Indian automaker Tata Motors knows all about the value of
diversification. After all, it's a subsidiary of the Tata Group,
a multinational conglomerate with a hand in everything from steel
and chemicals to beverages and hotels.
So whenTata Motors (
) decided to diversify its own business in 2008 with the purchase
of the then-struggling Jaguar and Land Rover brands, it figured
that a line of luxury vehicles would fit well with its more
affordable domestic passenger cars and commercial and
Six years later, the resurgent Jaguar Land Rover (JLR)
business is the primary driver behind Tata Motors' recent
Although Tata Motors has seen a slowdown in sales of domestic
vehicles, the company has still run off two straight quarters of
accelerated sales and profit growth, thanks mainly to its luxury
Meanwhile, its stock price set a record intraday high of 38.92
"Their growth is really due to the momentum of Jaguar Land
Rover," said Richard Hilgert, analyst at Morningstar. "That has
really helped Tata's overall business because India is going
through anemic economic conditions."
Those conditions have hammered sales at the company's Tata
Motors Limited (TML) unit, whose brands include Nano, Indica,
Sumo and Indigo.
In March, the TML business saw sales decline 30% from the
prior year to 51,184 units. Domestic passenger-vehicle sales
slumped 33% to 45,996 units, while exports showed a 46% gain.
The domestic declines follow a general sluggishness in the
Indian car industry.
In a recent report, analysts for Trefis cited data from the
Society of Indian Automobile Manufacturers showing that
year-over-year passenger-car and utility-vehicle volumes in India
fell by 4.6% and 5%, respectively, in the 11 months ended in
The report also said India's passenger-vehicle market was set
to post lower annual sales for the first time in more than a
"Negative consumer sentiment due to high inflation, unstable
fuel prices and high interest rates have hurt sales for
automakers in India," Trefis noted. "Fitch Ratings expects this
trend to continue in fiscal 2015, predicting a 3% to 8% fall in
passenger-vehicle sales volume. Unfavorable conditions in the
domestic market are also expected to constrict Tata's volumes in
the next couple of years."
Despite that gloomy forecast, Tata Motors -- which could not
be reached for comment -- has seen its stock price rise more than
40% since Feb. 3. For that, it can thank bullishness over the
company's JLR unit.
"Jaguar Land Rover has been extremely profitable, with EBITDA
(earnings before interest, taxes, depreciation and amortization)
in the high teens," Hilgert said. "Their margins are among the
best in the industry."
Tata Motors bought Jaguar and Land Rover fromFord Motor Co. (
) in 2008 for $2.3 billion. The company went to work, cutting
costs at the JLR unit, retooling its operations and improving its
products. Those efforts continue to pay dividends.
In March, the unit had retail sales of 55,183 units, up 2.7%
from the prior year. Sales for the year to date rose 15.9% year
over year to 434,311. Jaguar sales, which account for just under
one-fifth of JLR business, rose 37.4% in the year to date vs. the
same period in 2013, compared with 11.9% growth in Land Rover
Among geographic markets, China had the fastest growth rate
for the JLR unit at 33.7% for the year to date.
Other Asia Pacific markets ranked second at 27.7%, followed by
North America at 20.2%.
The success of the JLR unit has helped offset a slowdown in
other vehicle lines, where competition is on the rise.
Trefis notes that Tata's market share in India's passenger-car
segment fell to 9.5% in 2013 from 15.3% as recently as 2010.
"Following the continual poor performance of Tata's car
) overtook the automaker as the third largest passenger-car
company in India last year, behind Maruti and Hyundai," Trefis
Even so, Tata Motors has delivered two straight quarters of
During its fiscal third quarter, which ended in December, the
company delivered a 23% year-over-year gain in sales and a
triple-digit increase in net income.
"The results were once again driven by an impressive Jaguar
and Land Rover performance, which posted record EBITDA margins of
17.9%, higher than our expectations of 15.8%," noted Yaresh
Kothari, analyst at Angel Broking.
He expects head winds in the TML business to continue over the
near term due to a weak macroeconomic environment.
However, Kothari added, "we expect JLR to sustain its strong
performance driven by continued momentum in the global
luxury-vehicle market and aided further by the strong product
launch pipeline and the success of the newly launched
Tata Motors is due to report Q4 and full-year fiscal 2014
earnings in late May, according to the Thomson One website.
Analysts polled by Thomson Reuters expect full-year profit of
$3.75 per American Depository Receipt, up 24% from the prior