JLR warning hits Tata Motors scrip

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SummaryAn unexpected profit warning from Jaguar Land Rover, that contributes around 90% to the profits of India’s largest commercial vehicle maker Tata Motors, has raised concerns on the latter’s consolidated December quarter profit growth and sent its shares tumbling on the bourses on Thursday.

An unexpected profit warning from Jaguar Land Rover (JLR), that contributes around 90% to the profits of India’s largest commercial vehicle maker Tata Motors, has raised concerns on the latter’s consolidated December quarter profit growth and sent its shares tumbling on the bourses on Thursday.

With Tata Motors’ results expected to be announced in February, brokerage firms revised its consolidated profit estimates to around R2,600 crore for the December quarter, from as high as R3,500 crore estimated earlier.

Share of Tata Motors slipped 5.91% on the BSE on Thursday to close at R293.55, its highest fall since May 2012 in percentage terms. Interestingly, Tata Motors’ shares hit an all time high of R333.4 on January 10, 2012, as investors turned buoyant on the JLR unit’s future product mix and strong volume growth from the Chinese market.

Twelve quarters after it first reported profits under the ownership of Tata Motors, JLR has turned into a performance engine for Tata Motors, more so when the parent has been seeing tough times this fiscal in the domestic market. For the December quarter, the market is estimating a loss of R300-350 crore on a standalone basis for Tata Motors.

“Tata Motors passenger vehicle business is loss making while its medium to heavy commercial vehicles witnessed significant fall during the year. JLR is the biggest profit maker for Tata Motors and any such warning would definitely have a major impact on the company,” said Deepesh Rathore, MD for IHS Automotive in India.

The ongoing product update and its plans of entering newer segments is expected to continue to keep the margins at JLR under pressure and in turn, burden Tata Motors. However, this will be temporary till the models go rolling into the market.

“There is an pressing need for JLR to enter the volume segment where rivals like BMW and Audi exist,” Rathore said. JLR is working on a Jaguar model that would compete against the BMW 3-series and Audi A4. Part of its around R30 lakh project, the car is expected to hit market by end of this calendar year.

“Given that adverse currency movement and a weak product mix (led by Evoque) are the primary factors driving down margins, the pain may spill over to FY14,” said a IDFC Securities report on Thursday.

“Tata Motors on standalone basis posted a net loss in September quarter, if we exclude the dividend it received from JLR,” said Mahantesh

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