Tata Motors' Q4 FY 2014/15 consolidated earnings decline 56.2% y/y, full-year profit flat

Tata Motors has reported a 56.2% year-on-year (y/y) slump in its consolidated earnings for the quarter ended 31 March 2015. In a statement, the automaker said its profit after tax stood at INR17.2 billion (USD269 million) during the quarter, in sharp contrast to INR39.2 billion in the same period a year earlier. Meanwhile, the automaker posted a 14.2% y/y decline in consolidated earnings before interest, taxation, depreciation, and amortisation (EBITDA) to INR92.5 billion during the quarter. During the period, the automaker's consolidated revenues (net of excise duty) grew 3.5% y/y to INR675.8 billion.

There was no respite for its standalone business or its luxury Jaguar Land Rover (JLR) division. At Tata's Indian operations, losses grew to INR11.6 billion in the quarter, up from INR8.2 billion in the same period a year earlier. Although sales revenues for the latest three months increased 26.2% y/y to INR107.8 billion and EBITDA moved into positive territory, losses widened due to higher exceptional items and a substantial increase in debt levels. Sales of commercial vehicles during the quarter stood at 83,269 units, a small increase of 0.3% y/y, while sales of passenger vehicles gained 19.1% y/y to 42,478 units.

There was a big negative impact from the marquee JLR brands, which reported a 32.7% y/y decline in net profit during the quarter. EBITDA at the luxury division grew 10.4% y/y to GBP1.02 billion (USD1.57 billion) as revenues increased 8.9% y/y to GBP5.83 billion. Land Rover wholesales gained 9.8% y/y to 109,127 units during the quarter. Although this was partially offset by a 6.7% y/y decline in Jaguar wholesales to 20,078 units, combined wholesale volumes of the two marques grew 6.8% y/y during the quarter. This volume growth, along with a strong product mix and favourable foreign exchange, played an important role in boosting revenues by 8.9% y/y to GBP5.83 billion. Higher depreciation and amortisation expenses, adverse mark-to-market valuations of unrealised hedges, and a revaluation of foreign-currency debts were the factors that hurt the profitability of the luxury business. JLR's operating margin during the quarter gained 20 basis points to 17.4%.

The exceptionally weak fourth-quarter results weighed heavily on the group's performance for the full fiscal year (FY) 2014/15, although key performance metrics were still positive thanks to a stronger showing in earlier quarters. There was a 12.9% y/y increase in sales revenues to INR2.628 trillion for the full FY, while EBITDA levels jumped 12.5% y/y. Profits were flat at INR139.9 billion in the full year. For the year, Tata's standalone business registered revenue growth of 5.9% y/y, although it made a loss of INR47.4 billion, up from a small profit of INR3.4 billion in the previous FY. Meanwhile, JLR's sales revenues increased 12.8% y/y to GBP21.9 billion in the full year, while the division's earnings contribution was 8.5% y/y higher at GBP2.04 billion.

Outlook and implications

The fourth-quarter performance at Tata was affected by a weaker showing at the JLR division, while its domestic performance did not change much compared with earlier quarters. Although the company is now witnessing higher sales of passenger and commercial vehicles in India, this is yet to translate into a positive contribution to profitability. Meanwhile, the turnaround in medium and heavy commercial vehicle (MHCV) demand in India is a big positive factor for the company (see World: 18 May 2015: Tata Motors' global vehicle dispatches rise 4% y/y in April). Tata Motors' consolidated operations have been helped by the JLR division in the past, but provisions and single-digit revenue growth have resulted in a drop in profits at the luxury unit. This has largely stemmed from cooling demand in China, the luxury brands' biggest market.

Notwithstanding the growth in global wholesale volumes, Tata's retail sales actually declined 0.5% y/y in the fourth quarter to 124,307 units. Of this total, retail sales in China dropped 20.4% y/y, negating the growth registered in most other geographies, including the United Kingdom, North America, Europe, and Asia-Pacific. The extent of the slowdown in China during the fourth quarter can be gauged by the fact that Tata recorded a 12.5% sales increase in the country for the full year. "We see a certain slowdown in the market and we read that many competitors are going to reduce prices," said Ralf Speth, chief executive officer of JLR. Cooling sales have prompted several mass-market automakers in China, including General Motors (GM) and Volkswagen (VW), to implement across-the-board vehicle price cuts (see China: 13 May 2015: GM reduces prices of 40 models in China). Meanwhile, rival BMW has said it will reduce output to counter slowing demand in the country.

Margins at the JLR division are expected to remain under pressure on account of the massive capital investment programme undertaken by the luxury brands in the United Kingdom, China, and Brazil. Margins are also expected to be hit as the brands' product mix will change, especially with the Jaguar XE, sales of which started this month (see United Kingdom: 14 April 2015: JLR begins production of Jaguar XE). Meanwhile, the company is preparing to launch the all-new Jaguar XF, followed by the 2016-model-year Evoque, including a convertible variant, as well as the F-PACE sport utility vehicle in early 2016.