Tata Motors Q4 FY18 Results today: JLR sales slowdown seen impacting profit

Mumbai: Tata Motors Ltd, India’s largest automaker by sales revenue and second largest by net profit, will report its March quarter (Q4 FY18) results on Wednesday.

Driven by a sharp turnaround in the domestic business, but dragged by a slowdown in demand faced by the UK subsidiary Jaguar Land Rover (JLR) Automotive Plc, the Tata Group flagship is expected to report a net profit of Rs3,748 crore on net sales of Rs88,196 crore, according to a Bloomberg poll of 16 analysts.

JLR sales volume fell in the single digits, while the domestic market was buoyed by higher passenger and commercial vehicle sales.

Analysts estimate consolidated margins to fall by over 140 basis points during the quarter—primarily dragged by JLR’s weak performance due to a model run-down cycle and disfavour for its diesel-heavy portfolio, despite lower foreign exchange and hedging losses, gains from expressing pound revenues in rupee terms (as the pound appreciated about 8% against the rupee during the quarter) and higher scale in JLR’s operations.

One basis point is one-hundredth of a percentage point.

Here are a few factors to track in the fourth quarter results for FY18:

JLR volumes

Total JLR volumes during the quarter fell 3.8% over the year-ago to 172,709 units, with only three models out of 13 posting growth, according to company data. Total JLR sales weighed in most on the decline with a 7.49% decline to 49,931 units, led by a 41.33% fall in sales of the XE, whereas Land Rover sales fell 2.2% to 122,778 units, with the Defender dragging sales.

Among international markets, North America, China and other markets performed better over the year ago, with China contributing the most with an 11.06% rise in sales to 37,306 units on the back of the long-wheelbase Jaguar XFL. However, China had been posting growth upwards of 20% in the past few quarters up to September.

Margins

Analysts expect a sharp year-on-year fall in the UK subsidiary’s margins, on the back of rising competition in the premium SUVs segment, higher discounting in larger markets such as the USA and Europe, and an overall slowdown in demand.

JLR’s Ebitda (earnings before interest, tax, depreciation and amortization) margin for the three months ended 31 March is estimated at 12.7%, a fall of 181 bps from the year-ago, wrote Joseph George and Suraj Chheda of IIFL Institutional Equities in a 9 April research note. The Ebitda margin is a key measure of operating profitability.

Domestic operations

Total domestic sales during the March quarter rose by a significant 38.74% to 187,874 units, as per the company’s monthly wholesales releases.

These numbers were driven primarily by passenger vehicles, with the division clocking 43.04% growth to 58,092 units on the back of increasing demand for new launches such as the Nexon and Hexa UVs, in addition to the Tiago hatchback and Tigor compact sedan, the company said in the release.

The commercial vehicles division, the cash cow at the firm, also posted a stellar 36.9% jump in growth during the quarter to 129,782 units, with medium and heavy commercial vehicles clocking a 19.9% growth in sales to 45,111 units on the back of the government’s push towards infrastructure development, restriction on overloading in select states, an uptick in road construction and mining activities, along with an increasing demand from e-commerce and other retail applications.

The company’s standalone Ebitda margin is expected to rise by nearly five percentage points to 9% over the year ago on the back of the company’s focus on cost‐cutting initiatives to drive profitability,wrote George and Chheda of IIFL.

During the March quarter, Tata Motors share price fell 24.06% to Rs327.45 on the BSE, while the benchmark Sensex lost 3.2% during the period to 32,968.68 points.livemint