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Sales volumes at Jaguar-Land Rover, the two U.K.-based brands that the company acquired from Ford Motor, rose 26% in 2010-11.
Investors chose to ignore Tata Motors Ltd.’s tripling of 2010-11 earnings and instead focus on the company’s shrinking operating profit margins. Analysts say the stock will remain under pressure in the coming months as competition in India intensifies, shrinking profit margins further.
Late Thursday, India’s largest auto maker by sales, said its consolidated profit for the year through March jumped to 92.74 billion rupees ($2.05 billion) from 25.71 billion rupees the previous year, while sales grew 33% to 1.23 trillion rupees.
Sales volumes at Jaguar-Land Rover, the two marquee U.K.-based brands that the company acquired from Ford Motor Co. in 2008, rose 26% in 2010-11. The unit accounted for about 63% of Tata Motor’s total sales and 84% of its profit during the fiscal year.
Despite the strong performance, Tata Motors’ stock sank to one-month low when markets opened Friday. In afternoon trade, Tata Motors was down 6.3% at 1,088.00 rupees, while the 30-share benchmark Sensex was up 1.1%.
The company–part of the Tata Group which has interests ranging from salt-to-software-to-telecom—doesn’t report quarterly figures, so investors had to crunch the numbers themselves. And they discovered that operating margins had shrunk in January-March. The operating margin of the India business narrowed to 8.8% from 10.4% the previous quarter, while for Jaguar-Land Rover it shrank to 15.8% from 17.4%.
“Given slowing commercial vehicle and car sales in India, declining market share in cars, slowing Jaguar sales and rising Jaguar incentives, we see more risk to margins [in fiscal year 2011-12],” brokerage CLSA said in a research note, while lowering its rating on the stock to “outperform” from “buy”.
CLSA added that it was “quite concerned” about Tata Motors’ rapidly weakening India car franchise.
Tata Motors’ shares surged 65% in 2010, fueled by a turnaround in Jaguar-Land Rover sales. But investors have got used to seeing 20,000 plus unit sales from Jaguar-Land Rover every month and are now focusing more on the India business.
The auto maker’s India business reported a near 20% fall in net profit for the year that ended March 31, 2011.
So far in 2011, Tata Motors is the worst-performing of the five auto companies on the Sensex, and given the weak outlook for the stock, it’s unlikely to reclaim its star status any time soon.
Via: India Real Time