Tata Motors profit lags, input costs a worry

RELATED NEWS Tata Motors Q3 net profit at Rs 400 cr ALSO READ News and Notices about Tata Motors See interviews with Tata Motors Management See what other Experts & Brokerages are saying about Tata Motors See previous Results of Tata Motors Tata Motors BSE | NSE 10/02/12 Are Mutual Funds betting on Tata Motors?

Top Indian vehicle maker Tata Motors' quarterly net profit from domestic operations lagged estimates despite a surge in sales, signaling rising raw material costs are beginning to take a toll on margins.

Climbing commodity prices over the past few months on the back of a world economic recovery have worried automobile companies that are emerging from a sharp slowdown.

Analysts said Tata Motors, whose products range from the premium Jaguar and Land Rover brands to the cheapest Nano car, was probably better placed to ride out the storm because of improving demand for its trucks.

"Increases in input costs have been there, but the impact can be offset by a company like Tata Motors on higher demand for its trucks," Suraj Saraogi, Managing Director of Keynote Capital, said.

"New demand is coming in for trucks from smaller towns and this should be able to ride out any adverse impact from higher costs."

Tata Motors had increased prices by an average of 1% during the December quarter to offset a rise in raw material costs, Chief Financial Officer C. Ramakrishnan said.

"We are watching the situation of the rise in commodity prices. Margins would continue to be under pressure and we would take pricing actions as appropriate," he said.

Higher raw material costs lowered operating profit to 12.8% in the December quarter from 13.36% in the three months to September, the company said.

Top carmaker Maruti Suzuki, leading utility vehicle maker Mahindra & Mahindra and bike maker Hero Honda had earlier said pressure on margins could rise due to an increase in commodity prices such as aluminium, lead and copper.

Ramakrishnan also cautioned a rise in interest rates and a possible withdrawal of stimulus support would impact sales in coming quarters.
India's central bank surprised markets by raising banks' Cash Reserve requirements by more than expected on Friday and warned of mounting inflation, setting the stage for increasing interest rates in the coming months.

Shares in Tata Motors, which has market value of USD 8 billion, fell 2.9% to Rs 694.35 ahead of the results in a Mumbai market that rose 0.3%.
The company's debt at the end of December was 200 billion rupees (USD 4.3 billion).

Sales jump

Tata Motors reported a net profit of Rs 400 crore from its Indian operations in the quarter to December, compared to a loss of Rs 263 crore a year earlier, when an economic slowdown had hit sales.

Revenues surged 89% to Rs 8,980 crore as sales of its cars, utility vehicles and trucks surged on customer demand and easy availability of credit.

A Reuters poll of 13 brokerages forecast net profit of Rs 442 crore on net sales of Rs 8,346 crore.

During the quarter, the company sold 159,139 vehicles, up 68% from a year-ago.

Sales in India, one of the world's fastest growing markets, have been boosted by a better economic climate and government stimulus packages that reduced factory-gate duties on vehicles.

Vehicles sales in the country rose an annual 22% in the first nine months of 2009/10 (April/March), and the forecast for next year is in the range of 12-13%.

The company said it has started trial runs of its ultra-cheap Nano at its new plant in Sanand in the western state of Gujarat, and is on track to start production by the end of March.

The company has already delivered more than 17,000 Nanos since it began delivery in July last year.

Shares in Tata Motors rose 34% in the December quarter, outperforming a 2% rise in the main index.

Its shares rose nearly five times in 2009 while that of Maruti Suzuki trebled.