Tata Motors Slumps 5% on Q3 Profit Miss; Analysts Bullish

Tata Motors shares fell over 6 per cent on Friday after the company missed profit estimates in the December quarter.

Tata Motor's net profit fell 25.5 per cent year-on-year to Rs 3,581 crore; analysts had expected, on average, profit of Rs 4,924 crore. Continued weakness in domestic vehicle sales and a dip in Jaguar Land Rover sales dented Tata Motors' profitability, analysts said.

Tata Motors, India's biggest automaker by revenue, reported a 8.6 per cent rise in consolidated sales at Rs 69,942 crore.

Domestic Business: Sales of Tata Motors passenger cars and trucks and buses fell 3.5 per cent year-on-year to 1.27 lakh units during the quarter. The company reported a net loss of Rs 2,123 crore in domestic business due to higher expenses and a fall in sales.

Jaguar Land Rover Business: JLR sales have been propping up Tata Motors profits for the past few years; however, in the December quarter, JLR sales fell 0.6 per cent year-on-year mainly due to a fall in sales in North America. JLR sales in China grew just 4 per cent in the December quarter as compared with 40 per cent growth between April and September.

JLR's EBITDA margins fell to 18.6 per cent during the quarter compared with 19.1 per cent in the year ago quarter and profit after tax at the luxury unit fell an annual 4 per cent to $907 million in part due to "unfavourable revaluation of foreign currency debt", Tata Motors said.

Outlook: The company expects to do well in China, where it opened a manufacturing facility in October. The management, however, guided for lower margins and capital expenditure at JLR unit in a conference call.

The company has cut JLR capex guidance, implying potential negative free cash flow in FY16, Motilal Oswal said in a note to its clients.

Reaction to Q3 earnings: Most brokerages continue to be bullish about Tata Motors despite Q3 miss. Barclays retained its "overweight" (target Rs 729); Q3 miss does not deter FY16 outlook, it said. Deutsche Bank also maintained "buy" (target Rs 620) saying outlook on volumes remains strong. Macquarie retained its "outperform" call (target Rs 700) saying earnings will double over 3 years.

Shares in Tata Motors ended 5 per cent lower at Rs 560. The stock was the top Nifty loser and underperformed the benchmark Sensex, which ended 0.46 per cent lower.

(With inputs from Reuters)