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Tata Motors: Getting a JLR boost

If the sales performance of Tata Motors in March month is anything to go by, the company could report a strong show in the March’16 quarter. The company ended FY16 on a high with both its domestic and international operations reporting robust double-digit growth. While its UK-based subsidiary, JLR has reported record March volumes, truck sales in the domestic operations too have been robust. JLR’s volumes grew 29 per cent year-on-year, with China sales up 43 per cent (about half of it came from the China JV).

Analysts at Kotak Institutional Equities expect volume growth in China to remain strong led by low base effect, ramp up in local production of Discovery Sport and the launch of the new Discovery Sport. Once JLR’s highest volume contributor, China’s monthly volumes had come down sharply due to slowdown, higher costs and the setting up of the local manufacturing unit. Monthly China sales at 10,288 units are now the fourth largest after UK, Europe and the US. 

On the domestic front, Tata Motors reported a 25 per cent growth in medium and commercial vehicle sales while light commercial vehicle (LCV) growth too was strong at 15 per cent for March. While standalone revenues in the March quarter are likely to move up by 15 per cent year-on-year, Religare Capital Markets believes that the company is likely to report the highest operating profit growth on a sequential basis. Operating profit margins are expected to be up 220 basis points over the December quarter due to operating leverage. On a consolidated basis, earnings are expected to see an 80 per cent growth year-on-year. India revenues account for about 15 per cent of consolidated revenues and about 10 per cent at the net profit level.

Going ahead, led by new launches JLR is expected to post 14 per cent annual growth over FY16-18. Kotak analysts do not see meaningful pricing pressure in the China market as lower end models such as Discovery Sport and Jaguar XF will become more competitive with 20-25 per cent price cuts post the start of production at the China JV. While strong sales in heavier trucks are likely to continue what will add to the volume growth is the continuing recovery in LCV sales. Further, the launch of new products such as Tiago will add to the volume gains for the passenger vehicle business.