British
luxury car maker Jaguar-Land Rover, which Tata Motors bought in 2008,
has been propping up profits at its parent for the past two years.
Photo: Eddie Keogh/Reuters
Mumbai:
Tata Motors Ltd said its profit almost tripled in the three months ended 31 December, beating Street expectations, as its UK unit Jaguar
Land Rover
Automotive Plc (JLR) reported robust sales of luxury cars and premium
sport utility vehicles, countering another dismal quarter for its
domestic operations.
Net profit rose to Rs.4,804.8 crore in the quarter from Rs.1,627.5 crore a year ago, the Mumbai-based company said on Monday. Net sales rose 38.6% to Rs.64,377 crore. A Bloomberg poll of analysts had estimated net sales at Rs.61,004.5 crore and net profit at Rs.3,514.2 crore.
During
the quarter, JLR’s wholesale (despatch to dealers) and retail (sales to
buyers) volumes grew 22.7% to 116,357 units and 26.5% to 112,172 units,
respectively.
The
earnings, officials at the company said, have been driven by a richer
product mix and strong response to new models like the Range Rover and Rover Sports
across key markets, including China and the US. Typically, in the
initial launch phase of a model, buyers tend to opt for the top-end
variant, and this in turn propped up the average price realization and
boosted margins, taking analysts by surprise.
“The JLR margin at 17.9% is much higher than our estimate of 15.5%,” said Joseph George, an analyst at brokerage IIFL Ltd.
Top
company executives remain optimistic about maintaining the growth
momentum despite concerns over slowing growth in China, which accounts
for one in every four models sold by JLR globally. With the price per
unit in China commanding a premium compared with other markets, the high
contribution of sales out of China has been driving profits at JLR.
“There is a lot of headroom for growth in China,” said Ralph Speth,
chief executive at JLR. Separately, in a conference call with analysts
after the earnings announcement, chief financial officer of Tata Motors
C. Ramakrishnan
said the company is confident of sustaining the momentum, owing to a
strong order book and a waiting period of four-six months for some of
its models. “We are cautiously optimistic of the world economy,” he
said.
Backed
by strong earnings growth, JLR announced plans to invest £3.5 billion
in fiscal 2015 (FY15) for research and development and expansion into
newer markets. This is a sharp increase from the £2.75 billion it
invested a year ago. The capital expenditure is likely to remain at
elevated levels for another two-three years, Ramakrishnan told analysts.
This,
however, is unlikely to have an impact on the company’s free cash flow
as Tata Motors has £3 billion in cash on its books, along with a £1
billion line of credit from banks.
JLR’s
performance is impressive, but maintaining such high margins could be
tough from the next fiscal year as the company’s ability to clock high
volume growth could potentially get restrained by capacity constraints,
said Surjit Singh Arora, an analyst at Prabhudas Lilladher Pvt. Ltd. Also, the average realization per unit may taper off with the product mix not remaining as rich as now.
JLR’s
plants in the UK are currently operating at 500,000 units per annum,
and it plans to ramp this up to 550,000 units by the end of FY15,
Ramakrishan said.
Meanwhile,
Tata Motors’ domestic operations posted dismal earnings for the third
quarter in a row. The stand-alone entity reported a profit of Rs.1,251 crore in the quarter ended December against a loss of Rs.458 crore in the year-ago period. But the profit was boosted by a one-time gain from a stake sale in a subsidiary.
Tata Motors is in the process of divesting stakes in certain foreign subsidiaries, which include its Korean unit Tata Daewoo Commercial Vehicle Co. Ltd and its Thailand unit, among others, to TML Holdings Pte Ltd, Singapore, a wholly-owned arm.
The
entire exercise of re-grouping all the subsidiaries under the Singapore
arm and divesting Tata Motors’ stake will be completed by 31 March,
Ramakrishnan told reporters. Close to 80-85% of the likely gains on
account of the reorganization have now been realized with the stake sale
in Tata Daewoo. “This has been one of the worst quarters for domestic
operations,” he said. During the quarter, Tata Motors’ sales (including
exports) fell 35.7% to 132,087 units from the year-ago period. While
truck and bus sales contracted owing to the macroeconomic headwinds, car
sales dropped amid growing competition and absence of new products.
Ramakrishnan said the revival of the commercial vehicle business to a
great extent will depend on the economy and cautioned that a complete
revival is some time away. “It’s going to be another few quarters of a
depressed scenario for the industry,” he added.
Mahantesh Sabarad, deputy head of research at SBICAP Securities Ltd, said, “The results once again highlight the growing chasm between the stand-alone and the consolidated business.”
The
company is now pinning its hopes on a revival in passenger car sales
with the unveiling of two new models at the motor show in Greater Noida,
the Zest sedan and Bolt hatchback. Based on the Vista
platform and sporting a newly developed, more efficient petrol engine,
the new models will be ready for launch in the second half of the
current calendar year.
On 9 February, the maker of Indica and Safari cars announced that chairman Cyrus P. Mistry will take on an operational role in Tata Motors and oversee operations until the board selects a new managing director.
This came in the wake of the sudden death of Karl Slym,
managing director, on 26 January during a visit to Thailand. Mistry
will chair a committee that will include the current members of the
company’s executive committee—Ravindra Pisharody, Satish B. Borwankar, C. Ramakrishnan, T.A. Leverton, Ranjit Yadav, Mamillapalle Venkatram, Ankush Arora and Rajesh Bagga. He will also chair new product design and engineering review meetings, the company said.
Tata Motors’ shares gained 0.86% to close at Rs.364
per share on Monday on BSE, while the benchmark Sensex lost 0.21% to
end at 20,334.27 points and the BSE Auto index gained 0.34% to close at
11,831.93 points. The company declared earnings after the close of
trading.
nagesh dubey
pgdm 2st
source from mint ..........
nagesh dubey
pgdm 2st
source from mint ..........
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