Tata Motors posts 22% rise in Q1 net profit

BOMBAY: India’s top vehicle maker, Tata Motors Ltd., beat market forecasts on Friday with a surprise 22 percent rise in quarterly net profit, as cost cuts and strong sales abroad offset high raw material costs.

Its bottom line was also boosted by the merger of Tata Finance Ltd. with the company, which became effective from April. India’s $5 billion truck and bus market, the world’s fifth largest, has enjoyed 30 percent annual growth in the past three years, driven by an improving network of highways and purchases to replace ageing trucks in Asia’s third-biggest economy.

But Tata Motors expects only marginal first-half growth in its commercial vehicles business, as the industry wrestles with oil prices near record highs, a China-led boom in steel prices and rubber’s surge to a 17-year peak. The market may slow to 9-10 percent this fiscal year, Tata Motors Managing Director Ravi Kant told a news conference.

“We see some softening in steel prices, but high fuel costs are pressuring freight operators, impacting on their purchases. But we may see some growth from October if the road development projects pick up pace, leading to demand for trucks,” he said.

The company plans to cut costs by 10 billion rupees over the next two to three years, he added. Tata, with nearly 60 percent of India’s truck and bus market, said net profit rose to 2.73 billion rupees ($63 million) in the first quarter to June from 2.23 billion a year earlier and net sales rose 8.5 percent to 38.78 billion rupees ($89 million).

The median forecast of a Reuters poll of 11 analysts was for a net profit of 1.90 billion rupees on net sales of 36.94 billion.

“It doesn’t look like domestic demand is going to improve very much, and even globally, there is a softening of demand, so it will be difficult to sustain these margins,” said S. Ramnath, an analyst at SSKI Securities. Shares in Tata Motors, with a market value of nearly $4 billion, rose 0.4 percent to 480.95 rupees on Friday in a slightly firm Bombay market.

The stock gained nearly 3 percent between April and June, lagging a 10 percent rise on the Bombay exchange auto index and an 11 percent rise on the benchmark index

Emissions effect: Prices of commercial vehicles edged up after manufacturers raised prices by 2-3 percent on steel costs and stricter emission rules from April. A new value-added tax also nudged up prices. The uncertainty caused by changes in emission norms and the resultant shortages of some critical components impacted the domestic sales of Tata’s commercial vehicles during the quarter, which fell 7 percent. Passenger vehicle sales edged up 1 percent.

But exports were robust. Commercial vehicle exports rose 74 percent and passenger vehicles exports rose 241 percent, with new markets such as South Africa and Turkey driving growth. Tata, which has rebounded since posting losses in 2000/01 and 2001/02, said its operating margin rose to 12.6 percent in the quarter from 12 percent a year earlier as it cut costs.

India’s second-biggest truck maker, Ashok Leyland Ltd., said this week it more than doubled quarterly net profit, which included proceeds from the sale of a castings unit. Top tractor maker Mahindra & Mahindra Ltd. posted a 39 percent jump to 1.45 bilion rupees, but it was not as badly affected by high raw material costs as its truck-making rivals. Full-year profit at Tata Motors, an arm of the powerful steel-to-software Tata group, is expected to rise by 16 percent to 14.37 billion rupees, according to Reuters Estimates. The company, also India’s third-biggest car and utility vehicle maker, sold 105,582 vehicles in the quarter to June, 24 percent more than in the same period a year ago.

Its popular Indica hatchback now faces competition from South Korea’s Hyundai Motor Co. and leader Maruti Udyog Ltd., while Mahindra will begin making commercial vehicles from 2007 in a deal with Navistar’s International Truck and Engine Corp.

But Tata hopes to corner a share of the large three-wheeler goods carrier market with its newly-launced mini-truck. Tata Motors last year bought South Korea’s Daewoo Commercial Vehicle Co. Ltd. and aims to boost foreign sales. Europe will be a focus area, where Italy is its top market. Tata owns 21 percent in Spanish bus maker Hispano Carrocera. reuters

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