More Stories

Informist, Friday, Nov. 8, 2024

By Apoorva Choubey

MUMBAI – Tata Motors Ltd. reported a fall in its core revenues for the first time in 10 quarters during Jul-Sept, as muted demand led to lower sales volumes and deep discounts in the domestic business, at a time when supply issues continued to roil the company's luxury car unit, Jaguar Land Rover Plc. The automaker's bottom line, too, declined for the first time in four quarters in Jul-Sept. 

The company's consolidated net revenue from operations fell 3.7% from a year ago to nearly INR 1.01 trillion for the reporting quarter. Over the past nine quarters, Tata Motors has clocked sales growth every single time, ranging between 6% and 43%.

During Jul-Sept, the company reported a fall of over 11% in consolidated net profit to INR 33.43 billion, belying market expectations. The Street had expected the company's bottom line to jump 32% on year to INR 49.78 billion.

The company's total revenue from operations, which includes other operating income, fell 3.5% to INR 1.01 trillion for the September quarter. The company's total sales were seen at INR 1.05 trillion for the quarter, flat on year.

The global wholesale volumes of Tata Motors, including Jaguar Land Rover, slipped 11% on year to 304,189 units for Jul-Sept. The automaker recorded a decline across all vehicle categories in both domestic and international markets during the quarter.

"Growth in the quarter was impacted due to significant external challenges as highlighted earlier," Group Chief Financial Officer P.B. Balaji said in a press release. "Overall, the business fundamentals remain strong, and we remain focused on our agenda of driving growth, competitiveness and free cash flows," he said.

For Jul-Sept, the consolidated earnings before interest, taxes, depreciation, and amortisation margin of Tata Motors shrank 230 basis points on year to 11.4%, missing even the most pessimistic of expectations. Analysts were divided on how the profitability of the automaker would fare, and had estimated the EBITDA margin in the range of 13.0-14.5%. Several had expected a better product mix to offset the impact of supply issues. 

However, supply constraints in JLR operations and deep discounts in the passenger vehicle segment weighed on the company's profitability for Jul-Sept, even as some benefit of favourable pricing and material cost savings was seen in the commercial vehicle segment. The company highlighted that the passenger car and electric vehicle segments in India witnessed high discounting ahead of festivals in October.

Lower volumes also weighed on the overall operational performance. During the quarter, sales volumes of commercial vehicles, including the Tata Daewoo range, declined 19% on year to 86,133 units, while passenger vehicle despatches fell 6% on year to 130,753 units.

Higher employee and other expenses also dragged the margins lower. The company's staff cost increased 16% from a year ago to INR 117.2 billion during the September quarter while other expenses rose more than 12% to INR 208.3 billion.

The company's profitability would have fallen further if not for lower raw material costs. Its input expenses fell over 7% on year to INR 537.1 billion, marking the first quarter of decline in raw material costs in 10 quarters. Raw material costs accounted for a little over 55% of the total expenses of Tata Motors.

During the reporting quarter, the automaker's total expenses fell 3.3% to INR 973.3 billion, also the first decline in the metric in 10 quarters. Tax outgo rose 5% to INR 23.2 billion. 

JAGUAR LAND ROVER 

While JLR, the largest unit of Tata Motors, was profitable for the eighth successive quarter, its profit before tax and exceptional items fell 10% to 398 million pound sterling, or about INR 43.46 billion. Temporary supply constraints related to aluminium, an important raw material, were seen due to the impact of severe flooding at a key high-grade supplier of the metal.

These issues dragged JLR's revenues 5.6% lower on year to 6.5 billion pound sterling, or about INR 710 billion. The luxury carmaker's EBIT margin shrank 220 bps to 5.1% for Jul-Sept, while the EBITDA margin contracted 320 bps to 11.7%, despite a better product mix and cost savings initiatives.

Aside from the supply constraints, the company's decision to keep 6,029 vehicles on hold for quality checks also weighed on its profitability. For the September quarter, JLR sold 87,303 vehicles, 10% lower than in the year-ago period. It dispatched 5,961 units of Jaguar-branded vehicles during the quarter, and 81,342 units of Land Rover-branded vehicles.

