How Tata Motors’ India Business Is Panning Out This Fiscal Year
Tata Motors (NYSE:TTM) has taken a hit so far this fiscal year (fiscal year 2017, ending March 2017) in its consolidated profits primarily because of hedging losses and adverse commodity derivatives impacts. Most of the FX loss has been at Jaguar Land Rover (JLR), where excluding the FX revaluation and one-time provision for customer quality programs, and adjusting the revenue for realized foreign exchange hedging losses, the EBITDA margin rose to 12.9% in the last quarter (Q2 fiscal 2017), up from reported margin of 10.3%, and up 70 bps year-over-year. While the numbers for the standalone business reflect weakness, JLR has been moving from strength to strength, growing volume sales considerably in 2016. This is important for Tata Motors, as JLR forms more than 90% of the group’s valuation, as per our estimates.
- Standalone Business:
Despite a 6.1% growth in passenger and commercial vehicle sales (including exports), revenue at the standalone business declined 3.3% year-over-year in Q2 FY17. The growth in light commercial vehicle sales and passenger vehicle sales were more than offset by the sales decline in medium and heavy commercial vehicle sales so far this year. As M&HCVs have higher revenue per unit, the negative price mix unfavorably impacted the top line in the last two quarters. The decline trickled down to the EBITDA margin, which declined to 3.6% from 8.2% a year ago in Q2.
Tata Motors has been mostly hurt by lower sales of commercial vehicles. The impact of demonetization in India has impacted all segments with MH&ICV Cargo sales dropping by double-digit percentages with long haul cargo operators being severely affected by cash crunch and deferring purchases.
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On the other hand, Tata Motors’ passenger vehicle sales have grown positively so far this fiscal on the back of the strong sales for the hatchback Tata Tiago, which was launched in April this year, and clocked 50,000 bookings by October. Just for reference, Tata has sold just over 90,000 units of passenger cars in the April-November period, making the Tiago its hands down bestseller. The hatchback broke into the top 10 best selling cars in India last month, forming almost 50% of all of Tata’s passenger vehicle (passenger cars+ utility vehicle) sales in November.
Tiago has helped Tata revamp its image and reverse the trend of declining sales in the home market over the last few years. In fact, Tata Motors managed to beat the likes of Mahindra & Mahindra and Honda to regain the position of the third largest car manufacturer in the country. [1] Tiago has been more successful than the Zest, and Bolt models, part of the company’s Horizonext initiative, announced in 2013, which is an aggressive strategic plan for its passenger vehicle business unit to reverse the trend of flagging sales. The Tiago is a critical model for Tata, since the hatchback segment forms close to half the net passenger car sales in the industry.
Tata might be looking to increase its sales in the high-growth utility segment as well. The company has been able to launch a successful product in the bulky hatchback segment in India, and another in the booming SUV/Crossover segment could see it further grow in the domestic passenger vehicle market.
Have more questions on Tata Motors? See the links below.
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- Three Reasons Why Trefis Is Bullish On Tata Motors
- Tata Motors’ India Business Is Heading In A Positive Direction
- Tata Motors’ 50% Drop In Profits In Q1 Is Not All Bad News
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- Tata Motors Rides On Strong Q4 Performance By Jaguar Land Rover To Boost Fiscal 2016 Results
- Jaguar Land Rover Steps Up Unit Sales In Crucial Markets
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- By What Percentage Have Tata Motors’s Revenues And EBITDA Grown Over The Last Five Years?
- What Is Tata Motors’s Revenue And EBITDA Breakdown?
- Where Will Tata Motors’s Revenue And EBITDA Growth Come From Over The Next Three Years?
- Why Jaguar Land Rover Forms More Than 90% Of Tata Motors’ Valuation
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