1. Tata Motors to announce Q4 earnings; Here’s what to expect

Tata Motors to announce Q4 earnings; Here’s what to expect

Automobile major Tata Motors Ltd's financial results for the fourth fiscal quarter of 2017 (Q4 FY17) due Tuesday are expected to be weighed down by a hit in the Q3 sales even as its luxury unit Jaguar Land Rover is likely to provide ample support.

By: | Updated: May 23, 2017 1:01 PM
Ahead of quarterly result announcement the shares of Tata Motors were trading up. At 12:55 pm the shares of the company were trading at Rs 453.50 per piece, up 1.14% or Rs 5.10 on the BSE.

Automobile major Tata Motors Ltd’s financial results for the fourth fiscal quarter of 2017 (Q4 FY17) due Tuesday are expected to be weighed down by a hit in the Q3 sales even as its luxury unit Jaguar Land Rover is likely to provide ample support. Ahead of quarterly result announcement the shares of Tata Motors were trading up. At 12:55 pm the shares of the company were trading at Rs 453.50 per piece, up 1.14% or Rs 5.10 on the BSE.

In the quarter under review, there was a robust volume at the company’s UK subsidiary, Jaguar Land Rover Automotive Plc. However, the company’s India business took a hit due to poor truck sales caused by a switch to the more strict Bharat Stage IV emission norms. The only good news in an otherwise lacklustre quarter was the 23% growth in passenger car sales due to new models Hexa, Tigor and Tiago.

Hit by demonetization, Tata Motors had reported a 96.2% drop in net profit to Rs 111.57 crore in Q3FY17. In April 2017, the company reported a growth of 23% in its domestic passenger vehicle sales, but its commercial vehicles sales were affected by the ban on the sale of BS-III vehicles. “The higher demand at short notice, was not met in production, as vendors struggled to meet with the higher demand, especially in the MHCV segments,” the company had said in a statement.

According to a research report by Edelweiss, the company is likely to post a consolidated revenue growth of 2% on a year-on-year basis with consolidated margins improving by approximately 230 basis points sequentially to 9.9% driven by strong margin improvement in Jaguar Land Rover, which saw a quarter-on-quarter basis margins improvement of nearly 300 basis points to 12.2%.

“For domestic business, we assume a one-time impact of Rs 2.1 billion to factor in higher discounts to clear the BS-III inventory,” the report said.

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On the other side, Motilal Oswal in its research report said that JLR’s volume is likely to be close to 6% year on year due to phasing out of discovery volume.

“Net realisation should increase by approximately 14% YoY (flat QoQ) led by ramp up of F-Pace and increase in share of China. EBITDA margin would decline 550bp YoY (+140bp QoQ) to 10.7% led by Pound 650 million of forex hedge loss estimated for the quarter along with phasing out cost of Discovery,” the report said.Adjusted PAT likely to decline nearly 41% YoY (+200% QoQ) to GBP 333 million.

Adjusted PAT is likely to decline nearly 41% YoY (+200% QoQ) to GBP 333 million. Moreover, the experts expect margins to likely decline by 480 basis points YoY and 180 basis points QoQ to 3.3%, due to the share of commercial vehicles decreasing and due to higher commodity costs.

“We have reduced EPS estimate of FY18E/FY19E by 18%/12%, led by higher interest cost & depreciation at standalone level, and expected moderation in CV growth,” the report added.

Here are the key things to watch out for in the results:

India Operations

The impact of discounts offered on Bharat-Stage III emission norm compliant vehicles will be a key factor to watch out for. Like other auto companies, Tata Motors had offered steep discounts to clear its Bharat Stage III inventory before the expiration of the last date set by the Supreme Court for sale of vehicles that did not meet the newly introduced Bharat Stage IV norms. On a standalone basis, these discounts may pull down margins. Analysts expect the company to take a one-time hit of Rs 200 crore because of the discounts offered during the transition from Bharat Stage III to IV norms.

JLR volumes

JLR volumes will be another key factor to watch out for. JLR retail volumes rose 13% on-year basis to 179,509 units in the quarter ended March. This increase was on the back of strong volumes across markets in the UK, the US, Europe and China. Europe was the biggest contributor with the UK and the US being the second and third-largest markets, respectively, by volume. The sales were led by new models such as the new Land Rover Discover launched in the March quarter and Jaguar F-Pace introduced last calendar year.

Margins

JLR margins will also be a key factor to watch out for. Analysts expect JLR margins to be higher than 13% due to a strong operating leverage, which comes on the back of robust volumes. This is inspite of JLR’s average selling price likely to decline by around 1% quarter-on-quarter due to higher contribution of cheaper models in the overall sales.

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