Strong demand for luxury Land Rover sports utility vehicles overseas, continued momentum for light commercial vehicles and rebound in sales of its passenger vehicles in the domestic market are expected to power Tata Motors' earnings in the third quarter. The India's largest commercial vehicle maker will report results for the October-December quarter on Tuesday.
Sales at JLR, especially Land Rover, have been quite robust as strong demand from markets like China has offset the economic turmoil in Europe. JLR sales rose 39% in October, 27% in November and 45% in December.
Similarly, Tata Motors' passenger vehicle business in India, has made a surprising turnaround after dismal performance in the first half. New launches like the Vista, Indica eV2, Manza, and Nano 2012, coupled with increased promotions, has helped Tata PV sales grow 81% in November and 47% in December, after a sluggish 3% uptick in October.
Tata Motors' commercial vehicle sales have slowed compared to last fiscal, but still clocked 13%, 28% and 14% growth in Oct, Nov and Dec respectively, helped by continued demand for light trucks.
Helped by this volume growth, analysts expect Tata Motors' net sales will grow by 30-40% year-on-year in the third quarter.
But, despite strong sales, profit will likely grow a slower 14-15% in the three-month period. Higher raw material costs and increased spending on advertising and promotions will curb margins. Brokerage Motilal Oswal expects as much as 330 basis points year-on-year drop in margins of the Tata group firm.
Key things to watch:
- Domestic sales outlook for the fourth quarter and fiscal 2013.
- Demand for Jaguar and Land Rover. Land Rover sales have been robust, while Jaguar sales have been mixed.
- JLR's plans in China. The company has been mulling a tie-up to set up manufacturing operations in that country. Bloomberg quoting sources said earlier this month that JLR was likely to partner Chery Automobile to make JLRs in China.
- Plans for the domestic market. Tata Motors' partner Fiat has seen sluggish sales. The Italian car maker is in the process of setting up its own sales outlets, in a bid to attract more customers.
- Outlook on raw material prices.
Tata Motors shares closed at Rs 257.35 on NSE on Friday, little changed from previous close. The stock has accelerated near 65% since September-end. The CNX Auto index is up 14% over the same period, while the broader Nifty is up 9%. Motilal Oswal and Emkay had a "buy" rating on the stock, while Angel Broking had "accumulate". KR Choksey advises "hold."