Strong sales for JLR in the US and higher commercial vehicle sales in India in February helped the Tata Motors stock gain over six per cent in trade today. The gains came despite the profit warning issued by JLR's chief executive recently. JLR's pre-tax profits are expected to come in lower than the year ago quarter given the slowdown in China, higher R&D expenditure, promotional costs and a high base last year.
Tata Motors' Indian operations reported a sales growth of six per cent led by its commercial vehicle segment. While sales of its heavier trucks grew 24 per cent, it also sold 12 per cent more of its light commercial vehicles. Strong replacement demand coupled with improving economics of freight operators (lower fuel, interest costs, stable freight rates) have helped keep the commercial vehicle numbers robust. Year-to-date, the company has seen a 23 per cent jump in sales of heavier trucks and the trend is expected to continue going ahead.
For light commercial vehicles, this is the third straight month of sales growth and could signal a turnaround for this segment. Year-to-date the sales in this segment however are down 13.5 per cent. However, sales of its passenger and utility vehicles continue to disappoint. Sales of its cars fell 20.5 per cent, while those of utility vehicles were down 13 per cent. The launch of the Tiago hatchback is expected to offer some respite to the passenger vehicle sales of the company.
While China has been disappointing, sales for JLR in the US continues to be robust. Led by Land Rover, sales were up 25 per cent year on year for February, 2016. While Land Rover's sales were up 31 per cent, Jaguar's sales were higher by 7 per cent. This is creditable given that the total premium car sales in the sector was flat year on year.
The Street will also be enthused about the stock's prospects given that Budget proposals are expected to push up demand for medium and heavy commercial vehicles where the company is the market leader in a majority of segments. The measures include a 50 per cent hike in allocation towards road construction which should improve demand for construction trucks. The increase in defence spending for medium and heavy commercial vehicles by 75 per cent should also help Tata Motors. Further the participation of the private sector in the road transport segment post the scrapping of the permit system as well as higher outlay for urban transport scheme (AMRUT) are positives.