Tata Motors' Consolidated Net Profit Surges 46% Y/Y in FY 2011/12, JLR Drives Growth

Tata Motors has reported that its net profit increased 45.8% year-on-year (y/y) to 135.7 billion rupees (USD2.6 billion) during the fiscal year (FY) 2011/12 over INR92.2 billion in the corresponding period a year ago, according to a company press release. During the FY ended 31 March 2012, sales revenues grew 35.6% y/y to INR1,656.5 billion on the back of growth in volumes. Operating profit totalled INR166.8 billion, up y/y from INR121.6 billion, while profit before tax (PBT) increased 29.7% y/y to INR135.34 billion. During the fourth quarter, sales revenues grew to INR509.1 billion on the back of growth in volumes. Operating profit was almost flat at INR52.1 billion, while PBT decreased marginally to INR44.2 billion.

The rise in profit was largely driven by the nearly GBP1.4-billion (USD2.2 billion) net profit at its previously loss-making JLR unit, which has turned round in the last few quarters. This was against a profit of GBP1 billion in the previous FY. Sales revenues at the unit was up by 36.9% y/y to GBP13.5 billion, while PBT stood at GBP1.5 billion compared to GBP1.1 billion a year ago. JLR's global sales volume for the year rose 29.1% y/y to 314,433 units, the highest ever. Jaguar volumes for the period stood at 54,039 units and Land Rover volumes stood at 260,394 units.

On a standalone basis, Tata's sales (including exports) of commercial and passenger vehicles for the FY stood at 926,353 units, representing growth of 10.7% y/y. In the domestic market, sales of Tata's passenger vehicles, including the distribution of Fiat and JLR vehicles, grew 4% y/y to 333,044 units. In the commercial vehicle segment, its sales jumped 15.7% y/y to 530,204 units, thanks to infrastructure improvements. The company's market share of commercial vehicles in India was 59.4%, and the market share in passenger vehicles stood at 13.1%. Meanwhile, sales revenues on a standalone basis were INR543.1 billion, up from INR470.8 billion. PBT for the quarter decreased stood from INR37.2 billion to INR31.4 billion, while net profit totalled INR12.4 billion, compared with INR18.1 billion in the same period last year.

Outlook and Implications

The considerable improvement in its financial performance was largely due to strong sales reported at JLR, which the company acquired from Ford in 2008 for USD2.3 billion. JLR's global sales volume for the year has risen substantially, helped by improved market conditions for its vehicles, better market mix and strong demand from China, which has emerged as one of the strongest markets for the unit. Sales in China have increased from 11% to 17% of global sales in the past year, offsetting moderate results in the crisis-hit European and the US markets. In March 2012, JLR announced that it has signed a joint venture (JV) agreement with Chery to build vehicles for the Chinese market. It is currently under the process for regulatory approvals by the Chinese authorities (see China - Turkey - Vietnam: 17 May 2012: Chery Urges Chinese Government to Approve JV with JLR, Plans to Invest in Turkey, Vietnam—Report). JLR's stupendous financial performance is prompting the company to make further investments in new products, facilities and technology. Capital expenditure of USD2 billion has been planned for JLR in FY 2012/13.

Meanwhile, JLR has reportedly initiated a feasibility study to manufacture its cars in India, and it is also considering establishing a car manufacturing plant either in Pune (Maharashtra) or Sanand in Gujarat for the production of the next-generation Defender model. The new factory is also likely to house an engine plant. The outcome of the feasibility study is expected by the second half of 2012. If everything goes ahead, the plant is likely be set up by the middle of 2015 (see India: 28 May 2012: JLR Begins Feasibility Study to Manufacture Cars in India—Report). It recently successfully raised bonds of GBP500 million with a coupon of 8.25% and tenure of eight years. The full proceeds were retained. Going further, JLR approved the consolidation of the businesses of Jaguar Cars Limited and Land Rover into one legal entity to be named Jaguar Land Rover Limited in March. The consolidation is expected to become effective later this year.

Tata and Fiat recently ended their distribution and service tie-up as the alliance failed to boost sales of Fiat cars in the country. Fiat will establish a separate company that will assume responsibility for all commercial and service-related activities from the current Tata-dedicated team assigned to manage the Fiat brand. Under a 50:50 JV agreement signed in 2006, Tata has been managing distribution responsibilities for Fiat cars through joint Tata-Fiat dealerships. Fiat is now focusing on setting up separate dealerships in India. The partners, however, will continue to manufacture cars and powertrains, also part of the JV agreement, at the Ranjangaon facility near Pune, Maharashtra. The venture is named Fiat India Automobiles (see India: 3 May 2012: Fiat and Tata End Distribution Tie-Up in India, Manufacturing JV to Continue). Furthermore, Tata has reportedly initiated cost-cutting measures at its domestic operations as several repayments are due this year. It is believed that the company has frozen hiring and asked its senior executives to cut down on travel costs and fly economy class. It has also reduced its advertising expenditure by 30-40% for the current FY. It looks like Tata wants to preserve cash as it has debt of about INR72.7 billion due for repayment in the current FY (see India: 24 May 2012: Tata Initiates Cost-Cutting Measures—Report). Meanwhile, intense competition and concerns relating to demand given the significant rise in fuel cost are prompting Tata to invest in R&D to increase the fuel efficiency of its products.