“Challenging Market Conditions” Dampen Tata Motors’ Q3 2018 Results

by Trefis Team
Tata Motors
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Tata Motors  (NYSE:TTM) announced its Q3 2018 (Apr-Mar fiscal year) earnings on February 5th 2018 and the company reported a 16% year on year increase in net revenues and an 80 basis points increase in EPS (earning per share). The revenue increase was contributed by high volumes and the company’s domestic business contributed nearly 60% to the increase in revenues and a 750 basis points increase in EBITDA margin. However, its JLR (Jaguar Land Rover) segment posted disappointing results with a decline of 130 basis points on EBIT (earnings before interest and taxes) as costs increased and depreciation on new models was higher.

Below is a summary of the company’s performance in Q3 2018 (quarter ending Dec. 2017) and our expectations for calendar year 2017 and 2018:

You can click here to access these charts and modify our revenue estimates.

JLR’s performance in China was the strongest with a 14% year on year growth in wholesales, however there was an 8% decline in wholesale unit sales in the UK and a 10% decline in North America. The Velar and Discovery models performed strongly in this quarter, while Range Rover and Range Rover Sport posted a decline in wholesale unit sales.

Tata Motors’ domestic business is showing the results of its turnaround strategy. The company stepped up its market presence in the fiscal year 2018 and has begun to fill the portfolio gap with new model launches in various segments.  The company’s new launches in India – Tiago, Tigo, and Exxon got a very strong response.

Going Forward:

  • Tata Motors expects Q4 2018 to be better compared to Q3 in terms of revenues and profitability on the back of a stronger performance with newer models and seasonality.
  • For JLR (Jaguar Land Rover), in the medium term the company’s target is to achieve an EBIT (earnings before interest and tax) of 8-10% with better performance of newer models leading to operating leverage and higher cost efficiencies.
  • In the domestic market the company expects to achieve an EBIT of 6-8% through higher growth and cost efficiencies.
  • Tata Motors will continue to invest in electrification and by 2020 all Jaguar Land Rover vehicles would offer electric options in some form.
  • The company’s new Slovakia plant is on track for start of production by the end of 2018.

We will be updating our model for Tata Motors based on these results, which can result in a change in our price estimate for the company.

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