JLR’s February Sales: Are They Really Moderate?

Tata Motors announced its February 2013 sales figures for Jaguar Land Rover, which showed some amount of moderation. The market reaction resulted in a downward stock movement. The total retail sales of Jaguar Land Rover (JLR) were higher by 3.09% at 26,855 in February 2013, over February 2012. Compared to the FY13 (April 2012 to January 2013) average YoY growth rate of 24.76%, this seems drastically low and alarming. However, analysing the data shows a different story.

In February 2013, JLR sales in China declined by 22.60% YoY, reflecting the Chinese New Year holiday period. The average YoY growth rate that JLR’s Chinese sales have shown in FY13 has been 65.29%. Since China accounts for a tad more than 20% of the total JLR sales, such a drastic effect is bound to take place. If China’s sales were adjusted to the average growth rate, the total JLR sales would have grown by 20.33% in February 2013, which is not as low as compared to 24.76% average growth rate JLR has seen in FY13.

Shortly after this, Tata Motors announced its global wholesale figures. Excluding JLR sales, the wholesale figures for Tata Motors were lower by 33.37% in February 2013, over the corresponding period in the previous year. Now this looks like bad news too. But, domestic sales (whose figures were released on March 1, 2013 and reported to have declined by 33.06%) account for over 90% of this figure. Of course, it doesn’t rule out the fact that sales have been equally bad around the world domestically. But, this has been factored in the price movement seen after the release of domestic March 2013 figures.

Overall, the growth outlook for JLR looks positive and the March figures were evidently one-off. Product launches, strong sales of new models and the upcoming plant in China (that will reduce price and further boost demand) all sum up to a positive outlook in terms of volumes. Yes, margins have been hit due to an unfavourable product mix, which is more skewed towards low-margin models like Jaguar’s XF and Land Rover’s Freelander and Evoque. But it’s a matter of time till volumes increase further and manufacturing gets more cost effective resulting in improved margins.

However, the outlook of Tata Motor’s standalone performance remains questionable with the drop in domestic volumes. A lack of new models, gaps in the product portfolio and lethargic performance of commercial vehicles have all resulted in trouble. But considering the fact that JLR, which contributes to over 65-70% of the company’s revenues and over 90% of its profits, has a positive outlook over the medium term, Tata Motors should be a good buy at dips.