Margin Concerns Weigh On Tata Motors

Ben Stansall/Agence France-Presse/Getty Images

Sales volumes at Jaguar-Land Rover, the two U.K.-based brands that the company acquired from Ford Motor, rose 26% in 2010-11.

Investors chose to ignore Tata Motors Ltd.'s tripling of 2010-11 earnings and instead focus on the company's shrinking operating profit margins. Analysts say the stock will remain under pressure in the coming months as competition in India intensifies, shrinking profit margins further.

Late Thursday, India’s largest auto maker by sales, said its consolidated profit for the year through March jumped to 92.74 billion rupees ($2.05 billion) from 25.71 billion rupees the previous year, while sales grew 33% to 1.23 trillion rupees.

Sales volumes at Jaguar-Land Rover, the two marquee U.K.-based brands that the company acquired from Ford Motor Co. in 2008, rose 26% in 2010-11. The unit accounted for about 63% of Tata Motor’s total sales and 84% of its profit during the fiscal year.

Despite the strong performance, Tata Motors' stock sank to one-month low when markets opened Friday. In afternoon trade, Tata Motors was down 6.3% at 1,088.00 rupees, while the 30-share benchmark Sensex was up 1.1%.

The company–part of the Tata Group which has interests ranging from salt-to-software-to-telecom—doesn't report quarterly figures, so investors had to crunch the numbers themselves. And they discovered that operating margins had shrunk in January-March. The operating margin of the India business narrowe [...]

---