Tata Motors posted a sharp 67 per cent year-on-year growth in net profit for the December quarter to Rs 2,906 crore. The company, which owns Jaguar Land Rover (JLR), returned to net profit after three consecutive quarters of loss. The bottomline was much higher than Bloomberg consensus estimates of Rs 1,173 crore and was led by strong operational performance both at the standalone and JLR businesses.
While volumes for JLR which accounts for 80 per cent of the consolidated revenues were down 9 per cent as compared to the year ago quarter, the China market stood out with a growth of 20 per cent. On a sequential basis however, there has been a significant turnaround with all markets posting volume growth, barring the UK.
At the standalone level, growth was led by the passenger vehicle segment where volumes improved 56 per cent over the year ago quarter. While commercial vehicles volumes were higher on a sequential basis they are still down by a 25 per cent as compared to year ago levels.
Commenting on the standalone performance, Guenter Butschek, CEO and MD, Tata Motors, said, “The auto industry witnessed a strong sales momentum in Q3FY21, driven by the pent-up demand and a steady recovery of the economy. We could leverage the improved demand by a consistent ramp-up of production, addressing supply chain bottlenecks. Due to a strong festive season and a clear preference for personal mobility the PV business posted its highest sales in last 33 quarters.”
Consolidated revenues came in at Rs 75,654 which was higher than consensus estimates that had pegged the same at Rs 72,292 crore. While the revenue performance was good, what stood out was the sharp improvement in operating profit margins on higher operating leverage, improving product mix, geographic markets and lower other expenses. Margins expanded by 540 basis points to nearly 15 per cent. This boosted the free cash flows of the consolidated operations. JLR’s free cash flows of 562 million pounds is its highest ever in the December quarter.
This helped the company reduce net automotive debt by Rs 7,000 crore on a sequential basis to Rs 54,654 crore. Net automotive debt to equity ratio is now at 0.94.
While there are multiple uncertainties across geographies given the pandemic, the company indicated that demand continues to be strong and volume trends are expected to continue in the near term. Margins could come under pressure as the company is unable to completely pass on the rise in commodity costs to consumers. The management however indicated that cost efficiencies and product mix could offset the pressure on margins in the coming quarter.
The promoters have exercised their warrants to the tune of Rs 2,600 crore in January which helped the Tata Group hike their stake in the company to 45.82 per cent.