JLR records 13% sales revenue growth.
By R. Chandrasekaran
CHENNAI: India’s largest automobile company, Tata Motors, has disappointed investors with the domestic units suffering significant fall in revenues in the first quarter. The strong show by its U.K. based Jaguar Land Rover (JLR) failed to offset the weakness witnessed in India where the economy has slowed down in the absence of cheap interest to spur growth.
The company’s profit dropped 23 percent in the first quarter to Rs.17.26 billion from Rs.22.45 billion despite sales recording an increase of 8 percent to Rs.467.85 billion from Rs.433.24 billion in the previous year quarter. This fell short of analysts’ profit estimation of Rs.23.0 billion, whereas sales revenue came in above their predictions of Rs.458.60 billion, thanks to JLR.
The latest quarter’s profit drop is third consecutive one as the company is struggling for growth in domestic circuit. Its sales in India dropped to 14 percent to Rs.91.05 billion from Rs.105.86 billion.
The domestic unit faced several pressures on operating margin due to a significant drop in heavy trucks and passenger cars demand. The operating margin plummeted to 2.3 percent from 7.3 percent in the year-ago quarter. Automobile sector has been reeling under tremendous pressure as higher interest costs limited the consumers’ buying opportunities besides increasing the corporate costs of borrowing. The first three months of the current fiscal year has been the worst for the auto sector in India.
However, its U.K.-based JLR continued its momentum by recording 13 percent sales revenue growth at pound 4.09 billion from around pound 3.63 billion last year. The net profit also spurted 28.8 percent to pound 304 million from pound 236 million. The company could also witness an 8.6 percent upside in volume to 90,620 units. Significantly, JLR’s operating margin increased to 16.5 percent from 14.5 percent driven by favorable foreign exchange, increased volumes and product mix.
Tata Motors acquired JLR in 2008 from the U.S.-based Ford Motor Co for $2.3 billion. It proved to be a jewel in Tata’s fold since then. Therefore, it is obvious that the company is planning to invest pound 2.75 billion in JLR in the current year, while the investment in the domestic unit will be around Rs.25 – Rs.30 billion in capital expenditures despite slow down.
Commenting on the results, Tata Motors’ chief financial officer C Ramakrishnan said, “Weak macro economic environment and competitive pressures continued to impact operations. Margins are expected to remain under pressure not just for Tata Motors but for the industry as well.”
The company is likely to face rough weather in the coming quarter too as the Reserve Bank of India has tightened the money policy thereby indirectly hiking interest rates that will affect consumers’ buying opportunities as the Indian currency’s weakness will contribute to higher inflation also.