The Tata Motors shares dropped 5-6 per cent on Wednesday. The fall is attributable to two reasons. One, 56 per cent drop in consolidated net profit to Rs 1,717 crore in the quarter ended March 2015; two, the disappointment on non-declaration of dividend for the just concluded fiscal, citing the losses faced by the domestic business during 2014-15.
The fall in consolidated profits was predominantly due to unfavourable forex movements at Jaguar Land Rover. JLR’s profits dropped from £449 million in the March 2014 quarter to £302 million in the latest March quarter.
Due to the weakening of the pound against the dollar, the company incurred a cost of about £88 million on revaluation of current assets and about £115 million on mark-to-market of unrealised hedges.
The domestic business too contributed to the fall in consolidated profits, reporting a loss of Rs 1,164 crore in the March 2015 quarter compared to a loss of Rs 817 crore during the same quarter last year.
Good operational performance
The silver lining though, is that operationally, both JLR and the domestic business have done well. JLR’s revenues grew by 9 per cent to £5,826 million and managed to clock an operating margin of 17.4 per cent, a tad higher than 17.2 per cent recorded in the same quarter last year.
The domestic business turned EBITDA positive in the March quarter, after five consecutive quarters of being in the red. Domestic business recorded an operating margin of 2.8 per cent in the March quarter.
Outlook
Going ahead, the company expects a decisive turnaround in commercial vehicle sales along with recent launches such as the Zest, Bolt and the Gen X Nano to drive volumes. The company is also expected to come out with two new models of cars each year according to its 2020 roadmap.
Volume growth at JLR is also expected to gain traction from the recent launch of the Jaguar XE and the expected launch of the Jaguar XF later this year.
The only concern remains on the China front, where an economic slowdown may affect volumes for JLR. China Region contributes to a fourth of JLR’s volumes. Besides, margins may also take a slight hit from the China joint venture, due to initial set up and ramp-up costs.