Bloomberg News

Tata Motors Profit Misses Estimates on Costs, Currency Loss

November 15, 2011

(Updates with share price in fifth paragraph.)

Nov. 15 (Bloomberg) -- Tata Motors Ltd., the maker of the world’s cheapest car Nano, posted a 15 percent drop in profit as raw material costs surged and because of currency losses.

Second-quarter net income declined to 18.8 billion rupees ($371 million) from 22.2 billion rupees a year earlier, Tata Motors said in a statement yesterday. Profit lagged behind the 20.9 billion-rupee median of 26 analysts’ estimates compiled by Bloomberg. Sales rose 27 percent to 359.4 billion rupees.

The slide of the rupee against the U.S. dollar resulted in Tata Motors losing money in the quarter on the revaluation of outstanding foreign currency borrowings. The company’s raw material costs including steel and aluminum in the period increased 30 percent and it spent more on marketing its cars in India, according to Chief Financial Officer C. Ramakrishnan.

“Going forward, because of the slowdown in the Indian market, Tata Motors will have to spend more on marketing,” said Umesh Karne, an analyst at Brics Securities Ltd. in Mumbai. “For the full year, pressure on margins will remain.”

Tata Motors rose 2 percent to 181.3 rupees as of 10:39 a.m. in Mumbai trading, after earlier falling as much as 3.3 percent. The benchmark Sensitive Index was little changed. The shares have lost 31 percent this year.

Foreign Currency

Raw material costs increased to 221.1 billion rupees from 170.2 billion rupees, the company said yesterday.

Tata Motors incurred a loss of 4.4 billion rupees in the period on revaluing outstanding foreign currency borrowings, compared with a gain of 1.3 billion rupees in the year-earlier quarter, as the rupee declined, the company said.

The rupee slid 8.7 percent against the U.S. dollar in the quarter, the worst performer in Asia after the South Korean won, according to Bloomberg data.

Sales of Tata Motors’ passenger vehicles, excluding Jaguar and Land Rover, in India slumped 22 percent to 60,340 units in the three months through Sept. 30 as rising interest rates and fuel prices damped demand. Shipments increased 46 percent in the year-earlier period, according to press releases posted on the company’s website.

Deliveries of the Nano plunged 67 percent in the quarter to 7,398 units, according to company press releases.

Slowing Local Sales

Annual industry vehicle sales will expand at the slowest pace in three years, according to the Society of Indian Automobile Manufacturers, which has cut its forecast for nationwide deliveries twice this year.

India’s central bank last month raised key interest rates for the 13th time since mid-March 2010. Asian nations from Indonesia to South Korea are either cutting rates or keeping them on hold to protect expansion as Europe’s debt crisis threatens to trigger a global slump.

Tata Motors is turning to the British luxury brands it purchased from Ford Motor Co. for growth and to drive international ambitions. The Jaguar Land Rover unit, based in Gaydon, England, generated 57 percent of Tata Motors’ revenue for the year ended March 31, up from 53 percent a year earlier.

“The situation in Europe is very difficult to predict so we are trying to be fit to weather the storm,” Ralf Speth, chief executive officer at Jaguar Land Rover, said at a press conference in Mumbai yesterday. “In principle, emerging market sales help to overcome critical situations in Europe.”

Jaguar Land Rover

Sales of Jaguar and Land Rover vehicles rose 23 percent to 68,000 units in the quarter as it sold more in China and Russia, the company said yesterday. Sales of Jaguar declined 7 percent to 13,306 units, while Land Rover deliveries increased 34 percent to 54,694 units.

Tata Motors began delivering the new Evoque sport-utility vehicle on Sept. 9 and plans to introduce a new Defender model in 2015. It has a wait list for the Evoque running into the first quarter of next year, John Edwards, global brand director for Land Rover, said on Nov. 10.

Land Rover sold about 7,700 units of Evoque till September, Tata Motors said yesterday. The company has got “positive response” for the Jaguar XF with the new 2.2 liter diesel engine, it said.

“The outlook for Tata Motors looks favorable as the new Evoque and the new XF will propel JLR volumes,” Mahantesh Sabarad, an analyst with Fortune Equity Brokers India Ltd. in Mumbai, said before the earnings announcement. “And we may see Indian passenger car sales rising in the March quarter.”

Strikes, Borrowing Costs

Indian passenger vehicle sales tumbled the most in more than a decade after labor strikes idled factories at Maruti Suzuki India Ltd. and rising borrowing costs turned off consumers. Deliveries declined for a fourth month, dropping 24 percent to 138,521 vehicles in October, according to the industry group.

India’s central bank raised its key interest rate to 8.50 percent last month to cool inflation that has exceeded 9 percent since December, driving down demand for cars in a country where about 80 percent of automobile purchases are funded through loans.

Local gasoline prices were raised by refiners including Indian Oil Corp. on Nov. 4 for a third time in six months.

--Editors: Subramaniam Sharma, Abhay Singh

To contact the reporter on this story: Siddharth Philip in Mumbai at sphilip3@bloomberg.net

To contact the editor responsible for this story: Chua Kong Ho at kchua6@bloomberg.net


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