Tata Motors Q1 Preview: Expect double-digit drop due to contraction in JLR margins

Tata H5X | The Indian auto manufacturer showcased the H5X SUV concept at the Motor Show. Tata had earlier unveiled the car at the Auto Expo 2018. It will be the first Tata product to carry the new ‘Impact Design 2.0’ design language.

Tata Motors is expected to post a 93 percent year-on-year decline in its consolidated net profit for the June quarter because of weak growth in subsidiary Jaguar Land Rover's sales and declining margins.

According to a Reuters poll of 14 analysts, the Mumbai-headquartered maker of hatchback, trucks and luxury cars, could report a consolidated net profit of Rs 224 crore for the quarter under review, as against Rs 3,199.93 crore reported in the same quarter last year.

Tata Motors, which is India's largest automotive company, gets 90 percent of its net profit from the two iconic British brands. Jaguar Land Rover's retail (dealer-to-customer) sales grew 5.9 percent on year during the June quarter to 145,510 units.

The company is set to announce its results on Tuesday.

"Expect consolidated EBITDA to be flattish year on year, as sharp turnaround in standalone is offset by margin contraction and higher depreciation in JLR," IIFL Institutional Equities said in a pre-earnings report.

The British subsidiary's wholesale (company-to-dealers) sales, however, witnessed a fall of 5 percent to 131,560 units, as against 138,476 units sold in the last year same quarter.

Retail sales of Land Rover grew to 101,386 units, while that of Jaguar grew to 44,124 units. Sales of the two brands across Europe declined 7 percent, while sales growth in China, their biggest market, slowed down to just 2.5 percent.

Tata Motors' consolidated revenue is expected to come in at Rs 70,320 crore for the reporting quarter, 18 percent higher than the Rs 59,818 crore reported for the corresponding quarter a year ago.

On the standalone level, the company is expected report a robust performance, which has been the case for the past few quarters. Its net profit is seen coming in at Rs 371.8 crore for the quarter under review, as against a Rs 467 crore loss reported for the same quarter last year.

"We expect standalone revenues to increase by 91 percent YoY due to 61 percent YoY volume growth and higher ASPs led by a richer product mix (higher MHCV mix plus increased volumes of higher-priced launches in the PV segment)," Kotak Institutional Equities said in a report.

"We build in standalone EBITDA margin of 7 percent in 1QFY19 (6.1 percent in 4QFY18) compared to EBITDA loss in 1QFY18; we assume flattish gross margin on QoQ basis but build in some benefit from the company's cost reduction efforts," the brokerage said.

The company's total (domestic and exports) sales of passenger and commercial vehicles rose 61 percent year on year to 176,123 units during the quarter.

Tata Motors, which is the third-largest manufacturer of passenger vehicles in India after Maruti Suzuki and Hyundai, saw its passenger vehicles sales increase to 59,138 units, 48 percent more than it sold in the same quarter last year.

The company is also the largest domestic manufacturer of commercial vehicles (CV), sales of which rose 68 percent year on year to 117,123 units.

Besides an extensive sales network push, which increased volumes, the company benefited from a revival in demand from rural areas, which had been subdued last year. The big infrastructure push by the government and implementation of GST has led to a sustained increase in demand for CVs.