Tata Motors Q3 net profit halves, JLR margin sags
Mumbai: Hit by falling margins and rising capital expenditure, roaring Jaguar Land Rover (JLR) may be heading for a speed trap. Rising investment is eating into the luxury carmaker's cash pile and raising the prospect of fresh borrowing, as falling profitability saw parent Tata Motors Ltd post its first drop in profits in five quarters.
Increasing reliance on lower-margin models such as the Land Rover Evoque and Freelander and adverse currency movements saw JLR's profit margin fall, and free cash flow (FCF) at the unit turned negative just months after it paid its weaker parent a maiden dividend. Negative cash flow will continue in the next financial year, JLR says, as the carmaker that has propped up its Indian owner for the past 18 months starts a 2.75 billion pound a year splurge on its plants and product pipeline.
Tata's net profit for the third quarter of the financial year that ends on March 31 came in far below market estimates at 16.28 billion rupees, down 52 percent year-on-year and the first fall since the three months to September 2011. Analysts had expected average profit of 28.9 billion rupees, according to Thomson Reuters Starmine.
Much of the fall was down to a slide in JLR's blockbuster operating margins to 14 percent in the quarter, down from 17 percent in the year ago period, due in part to a shift towards less profitable models. "Over the next couple of years, they are unlikely to generate much cash. That's a worry," said Joseph George, analyst at IIFL Institutional Equities in Mumbai, one of seven with a negative rating on the stock, according to Thomson Reuters Starmine. "That's going to be a problem for Tata."