China pulls down Tata Mo­tors Q3 net profit

The Pak Banker - - COMPANIES/BOSS -

Tata Mo­tors Ltd's net profit dropped 2% in the quar­ter ended De­cem­ber as the com­pany felt the im­pact of a poorer sales mix at its UK sub­sidiary Jaguar Land Rover Au­to­mo­tive Plc. and its do­mes­tic op­er­a­tions posted a loss.

Net profit fell to Rs.3,507.54 crore in the three months ended 31 De­cem­ber from Rs.3,580.72 crore in the year-ago quar­ter. Net sales dur­ing the quar­ter rose 4.2% to Rs.71,686.12 crore from Rs.69,121.61 crore.

A Bloomberg poll of 27 an­a­lysts es­ti­mated net profit at Rs.2,992 crore on net sales of Rs.72,666.8 crore. Net sales at JLR slipped by 1.67% to £5.78 bil­lion; net profit dipped 25.8% to £440 mil­lion, Tata Mo­tors said.

Led by strong de­mand in mar­kets such as the US and UK and new mod­els such as the Dis­cov­ery Sport and Jaguar XE, JLR's sales vol­umes rose 23% to 137,653 in the quar­ter. Sales in China, one of its most im­por­tant mar­kets both in terms of prof­itabil­ity and sales vol­ume, re­mained un­der pres­sure as the world's se­cond big­gest econ­omy slows.

"The over­all vol­ume in China is com­ing back. But we re­main cau­tiously op­ti­mistic," said Ralph Speth, chief ex­ec­u­tive at Jaguar Land Rover. Speth ex­pects China's econ­omy to ad­vance 6.7% to 7% in the com­ing months. "Con­sid­er­ing we are a new en­trant, there is room for im­prove­ment, " he said.

JLR's op­er­at­ing mar­gin, a crit­i­cal mea­sure of prof­itabil­ity, shrank to 14.4% from 18.6% a year ago. C Ramakrishnan, chief fi­nan­cial of­fi­cer, Tata Mo­tors, at­trib­uted it to a poor prod­uct mix-a higher con­tri­bu­tion of cheaper mod­els in the over­all sales and a lower con­tri­bu­tion by high mar- gin mar­kets like China.

Ramakrishnan guided for neg­a­tive cash flow in the near and medium term, given higher in­vest­ment. How­ever, he added that a strong bal­ance sheet, in­clud­ing to­tal cash and short-term in­vest­ments of £3.4 bil­lion and un­drawn long-term credit lines of £1.9 bil­lion as of 31 De­cem­ber, as well as proven ac­cess to cap­i­tal mar­kets and bank fund­ing would sup­port com­pany's in­vest­ment plans.

For the full year that ends in March, Tata Mo­tors is ex­pected to in­cur a cap­i­tal ex­pen­di­ture of £3.3 bil­lion on JLR, lower than the £3.7 bil­lion the com­pany had guided for at the be­gin­ning of the fis­cal year.

Nitesh Sharma, an an­a­lyst at Phillip Cap­i­tal In­dia Pvt. Ltd, said he ex­pects JLR's "mar­gins to slowly inch to 15.3% in fis­cal 2016-17".

To be sure, a raft of new model launches and a strong pipe­line, he added, will spur sales by vol­ume in de­vel­oped mar­kets and also lead to a grad­ual im­prove­ment in China.

Not ev­ery­one is as op­ti­mistic. "With the Chi­nese econ­omy yet to bot­tom out, the new model launch ex­cite­ment may fiz­zle out," cau­tioned Ma­hantesh Sabarad, deputy vi­cepres­i­dent (re­search-eq­ui­ties) at SBICAP Se­cu­ri­ties Ltd.

Sabarad at­trib­uted the mar­gin im­prove­ment over the pre­vi­ous quar­ter to the un­wind­ing of cur­rency head­winds and stronger vol­ume growth in mar­kets ex­clud­ing China. The con­tri­bu­tion from the China re­gion ex­clud­ing the joint ven­ture with Ch­ery Au­to­mo­bile Co. ( the en­tity is en­gaged in lo­cal pro­duc­tion of a few mod­els), dropped to 11% dur­ing the quar­ter from 27% a year ago.

This was in a quar­ter when the con­tri­bu­tion from mar­kets such as UK, Europe, and North Amer­ica rose at a brisk pace. While North Amer­ica's con­tri­bu­tion went up to 22.1% from 17%, the UK's rose 18.9% from 14.3%. The con­tri­bu­tion of other over­seas mar­kets, in­clud­ing the Asia Pa­cific, went up to 20.5% from 19.9% a year ago. Europe's con­tri­bu­tion in­creased to 27% from 220.7%.

Tata Mo­tors' loss from its do­mes­tic op­er­a­tions nar­rowed to Rs.200.86 crore in the De­cem­ber quar­ter from Rs.2,122.72 crore a year ago. Be­sides the cost cur­tail­ment drive, the im­prove­ment was led by a re­cov­ery in vol­umes of heavy duty trucks and buses. Ravi Pishar­ody, ex­ec­u­tive di­rec­tor, com­mer­cial ve­hi­cle busi­ness, said the strong de­mand was be­ing driven by sus­tained re­place­ment and ini­tial fleet ex­pan­sion de­mand. "The fleet oper­a­tors have started get­ting new or­ders from steel and ce­ment com­pa­nies," said Pishar­ody.

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