Safeguarded By Jaguar

In the year 2009 came a day when Tata Motors posted its first annual loss in 8 years. This was the financial year in which Tata had made the iconic acquisition of Jaguar-Land Rover (JLR), and its results were heavily weighed down by JLR’s poor performance in the background of slashed demand due to the global recession. The street had not taken much time in raising questions over the feasibility of the deal then. The situation, however, has reversed completely now.

In Q2FY13, the standalone results of Tata Motors would have posted a loss before tax of Rs 287.89 crore had it not been for JLR’s maiden equity dividend of GBP 150 million (Rs 1312 crore). The performance of Tata Motors on a standalone basis has been rather dismal, and this is evident from the standalone Q1FY13 results as well. During the quarter, revenues declined by 8.93% to Rs 10586 crore and the net profit went down by 48.88% to Rs 205 crore on a yearly basis.

Weak industrial output, increased fuel prices, high interest rates and excise duty additions are some of the reasons for a subdued environment seen in the domestic automobile industry. Tata Motors’ sales figures have reflected this slowdown. Medium & Heavy Commercial Vehicles (M&HCV) and Passenger Cars have been major drags for the company.
For the elapsed quarter, the overall sales growth volume of Tata Motors stood at a mere 5.8% over the corresponding period in the previous year. This was heavily weighed down by the performance of M&HCVs (contributing to over 20% of the total volumes), which saw 15.66% lower sales in the period. The margins took a hard hit due to competitive pressures which impelled the company to offer heavy discounts and incur higher advertising expenses. This performance was still better than that seen in Q1FY13, wherein the sales volume for M&HCVs declined by 23.27%.

YoY Sales Growth - JLR Versus Tata Motors Domestic

In stark contrast to these cheerless figures is the performance of JLR, whose sales grew strongly by 34.42% in Q1FY13 and 13.89% in Q2FY13. Financially too, JLR was equally robust. In Q2FY13, its revenues increased by 12.80% to GBP 3288 million and its net profit by 77.33% to GBP 305 million. This kind of performance has been seen previously in Q1FY13 as well, wherein its revenues increased by 34.59% and net profit by 7.27%.

JLR’s sales have been largely driven by Land Rover, which have been strong for all the regions that it has a presence in. On a yearly basis, the sales volume growth for Land Rover has been 33.24%. With JLR sales in China growing by 184.60% from April to November 2012, China continues to support the growth trajectory of JLR.

Overall, JLR constitutes more than 65%-70% of Tata Motors’ consolidated revenues. In terms of profitability, it account to more than 90% of Tata Motors’ consolidated profits. The standalone performance of Tata Motors has scant weight as compared to these figures. It is evident that what has been defining the performance of Tata Motors and will continue to do is the performance of Jaguar-Land Rover. With past trends indicating a bullish stance on luxury car sales in emerging markets, Tata Motors is sure to benefit extensively out of JLR. Investors holding the stock can continue doing so, and those who don’t, can buy it on dips.