Tata Motors Ltd. fell the most since May in Mumbai trading after its Jaguar Land Rover Plc unit said profit growth probably stalled on currency shifts and cheaper models attracted a higher share of buyers.
Tata Motors, which derived three quarters of its operating income from Jaguar Land Rover in the last financial year, slumped 6.3 percent. The stock was the biggest drag on the benchmark BSE India Sensitive Index, which declined 0.5 percent.
BNP Paribas SA cut its rating on Tata Motors, citing negative outlook on Jaguar Land Rover’s profitability. Margins in the three months through December may have declined due to the pound weakening against other currencies and higher sales of its cheaper models, the Gaydon, England-based division said yesterday in a U.S. filing.
“We had indicated at the beginning of the year that product mix would be poorer because of higher sales of the XF, Freelander and Evoque,” Vijay Somaiya, the head of treasury and investor relations at Tata Motors, said on a conference call today. “Incentives in the current year are also slightly higher than previous years.”
The average selling price of models such as the Jaguar XF, Land Rover Freelander and the best-selling Evoque is about 30,000 pounds ($47,500), compared with the 42,000-pound average on other models, Somaiya said.
Tata Motors fell the most since May 30 to 293.45 rupees.
The pound dropped after a 0.1 percent decline in retail sales last month added to signs the U.K.’s economy is struggling to recover. The euro has gained more than 3 percent against the pound this month.
“The company saying that margins will be lower is a big concern,” said Umesh Karne, an analyst with BRICS Securities Ltd. in Mumbai. “The indication that capital expenditure will be higher as well as about negative cash flow is a concern, as we factored positive cash flows into the share price.”
Jaguar Land Rover’s margins had declined in the two earlier quarters, according to data compiled by Bloomberg. The lower-priced Evoque sport-utility vehicle accounted for almost 30 percent of Land Rover’s wholesale deliveries in the six months ended Sept. 30.
The Evoque, which began deliveries in September 2011, sells for just under 29,200 pounds, versus the 38,825-pound starting price for Land Rover’s Discovery 4, a larger SUV, according to the brand’s website.
Jaguar Land Rover may have negative free cash flow in the year beginning April 1 as the unit raises annual capital spending to 2.75 billion pounds from 2 billion pounds to develop models and build a factory in China. Free cash flow was probably also negative in the third quarter, it said.
The luxury division, which has 2.18 billion pounds in cash, may raise additional funds for investments from capital markets and through bank loans, it said. The carmaker will introduce a model to compete against Daimler AG’s Mercedes Benz C class and the BMW 3 series by the end of 2014, Somaiya said.
Detailed fiscal third-quarter figures will be released with Mumbai-based Tata Motors’ earnings statement in February, the division said.