Tata Motors is back in black as it posted a 67.5% year-on-year increase in net profit at Rs 2,941.48 crore for the three months of October-December, with a strong surge in volumes, cost-saving measures and improved product mix. The company’s net profit beat Bloomberg consensus estimates of Rs 1,173.05 crore. However, rising commodity prices and supply bottlenecks due to shortage of semiconductors will prove to be a challenge in the coming quarters.
The company’s consolidated revenues increased 5.5% on a y-o-y basis to nearly Rs 75,654 crore, which was below Street estimates. While the company’s passenger vehicles business in the standalone entity has witnessed strong volume growth, the commercial vehicle volumes though improved sequentially, remain under stress in comparison to last year. At Jaguar Land Rover (JLR) too, the volumes remained lower compared to last year.
Sales at JLR were up 13.1% quarter-on-quarter at over 1.28 lakh vehicles, but still 9% lower than pre-Covid levels a year ago. Wholesales including exports increased 18.8% y-o-y to over 1.53 units in the domestic business. Domestic PV volumes were up 87.5%, and recorded its highest sales in the past 33 quarters. Domestic retails continues to be higher than wholesales in PV due to continued strong demand. CV retail sales were strong sequentially with a rise of 96%, but down 24% on a y-o-y basis.
Tata Motor’s consolidated Ebitda (earnings before interest, tax, depreciation and amortisation) during the quarter surged a sharp 66.2% y-o-y to Rs 11,197 crore, while, the margins increased 540 basis points y-o-y to 14.8%.
However, rising commodity inflation remains a key concern, as Tata Motors Group CFO P Balaji highlighted that it will be a “challenging period” to manage commodity inflation. He said that the inflation in steel and precious metal like rhodium is significantly high and is likely to stay this way for the next 3-6 months. However, he also said that the company will not be able to pass on all of the increase to consumers. “We have to take calibrated price increases. The inflation is so strong that we will not be able to pass all of it in prices, so we will look at prices as one of the levers, but also look at cost savings, product mix, look at ways to tighten our belt better and ensure that we are selling the right product in the market place,” Balaji said.
On the shortage of semiconductors for auto components, he said, “This is a challenge and needs a lot of firefighting to get through”. He highlighted that the shortage is being faced at a global level by automakers, and that the “risks are real” and it “will not be easy to manage”. However, it is an evolving situation and needs to be watched out for. Tata Motors has so far not faced an issue with regards to the shortage and has not impacted production in any of its factories, he added.
JLR, which contributes 78% of the company’s overall revenues saw a sequential recovery across all markets barring the UK. Balaji said, “A combination of strong sales mix, Charge+ savings delivery ensured that profitability improvement came through despite lower volumes on a y-o-y basis”.
JLR reported a 36% q-o-q increase in revenues to £6 billion, but still lower than pre-Covid levels a year ago. The revenue was supported by favourable sales mix, cost performance and partial reversal of prior period reserves for emissions and residual values. Profit before tax was £439 million (after £37 million of exceptional charges), up £374 million from Q2 and £121 million from a year ago. Margins improved with Ebitda at 15.8%. Sales in China were up 20.2% on the prior quarter and up 19.1% y-o-y. Most other regions also witnessed a sequential recovery though still below prior year. “JLR remains encouraged by the Brexit trade deal agreed in December between the UK and the European Union. This has avoided the risk of tariffs on automotive parts and finished vehicles, although there will still be increased customs administration requirements,” Balaji said.
Back home, Balaji said that the demand continues to remain strong and the issues are more around supply rather than demand. “Demand is coming much faster than what we are able to supply.” To be sure, Tata Motors is currently having a waiting period of two months for cars in its PV business, which is on the higher side and the company intends to bring it down. Removing ambiguity on whether the demand will sustain, Balaji said, “The festive season ended in November and all through December and even now we are continuing to see demand improvement”.
Tata Motors’ standalone, the domestic business, saw revenue for the quarter increase 34.9% y-o-y to Rs 14,600 crore and pre-tax loss narrowed to Rs 601 crore against pre-tax loss of Rs 1,024 crore in Q3FY20. PBT losses narrowed sharply due to better volumes, improved product mix and cost savings offset partially by lower proportion of CV in total sales, commodity inflation and financing costs. EBIT breakeven was achieved in the quarter improving 710 basis points over the same quarter previous year. Ebitda margins improved 570 basis points to 6.8% during the quarter.
The company reported liquidity of around £6.4 billion in JLR as on December 31 including a £1.9 billion undrawn revolving credit facility. At Tata Motors, the company ended the quarter with a liquidity of Rs 5,600 crore. Finance costs increased by Rs 382 crore to Rs 2,126 crore during Q3FY21 versus prior year due to higher gross borrowings as compared to Q3FY20.
The strong positive free cash flow continued in both JLR and TML and the company delivered positive automotive free cash flows of Rs 7,900 crore which resulted in net automotive debt reducing by Rs 7,000 crore to Rs 54,700 crore during the quarter.
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