Tata Motors Profit Misses Estimates on Jaguar Land Rover

Tata Motors Ltd., India’s biggest automaker, posted profit that missed analyst estimates as costs climbed and increased demand for its lower-priced Evoque model cut earnings at the Jaguar Land Rover Ltd. unit.

Third-quarter net income fell 52 percent to 16.3 billion rupees ($302 million), the lowest in three years, the Mumbai-based company said. That lagged behind the 29.3 billion-rupee median of 40 analysts’ estimates compiled by Bloomberg. Profit at the luxury unit declined 25 percent to 296 million pounds ($459 million), trailing analysts 310.5 million-pound median estimate.

Jaguar Land Rover last month said that its lower-priced Evoque model attracting a higher share of buyers may have stalled profit growth. Tata Motors’s luxury unit also said in January it may have negative free cash flow in the year beginning April 1 as it raises annual capital spending to 2.75 billion pounds from 2 billion pounds to develop models and build a factory in China.

“The losses at the domestic business will pull down the gains at Jaguar Land Rover, together with the decrease in margins due to the unfavorable product mix,” Mitul Shah, an analyst at Karvy Stock Broking Ltd., said before the earnings announcement. “We are positive about volume growth, but it is still to be determined how margins will increase.”

Product Mix

The average selling price of vehicles such as the Jaguar XF, Land Rover Freelander and the best-selling Evoque is about 30,000 pounds compared with the 42,000-pound average for its other models, Vijay Somaiya, head of treasury at Tata Motors, said in a briefing on Jan. 24.

The luxury unit’s deliveries increased 10 percent to 94,828 vehicles in the three months ended Dec. 31. Of this, Jaguar accounted for 15,043 units and Land Rover for 79,785 vehicles, the company said today.

Sales of Jaguar Land Rover rose 1.5 percent to 3.8 billion pounds, according to the statement. That lagged behind the 4.11 billion-pound median estimate of 14 analysts surveyed by Bloomberg News.

Tata Motors fell 2.5 percent to 297.20 rupees at close in Mumbai, before the earnings announcement. The shares have dropped 4.9 percent this year, compared with a 0.4 percent increase in the benchmark BSE India Sensitive Index. The company’s American depositary receipts tumbled 4.9 percent, the most since Jan. 23, to $27.25 at the close in New York.

Most Expensive

The automaker began selling a new version of its most expensive model, the 71,300-pound Range Rover last year. The model, built completely out of aluminum, will see higher deliveries this quarter as production volume expands, Somaiya said at the time. It will also introduce a new version of its 50,000-pound Range Rover Sport this year, he said.

Net sales of Tata Motors, including units, increased 1.4 percent to 458.2 billion rupees in the three months ended Dec. 31, according to the statement. That lagged behind the 488.2 billion-rupee median of 40 analysts’ estimates.

Total costs, including of materials, wages and product development, rose 6 percent to 425 billion rupees, according to the statement.

Operating profit margin at the unit was 14 percent in the quarter, lower than a year earlier, reflecting the product mix and higher marketing costs, Tata Motors said. “Launch costs of the all-new Range Rover, run out of the earlier Range Rover, and continued growth in product investments and related costs to support future business growth” also impacted profitability.

Emerging Markets

Jaguar Land Rover is turning to emerging markets such as China, Russia and South Africa to pursue growth. Global sales in 2012 rose 30 percent to 357,773 vehicles, with those in China surging 71 percent to 71,940 units, Jaguar said last month. China surpassed the U.K. to become its largest market.

The luxury unit, together with Chery Automobile Co., is investing 10.9 billion yuan ($1.75 billion) to build a manufacturing plant in eastern China. The venture will include a local brand as well as a research & development center and an engine plant.

Jaguar Land Rover is also studying the feasibility for a plant in Saudi Arabia, it said in December. The luxury unit said last year it is expanding Jaguar Land Rover assembly at the company’s factory in Pune, located in the western state of Maharashtra in India.

Fitch Ratings assigned Jaguar Land Rover’s $500 million notes a final BB- this week.

The ratings are constrained by the automaker’s “limited product portfolio, its shorter operating history and lower volumes compared with more established and highly rated premium car manufacturers,” Fitch said in a statement dated Feb. 12. “The prevailing weak global economy may also pose a challenge in maintaining volume growth over the next one to two years.”