India's largest commercial vehicle manufacturer Tata Motors surprised Dalal Street on every parameter on Friday with the second quarter (July-September) consolidated net profit surging nearly 71 percent year-on-year on Jaguar Land Rover boost , but standalone business continued posting losses amid weak economic environment.
Below is the verbatim transcript of his interview on CNBC-TV18
Q: The standalone loss number is much higher than estimated. The big figure according to me is the way JLR margins have panned out at 17.8 percent?
A: JLR margins at 17.8 percent are really very strong and infact amongst the highest that the company has posted over last 7-8 quarters. So, a strong beat on the margin front at JLR.
Topline is broadly inline with expectations but led by strong margins at JLR, the bottomline is significantly higher than expectations.
Q: The fact that standalone loss is actually even higher than what we were expecting, does that make the numbers look even better because it is all about JLR now for Tata Motors in terms of the consolidated numbers?
A: If you look at Tata Motors for the last 2-3 quarters the standalone operations have been posting losses in the range of Rs 500-600 crore. So, overall JLR has been driving the performance for the company and that trend continues even in this quarter. The losses were expected at the standalone level. We were expecting a loss of around Rs 530 crore.
Q: As you know most of your peers and you yourself have upgraded the stock in the last many months because of the performance that we have seen, but based on these numbers how much more of an incremental bump-up do you think the stock price can have and will you upgrade your EPS targets as well?
A: Definitely the estimates would be revised upwards post these results. However, 17.9 percent margins of JLR would not be sustainable, so what will be the sustainable margin numbers for JLR would be the key thing to watch out for in the conference call. We will be revising our earnings estimates upwards definitely post the strong results that the company has posted.
Q: If you believe that 17.8 percent margins may not be sustainable what could be the reasons behind that? We do know that Tata Motors is now intending to consolidate its platforms from 7 in FY13 to 5 platforms in FY20 and that will bring about a lot of reduction in fixed cost for them. So a lot of analysts on the street are actually working with the margins moving to these 17-18 percent levels, maybe not now but perhaps in FY15. Would you be a bit circumspect there?
A: One other thing is to watch out for is the currency in this quarter. Second quarter the currency was mostly favourable. We did not see much impact of the currency in second quarter, but the Great Britain Pound (GBP) has appreciated against the dollar (USD) which would probably have some impact going ahead. So the currency movement probably could be one of the factors which could impact margins, other than that the cost related to new launches may again pressurise margin. We will get more clarity on overall sustainable margin and that will be the key thing to look for.
Q: What about your stock price, where are you on the stock at this point?
A: The stock has given strong returns of 40 percent over the last three months and our target price of Rs 375 has been achieved. So, we would be revising our numbers but we maintain our positive view on the stock.
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Positive on Tata Motors; to revise estimate upwards: Angel
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