India's largest commercial vehicle maker Tata Motors has seen its profits surge over last couple of years, driven by its luxury Jaguar Land Rover passenger vehicle division. However, its third quarter earnings are expected to skid, dragged down by losses in the standalone business as sales have hit a road block.
Not to forget, it has already warned of flat earnings growth and declining margins at JLR as well, due to unfavourable forex shifts and high share of low margin Evoque SUV. The Tata group company will report its earnings for Oct-Dec on Thursday.
At the consolidated level, Tata Motors is expected to report a net profit of Rs 2,250 crore, down 34 percent year-on-year, while revenue is seen up 4.4 percent at Rs 47,277 crore, according to a CNBC-TV18 poll.
Consolidated EBITDA (earnings before interest, taxes, depreciation and amortization) is seen down near 15 percent at Rs 5,818 crore and operating profit margins are expected to decline to 12.3 percent from 15 percent.
"We expect that for the quarter ended 31 Dec 2012, revenue will be higher than the previous two quarters reflecting the higher sales volumes. EBITDA is likely to be in the region of levels reported for the previous two quarters and EBITDA margin is likely to be slightly lower than in the previous two quarters, primarily reflecting less favorable exchange rates, the ongoing effect of a higher mix of Evoque sales and other factors," Tata Motors said in an investor update last month.
While JLR revenues are likely to increase 5 percent to 3.94 billion pound, profit is expected to decline 33 percent to 294 million pound and operating profit margin is expected to drop sharply to 13.8 percent from 20.1 percent in Oct-Dec.
In the standalone business too the company has struggled as medium & heavy truck sales continue to remain under pressure and there are few takers for passenger cars amid an overall industry slowdown.
On a standalone basis it is expected to report a net loss of Rs 180 crore, compared with a profit of Rs 174 crore in the year ago quarter, and revenue is seen down 19 percent at Rs 10,846 crore, according to analysts forecast.
Standalone operating profit margins are seen declining to 4.1 percent from 6.3 percent.
"The cyclical slowdown in the M&HCV segment could continue to heap pressure on Tata Motor's Indian operations. LCVs continue to be a better performing segment for the company with 29 percent YoY growth in Q3, while other segments have declined 10-40 percent," said analyst Sneha Venkatraman of HDFC Securities.
Most analysts have already cut their forecast for the current fiscal and FY2014 following the Jan warning.
"While we were already building in a slight negative impact of currency in our estimates, we now understand that the mix and discounting was much more unfavorable and could lead to a 10 percent miss on our Q3 EBITDA estimate," Emkay Global Financial Services had said following the Tata Motors' investor update.
KEY THINGS TO WATCH
-- Margins in the third quarter
-- Outlook for the fourth quarter and FY2014
-- Domestic volume guidance, especially in the M&HCV segment and passenger cars
-- Demand trends for luxury passenger vehicles in key markets like China, North America and Europe.
-- Update on new launches planned, including the Range Rover Sport, Jaguar F Type, small Jaguar and CNG and Diesel variants of the Nano
Tata Motors shares were up 2 percent at Rs 304.40 on NSE on Wednesday following a strong growth in JLR wholesales in Jan. The stock is up about 12 percent since Sept-end. It has declined 5 percent since its warning on Jan 23. The wider NSE Nifty is up 4 percent since Sept-end.
Several brokerages including CLSA, Centrum and Motilal Oswal have a "buy" rating on the stock.