Tata Margin Declines to Seven-Year Low on Drag From Nano

Tata Motors Ltd. (TTMT) will report the narrowest profit margin at its Indian business in at least seven years as sales of models from the Nano to Sumo plunge.

Earnings margin before interest, taxes, depreciation and amortization at India’s biggest automaker narrowed to 0.9 percent in the three months ended June 30, according to a median estimate of five analysts surveyed by Bloomberg News. That will shrink the measure for the group, which includes U.K.-based Jaguar Land Rover, to 13.6 from 14 percent in the preceding quarter, data show.

Passenger vehicle deliveries at Tata Motors have dropped for 11 straight months as promotions to buy back the Manza sedan and credit card purchases of the Nano, the world’s cheapest car, failed to lure buyers. Intensifying competition and slowing growth in Asia’s third-largest economy cut demand for Tata’s vehicles. Group net income will drop for a fourth straight quarter, according to a survey compiled by Bloomberg.

“The domestic business of Tata Motors is a drag on the company but luckily they have Jaguar Land Rover,” said Juergen Maier, a Vienna-based fund manager at Raiffeisen Capital Management, which oversees about $1.1 billion in emerging-market assets. “If you look at the passenger vehicle business, there are serious problems. Hopefully commercial vehicles will recover once the economy picks up.”

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Employees rest near a cross-section of a Tata Motors Ltd. Sumo Gold sport-utility vehicle (SUV) on display during a media event in Pune, India. Close

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Employees rest near a cross-section of a Tata Motors Ltd. Sumo Gold sport-utility vehicle (SUV) on display during a media event in Pune, India.

The company’s shares, which have dropped 9.4 percent this year, fell 1.4 percent to 283.5 rupees at 9:27 a.m. in Mumbai. Tata Motors is scheduled to announce its results today.

Trucks, Buses

Tata Motors, which was India’s third-biggest passenger vehicle maker in the year ended March 31, sold fewer cars than Honda Motor Co. (7267), ranked eighth, in July. Tata delivered 10,824 cars, utility vehicles and vans in the month. Honda sold 11,223 while Maruti Suzuki India Ltd. (MSIL) sold 15,249 units of the DZire model in the same period.

Mumbai-based Tata, which also makes trucks and buses, in March said it would buy back Manza sedans, offering customers 60 percent of the purchase price after three years to entice clients. The offer failed to attract buyers with the model selling 392 units in the three months ended June 30 compared with 2,698 a year earlier, according to the Society of Indian Automobile Manufacturers. Hindustan Motors Ltd. (HM), which makes the Ambassador based on the 1948 Morris Oxford, sold 709 units of the model in the period.

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An employee works on a Tata Motors Ltd. Indigo eCS automobile on the assembly line of the company's factory in Pimpri, Maharashtra, India. Close

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An employee works on a Tata Motors Ltd. Indigo eCS automobile on the assembly line of the company's factory in Pimpri, Maharashtra, India.

“On the passenger car side, Tata Motors’ brand positioning has fallen,” said Abhishek Gaoshinde, an analyst with Sunidhi Consultancy Services. “With competition having better products than Tata at the same price, customers are bound to chose them over models such as the Indica and Indigo.”

New Models

In comparison, deliveries at the Jaguar Land Rover luxury unit, which Tata Motors bought from Ford Motor Co. in 2008, increased 10 percent in the three months ended June. Jaguar accounted for 17,459 units of the luxury unit’s deliveries last quarter, an increase of 28 percent spurred by the new F-Type convertible introduced in May. Land Rover sales increased 7 percent to 77,260 vehicles, according to company data.

The unit based in Gaydon, England plans to introduce eight new or refreshed models this year, Jaguar Land Rover Chief Executive Officer Ralf Speth said in May.

Tata Motors will report a consolidated net income of 22.2 billion rupees ($363 million) in the quarter ended June from 22.4 billion rupees a year earlier, according to the median of 39 analysts’ estimates compiled by Bloomberg. Sales are estimated to rise 7.1 percent to 462.5 billion rupees.

‘Solid Positioning’

The company beat analyst’s profit estimates by 48 percent in the three months ended March 31 on higher sales at the luxury unit and a foreign-exchange gain of 837.1 million rupees.

Jaguar Land Rover “has confirmed its solid positioning in the premium car segment,” Milan-based Barbara Castellano, a credit analyst with Standard & Poor’s, which raised Jaguar Land Rover’s credit rating one level to BB last month, wrote in a report. Revenue at Jaguar Land Rover may increase 15 percent in the year ending March 31, she said.

The local business will report a record loss of 4.7 billion rupees in the three months ended June 30, according to a median estimate of four analysts compiled by Bloomberg. Slowing economic growth and high borrowing costs are keeping buyers from Tata Motors’ showrooms.

The Reserve Bank of India on July 30 cut its growth forecast for the $1.8 trillion economy to 5.5 percent from 5.7 percent for the year ending March 31. The monetary authority last month also raised two interest rates to curb the rupee’s depreciation.

‘Challenging Environment’

India’s automotive industry group predicts car sales to grow as much as 5 percent this financial year, compared with an average growth of 15.5 percent in the past four years.

“It’s a tough challenging environment” for any company selling to local consumers, Kenneth Andrade, head of investments at IDFC Asset Management Co., which has $6.4 billion in assets, said in an interview to Bloomberg TV India. “The market doesn’t necessarily need to grow for you to make money. From an investment profile you just need to back” companies that are maintaining market share, he said.

To contact the reporter on this story: Siddharth Philip in Mumbai at sphilip3@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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