Tata Motors: Profits Fall By 52%

Tata Motors, the flagship company of the Tata Group and the largest automobile manufacturing company in India, disappointed the streets with its third quarter results. On a consolidated basis its net profit of the company declined by 52% YoY to Rs 1628 crore. The fall came despite an increase in the topline by 1.8% to Rs 46090 crore in the same period.

The rise in sales was primarily driven by a change in the product mix where JLR has increased its contribution. For Q3FY13, JLR contributed 73% of the total sales against 67% it did during the same quarter last year. In fact, the sales of automobiles from Tata Branded vehicles have declined by 17% on a yearly basis for the December quarter of 2012 to stand at Rs 12345 crore. Meanwhile, sales of JLR have increased by 11% to Rs 33456 crore.

The company’s EBITDA declined by 17% and even EBITDA margins have come down by 281 basis points to 12.27%. This decline can be attributed to a rise in other expenses and employee cost, which went up by 19% and 36% respectively. These two items constituted almost 28% of the sales at the end of Q3FY13 against 23% at the end of Q3FY12.

A decline in EBITDA margins and a rise in interest cost by 30% have led to a fall in the net profit by a humongous 52% on a yearly basis. Both the segments, as in the Tata Branded vehicles as well as JLR have witnessed a decline in profits. However, the decline was more pronounced in case of the Tata Branded vehicles where net profit fell by 83% to Rs 137.92 crore. In the case of JLR, net profit was down to Rs 3395 crore for the quarter against Rs 4324 crore in corresponding period last year.

The poor result has impacted the stock price of Tata Motors, which was down by 2.59% yesterday. The scrip is currently trading at Rs 296, which discounts its 9MFY13 annualised EPS by 12 times. We believe that there might be some short term pain for the company but someone looking for investing in the scrip with a time horizon of more than a year, should use this opportunity to enter the scrip. As interest rates go down and the global economy picks up, the stock will certainly do better going ahead.