Tata Motors Ltd , India’s top vehicle maker, saw its first quarter profit drop 30 percent, as expected, on foreign exchange losses and rising input costs, and said margins would remain under pressure.
Tata Motors, which is due to launch the world’s cheapest car, the Nano, around October, will seek to protect margins through cost reductions, price increases and more financing options for vehicle purchases, Managing Director Ravi Kant said.
“Undoubtedly, for the industry this will perhaps be the most challenging year,” he told a news conference on Wednesday.
“In spite of quite a gloomy situation, we are feeling quite confident of our position, because of steps we have been taking, such as price increases and cost reductions,” he said.
The company said April-June net profit fell to 3.26 billion rupees ($77 million) from 4.67 billion rupees a year earlier.
Net sales rose to 69.28 billion rupees from 60.57 billion, compared to a Reuters poll of net profit of 3.20 billion rupees on net sales of 65.70 billion rupees.
Operating margin, a key gauge of business profitability, fell to 7.7 percent from 9.0 percent a year earlier.
The company sold a 24 percent stake in its auto parts unit, Tata AutoComp Systems Ltd, and booked a profit of 1.14 billion rupees in the quarter ended June 30.
But that was more than offset by a 2 billion rupee foreign exchange loss as the rupee fell 6.8 percent against the dollar.
Tata Motors, also India’s No. 3 car maker, sold 127,361 vehicles in the June quarter, up just 3 percent on last year.
The company will focus on new launches to boost demand, keep a close watch on inventory levels, and look to “unlock value” from other investments, Kant said.
MAHINDRA TO RIDE BIKES
Top utility vehicle and tractor maker Mahindra & Mahindra Ltd on Wednesday reported an unexpected 17 percent fall in quarterly profit after it suffered foreign exchange losses, and signalled its entry into the two-wheeler segment.
Mahindra said it would own 80 percent of a firm that would buy the assets of two-wheeler maker Kinetic Motor for 1.10 billion rupees.
“The acquisition gives us an opportunity to emerge as a full-range player with a presence in almost every segment of the automobile industry,” Vice Chairman Anand Mahindra said.
Mahindra said net profit fell to 1.59 billion rupees from 1.91 billion after it incurred a 779 million rupee foreign exchange loss.
Net sales rose to 32.93 billion rupees from 26.13 billion.
The result lagged a Reuters poll forecast of a net profit of 2.19 billion rupees on net sales of 32.25 billion.
Operating margin fell to 10.06 percent from 11.19 percent.
“Given the environment, it would be very challenging for these firms to shore up margins,” said Huzaifa Suratwala at IL&FS Investsmart, which is downgrading Tata Motors stock to ‘hold’.
“Over the next couple of months, volumes will be tough to come by, so a lot will depend on new launches.”
Shares in Tata Motors, worth nearly $4 billion, ended up 4.9 percent at 416.30 rupees in a firm Mumbai market.
It trades at 8.3 times forecast earnings compared to a 12.7 multiple for Mahindra, which rose 2.7 percent to 513.50 rupees.
Source:reuters
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