Tata Motors Q4 Comment: Tepid volume growth

Parvatha Vardhini C BL Research Bureau | Updated on January 09, 2018


Tata Motors has posted an enviable 41.5 per cent growth in consolidated net profit to Rs 3200 crore in the quarter ended June 2017 ( over the June 2016 quarter). But this solid show has not been driven by operational performance. If the one-time credit of Rs 3609 crore from changes made to JLR’s ( Jaguar Land Rover) pension plans is taken out, consolidated profit before tax is a mere Rs 117 crore in the June 2017 quarter. In contrast, consolidated profit before tax was at Rs 2061 crore in the three months ended June 2016. Both JLR and the domestic business have contributed to the weak operational performance.

Tepid volumes and margins at JLR

Wholesale volumes at JLR ( including Chinese JV) grew only by 3.1 percent. This was predominantly due to insipid growth in Land Rover volumes in the run-up to the launch of the new Discovery ( launched in US and China in mid-May 2017) and the Range Rover Velar ( launched in July 2017). Land Rover models typically brings in about 70-75 per cent of the volumes for JLR. Weak offtakes in UK ( 20 per cent of wholesale volumes) on the back of political uncertainties, slowing growth, higher inflation and tax change effected in April also impacted volumes. The only bright spot was the sales volumes in the Chinese JV which moved up by 51 per cent. Thus, tepid volume growth saw JLR revenues grow by only 4.5 per cent year-on-year to 5599 million pounds ( Rs 46415 crore approx).Pricing pressures in the US market also stunted topline growth.

Rise in variable marketing costs and higher material and operating costs impacted the EBITDA Margins. JLR’s EBITDA margins came at 7.9 per cent. In 2016-17, EBITDA margins ranged from 9.3- 14.5 per cent. As a consequence of timid revenue growth and cost pressures, JLR’s profit before tax and one-off items dropped by over 50 per cent from the June 2016 quarter to 157 million pounds ( Rs 1301.5 crore approx)

Loss in India

The India business did not help either. Volumes dropped by 35 per cent in medium and heavy commercial vehicles post the BS-IV transition on April 1, after pre-buying BS III vehicles in the earlier quarter. Fleet operators also turned cautious in the run-up to GST implementation on July 1. Supply disruptions because of limited availability of components for BS-IV vehicles also played spoilsport. The only solace was the 4.6 per cent growth in domestic passenger vehicle volumes triggered by demand for newer vehicles such as the Tiago, Tigor and Hexa. Standalone net sales dropped by by 11.4 percent to Rs 9207 crore over the June 2016 quarter. The company reported a loss of Rs 467 crore ( Rs 26 crore profit in the June 2016 quarter).


In the months to come, a further pick up in infrastructure spends, normal monsoons and the roll out of the GST are positives for the heavy truck industry. The good run may continue on the domestic passenger car front, with the Nexon (compact SUV) expected soon. For the standalone business, Tata Motors has initiated several programmes for driving topline growth and improving profitability. At JLR, the ramp-up of the Land Rover Discovery, the Range Rover Velar and upcoming products such as the XF Sportbrake and E-PACE and are expected to drive volume growth. But pressures on margins from higher incentives and launch costs is expected to continue.

Published on August 09, 2017

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