Tata Motors Posts Strong Q2 2018 Results On The Back Of JLR’s Strong Performance In China
Tata Motors (NYSE:TTM) announced its Q2 2018 results on November 9th and the company reported a more than 10% year on year revenue growth and a nearly three-fold year in net profits. Both these numbers exceeded analyst expectations and were driven by a strong performance of JLR (Jaguar Land Rover) in China and the company’s “turnaround” plan in the domestic market.
JLR is the largest division of Tata Motors and according to our estimates it contributes towards more than 90% of the company’s valuation.
Click here to see our detailed analysis of Tata Motors and revenue contribution of each division.
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Below is a summary of JLR’s performance in this quarter:
The growth in EBIT during this quarter was driven by higher wholesale volume, primarily of the Velar model and a favorable mix. JLR recorded a 5.8% year on year increase in wholesale volumes for Q2 2018 driven by China (up 19%) and the U.K. (up 20%). Retail sales grew by 5.1% in the quarter – again driven by China (up 27.4%) and North America (up 5.1%).
While the domestic segment does not contribute significantly to Tata Motors’ total revenues, the company is beginning to see results of its “turnaround” program in this segment, driving revenues and profitability. Below is a summary of the performance of this segment for Q2 2018:
Growth in revenues was driven by a 14% increase in passenger vehicles and a 26% increase in commercial vehicles. Aggressive launch of new products across segments and a cost reduction effort were the key drivers behind the domestic sales growth.
Going Forward:
- Tata Motors’ domestic segment is likely to lead the future of e-mobility in India with its TIGOR Electric winning a contract of 10,000 electric cars floated by the government of India.
- Electric Vehicles is a big focus for JLR as well and all JLR models will offer electric options by 2020. The company will continue to invest in driver assistance technology to support higher automation.
- The company will continue its focus on cost reduction in the domestic segment to boost the bottom line.
- JLR’s target is to achieve an 8-10% EBIT (earnings before interest and taxes) margin in the medium term.
Our price estimate for Tata Motors is $36.77. We will be updating our model based on the above results which can lead to a change in our price estimate.