PASSENGER VEHICLES

During Jul-Sept, the overall passenger vehicle segment in India continued to be marred by weak consumer demand for automobiles and an inventory glut. Demand was low because of the Shraddh period of remembrance, which is considered inauspicious by many Hindus, and uncertain weather conditions in India.

This resulted in a historically high inventory of 80–85 days with dealers, which weighed on passenger vehicle makers' wholesale despatches. "The passenger vehicle industry in Q2 FY25 witnessed 5% decline in registrations, resulting in continued build-up of channel inventory," said Shailesh Chandra, managing director, Tata Motors Passenger Vehicles Ltd. and Tata Passenger Electric Mobility Ltd. On an industry level, sports utility vehicles have sustained volume growth, posting 8% improvement, while hatchbacks and sedans continue to lose volumes with 20% fall in Jul-Sept, the company said. 

Tata Motors' passenger vehicle revenues fell 3.9% to INR 117 billion and EBITDA margins for the segment shrank 30 bps to 6.2%, even as the product mix was better and cost reduction actions continued. The company's electric vehicle segment also faced a slowdown due to muted demand for passenger cars and withdrawal of key incentives for fleets.

The electric vehicle business EBITDA margin was at (-)5%, but the segment's operating margin, excluding product development expenses, was 1.7%. The company, though, maintained market leadership in the segment.

COMMERCIAL VEHICLES

The third segment of commercial vehicles did not fare much better, with the overall commercial vehicle industry seeing an 11% decline in sales volumes. Tata Motors saw a 14% fall in commercial vehicle revenues to INR 172.88 billion for Jul-Sept.

Domestic wholesale commercial vehicle volumes crashed 20% on year, dragged lower by a slowdown in infrastructure project execution, reduction in mining activity, and an overall drop in fleet utilisation due to heavy rains in India. Exports declined 11% on year.

However, EBITDA margin improved 40 bps to 10.8% for the reporting quarter. The profitability was underpinned by favourable pricing and material cost savings, even as lower volumes were a drag.

OUTLOOK

While Tata Motors remains cautious about domestic demand in the near term, it expects all-round improvement in performance in Oct-Mar. "As the supply challenges ease and demand picks up, we are confident of steady improvement in our performance and delivering a strong H2," Chief Financial Officer Balaji said.

The festival season and substantial investments in infrastructure should help bolster the performance of the domestic business in Oct-Mar, the company said. JLR wholesale volumes are expected to improve sharply too, as supply challenges ease. During Apr-Sept, the company witnessed a 1% rise in sales to INR 2.09 trillion, while net profit attributable to shareholders surged 28% to INR 89.09 billion.

JLR has retained the EBIT margin guidance of over 8.5% for 2024-25 (Apr-Mar), as well as the revenue guidance of 30 billion pound sterling, or about INR 3.28 trillion. The luxury carmaker's EBIT margin for Apr-Sept was 7.1% and revenues were 13.7 billion pound sterling, or about INR 1.5 trillion.

For the passenger car business, Tata Motors heralded a resurgence in demand for the entire industry. The company has seen the highest-ever registrations in October, it said.

However, the company expects the industry's wholesale volumes to be lower to enable channel inventory reduction ahead of the new calendar year. The company will continue to drive significant growth in retail sales on the back of new model launches, while retaining focus on improving mix and cost reduction.

In the commercial vehicle business, Tata Motors expects demand to pick up gradually in Oct-Dec, with the rains easing, increased infrastructure spending, and the arrival of the festival season. Overall, the company expects a stronger Oct-Mar for the commercial vehicle business even as it remains watchful on domestic demand.

Tata Motors also wants to become net debt free by this year. At the end of the September quarter, the company's net automotive debt was INR 220 billion.

The company announced the results after market hours Friday. Shares of the automaker closed nearly 2% lower at INR 805.45 on the National Stock Exchange.  End

US$1 = INR 84.37

Edited by Rajeev Pai

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (22) 6985-4000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2024. All rights reserved.