Stock Review: TATA MOTORS

Tata Motors posted its highest-ever quarterly consolidated profits for the March 2011 quarter in line with the Street's expectations. However, the signs of a slowdown have become visible with margin pressure. On the other hand, the company has a significantly better balance sheet compared with a year ago, making it ready to face the headwinds. The company's operating profit margins for the March '11 quarter at 12.8% were the lowest in the four quarters of FY11 and the 27% growth in operating profit to . 4,545.9 crore was the slowest during any quarter of the year. The year-on-year growth in net profit was a paltry 18% for the quarter. However, it was due to the inflated profits of the year-ago period, following a sale of investments.

The company ended FY11 with a significantly strengthened balance sheet thanks to the 3.6 times jump in annual profits and also the capital infusion. The company issued . 3,350 crore through qualified institutional placement in October 2010 and FCCB conversions added another 2.36 crore equity shares between November and March 2011. This has brought down the promoter group's shareholding from 37% a year ago to 34.83% by end-March '11.

As a result, the debt burden came down 6.6% through FY11 to . 32,791 crore. This was 1.7 times its consolidated equity, against 4.3 a year ago. However, considering the . 9,900-crore debt portfolio of its auto-finance subsidiary and its cash balance of . 10,948 crore, net debt-toequity stands at 0.69.

For the full year, the company achieved a 33% revenue growth to . 1,23,133 crore thanks mainly to the strong volume growth — 23% up in domestic and 70% jump in exports — while the price hikes remained just around 5% in both commercial as well as passenger car segments. A substantial jump in operating margins, reduction in interest cost and a benign increase in depreciation and tax expenses helped it clock a fantastic 261% jump in net profit to . 9,274 crore. The company faces many challenges going ahead. The macro-economic factors such as high inflation, rising interest rates and slower industrial growth have the potential to adversely impact demand for automobiles, while cost concerns continue with high commodity prices. The company will focus mainly on export growth in both commercial as well as passenger vehicle segments and continue expanding and improving its product portfolio. It appears difficult for the company to maintain its volume growth, but reduction in interest and other costs could see it improve profits in the coming quarters.