had suffered a steep 35% fall. Growth was witnessed in markets like UK, Russia and China whereas North America and Europe continued to suffer a decline. Volumes at the wholesale level showed an impressive growth of 23% YoY during the quarter, an indication that sales are likely to remain buoyant in the coming quarters.

  • The company’s other segments, which primarily include construction equipment, engineering solutions and software operations, saw its revenues fall by 25%, due primarily to a 30% decline in the revenues of the construction equipment business.

    Cost break-up…
    (Rs m) 2QFY09 2QFY10 Change 1HFY09 1HFY10 Change
    Raw materials 155,219 140,499 -9.5% 252,698 253,096 0.2%
    % sales 67.5% 66.6%   67.4% 67.5%  
    Staff cost 21,581 22,976 6.5% 34,013 43,413 27.6%
    % sales 9.4% 10.9%   9.1% 11.6%  
    Other expenditure 39,055 32,469 -16.9% 57,212 58,375 2.0%
    % sales 17.0% 15.4%   15.3% 15.6%  

  • The operating profits witnessed an improvement of 7% during the quarter mainly led by lower raw material costs and other expenses. While a big part of the improvement in operating margins came from the company’s standalone operations, JLR profitability also improved on the back of better product mix and focused reduction in certain cost heads such as marketing.

  • With depreciation charges at both Tata Motors India operations and JLR increasing at a fair clip, consolidated PBT has come in lower by 14% as compared to the same quarter last year. Infact, had it not been for the change in accounting for currency adjustments, the drop in PBT during the quarter could have been even steeper. Furthermore, a 6% drop in interest charges, arising from the fact that the company has managed to repay some of the debts, also helped give a small fillip to the consolidated PBT.

  • The net debt stood at Rs 242 bn as on 30th September 2009 of which Rs 82 bn is for the vehicle finance portfolio. JLR 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.

What to expect?
At the current price of Rs 664, the stock trades at a multiple of 8.4x its FY12 expected standalone cash flow per share. The management has indicated of the environment to improve going forward. While volumes in the domestic region are expected to pick up, the volumes of JLR should also see an improvement once the economic activity picks up in developed markets. We remain positive on the stock from a medium term perspective and maintain our stance.

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