MUMBAI - India's Tata Motors Ltd reported an unexpected surge in first-quarter net profit, helped by a change in accounting policy, but concerns remain over its loss-making Jaguar Land Rover unit and how it will strengthen its balance sheet.
The maker of the Nano, the world's cheapest car, has appointed two consultants to advise Jaguar Land Rover (JLR) on cost cuts, set objectives for breaking even and tapping its cash flow effectively.
We are going ahead with their proposals and this is going to improve the cost reduction efforts in JLR, Vice Chairman Ravi Kant said.
Monday's results showing net profit surged 58 percent, when analysts had expected it to halve, did not include Jaguar Land Rover operations. Officials declined to provide information on the performance of JLR, saying it would be announced later.
On a standalone basis the company is doing well. The domestic business is good. But the two concerns are JLR and its ridiculously high debt-to-equity ratio, said Jatin Chawla, auto analyst with India Infoline.
In year to March 2009, India's largest vehicle maker posted its first loss in eight years, hit by losses at JLR. On a standalone basis, it had posted a profit in the year.
The company has $850 million outstanding of the original bridge loan of about $3 billion it took to buy JLR, having recently paid off $150 million using funds from its sale of a 1.5 percent stake in group firm Tata Steel.
Its funds crunch was eased to some extent by the $500 million it raised from Nano bookings in April. It raised $884 million through debentures to pay off part of its bridge loan and has extended the maturity of the remaining amount to end of 2010.
We will look at capital raising at an appropriate time. We are committed to improving the capital structure of the company and going to the market, but no decision has been taken yet, Chief Financial Officer C. Ramakrishnan told reporters.
Tata Motors, which delivered its first Nano earlier in July, said standalone net profit rose 58 percent to 5.14 billion rupees ($107 million), up from 3.26 billion rupees a year ago helped by lower costs and a change in accounting policy which saw lower foreign exchange-related losses.