Tata Motors Q1 profit up 41% on pension benefits
MUMBAI: Tata Motors Ltd reported a 41% increase in fiscalfirst quarter profit because of a one-time gain from changes made to a pension plan at its UK unit Jaguar-Land Rover (JLR).
The company would have swung to a loss of ₹409 crore if not for the one-time gain.
Net profit rose to ₹3,200 cr ore in the three months to June from ₹2,260 crore a year ago. Net sales dropped 10% to ₹58,651 cr ore from ₹65,115 cr ore on mu ted sales at its Jaguar-Land Rover unit, a drop in sales of heavy trucks in India and adverse foreign exchange movements.
A Bloomberg analyst poll had estimated June quarter profit of ₹1,479.60 crore on sales of ₹59,788.60 crore.
Sales at the company’ s UK unit advanced by a mere 3.5% to 137,463 units from a year ago. Lower than expected sales coupled with higher marketing expenses, particularly in the US, depressed operating margin, na rrowing it to 7.9% from 12.6% in the year earlier.
In a post-earnings call with investors, JLR chief financial officer Kenneth Greg or said with the launch of new models such as the Range Rover Velar and new Discovery, overall marketing expenses are set to come down as newer models have lower discounts. This, he said, will boost margins in the forthcoming months. The company expects margins to be at 8-10% levels for the medium term.
JLR’s revenue rose to £5.6 billion from £5.36 billion a year ago.
The one-time gain on account of £437 million (₹3,609 crore) of pension benefits was offset by the seasonally slower June quarter sales following a strong March quarter and continuation of launch and growth costs, Tata Motors said in a statement.
While JLR’s China and US sales expanded 30% and 16%, respectively, sales in Europe remained flat. It dropped by 1% in the UK due to “the timing impact of vehicle excise duty introduced in April”, the company said.
“The numbers are disappointing ,” said Nitesh Sharm a, an analyst at Phillip Capital India( Pvt) Ltd, adding that margins have lagged estimates by a wide margin. He had expected it to be 11.5%. He attributed it to rising competition, higher incentives and raw material costs.
Others were more optimistic. In a research note, analysts Sneha Prashant and Abhishek Jain from brokerage HDFC Securities Ltd said, they expect the JLR business to continue its strong traction owing to factors including a strong product pipeline and a further pick-up in demand from China.
Prashant and Jain estimate a compounded annual growth rate of 11% through 2017-19. It would beled by a ramp-up of Discovery, a premium sport utility vehicle, and launch of new models.
It was an equally bad quarter for Tata Motors’ India operations. A sharp drop of 34% in medium and heavy commercial vehicle sales in the domestic market led to a loss of ₹466.85 crore for the stand-alone entity against a profit of ₹34 crore.
The first quarter results have not met company’ s expectations, said Guenter Butschek, MD and CEO at Tata Motors, in the statement. Tata Motors, he added, is “working with renewed focus and energy to improve performance” of the commercial and passenger vehicle businesses. The company has sharpened focus on cost improvement measures and market share growth, and it’s hopeful the efforts will pay off in the forthcoming quarters.