Tata Motors Posts Flat Profit, Flags Interest Rates

Tata Motors on Thursday posted roughly flat profit in the fiscal first quarter that lagged estimates as higher costs squeezed margins, and said rising interest rates in Asia's third largest economy was a matter of concern.

Tata Motors , part of India's salt-to-software Tata conglomerate, whose range includes utility vehicles and the ultra-cheap Nano, said revenue rose, driven by British luxury brands Jaguar and Land Rover , which it bought from Ford Motor Co for $2.3 billion in 2008.
But the rising costs of steel, rubber and other raw materials have squeezed margins and forced some Indian carmakers, including Tata and Maruti Suzuki, to raise prices.
"Going forward, (we expect) slowing growth in commercial vehicles prompted by rising costs, interest rates and inflationary concerns, and expectations of slowing industrial growth," Chief Financial Officer C. Ramakrishnan said at a press conference.
India has raised interest rates 11 times since March 2010 to combat stubborn inflation, hurting industries based on credit. The Indian auto industry is spurred by an aspirational middle class that relies on loans to buy cars. It targets families of four that ride on motorcycles, a common sight on Indian roads.
But even the world's cheapest car failed to lure buyers in July. Tata's sales fell in July, led by a slump in sales of the Nano, which slid 64 percent.
Overall car sales in India fell 15.8 percent in July, the first drop in two and a half years, and higher interest rates and car prices are expected to hurt demand further.
Still, Tata has planned annual capital expenditure of 30 billion rupees to 35 billion rupees for its India business, Ramakrishnan said, adding that sales from its JLR unit should continue to improve as it expands into growth markets such as India, China, Brazil and Russia .
"At the most there could be one more rate hike...when the rate hike cycle is over, Tata Motors will be the first stock to jump," Kishor Ostwal, Chairman at Mumbai based CNI Research said, adding that the concern is already baked into the stock.
LAGS FORECAST
Tata posted first-quarter net profit of 19.99 billion rupees ($441.7 million), compared with 19.89 billion a year earlier. Its net debt at the end of June stood at 150 billion rupees.
Tata Motors ' consolidated revenue rose 24 percent from a year earlier to 335.72 billion rupees. A Reuters poll had forecast net profit of 21.6 billion rupees for the quarter on net sales of 329.1 billion.
Tata spent 203.9 billion rupees on consumption of raw materials in the quarter compared with 148.5 billion rupees a year earlier.
Revenue at Jaguar Land Rover rose 20 percent to 2.7 billion pounds. Sales at the unit will not be hurt by economic uncertainty in the short term, its Chief Executive Ralf Speth said at the media briefing.
In June, India's top carmaker Maruti Suzuki beat estimates with an 18-percent rise in its fiscal first quarter net profit, but posted a 25-percent drop in July sales.

JPMorgan Profit Rises, Loan Book Grows

BOND TRADING Bond trading revenue fell 18 percent from the first quarter, but the decline was less than some investors feared. Shares of investment banks Goldman Sachs Group Inc and Morgan Stanley rose on hopes that JPMorgan's trading results bode well, but turned negative later in the day. JPMorgan earned $5.43 billion, or $1.27 a share, in the second quarter, beating the average Wall Street estimate by 6 cents a share, according to Thomson Reuters I/B/E/S. The results were up from earnings of $4.8 billion, or $1.09 a share, a year earlier. The bank benefited from not having to pay a British tax on bonuses. That tax reduced profits by $550 million, or 14 cents a share, last year. JPMorgan made more loans during the quarter, net of customer loan repayments. Its loan book grew to $689.74 billion at the end of the quarter from $686 billion at the end of March as increased business lending offset a 2 percent decline in consumer lending. The bank also gathered more deposits during the quarter; deposits rose 5 percent from the first quarter to $1.05 trillion. Chief Financial Officer Douglas Braunstein said mid-sized companies delivered much of the money. Shrinking loan books and low interest rates since 2008 have made it difficult for banks to post profits, or increase them. A large part of earnings over the past year has come from setting aside less money to cover bad loans, or dipping into funds previously set aside. Many analysts hope that banks will start to post loan growth in the coming quarters, which would be a sign of sustainable increases in profits. Dimon, who is famously blunt, seemed optimistic about the outlook for profits. He said the bank will build capital levels in the coming months, and criticized regulators for not allowing it to return those funds to shareholders faster. "God knows why we have to hold all that capital," Dimon said, adding that banks' capital ratios are going "to drive up so fast people are going to be surprised." JPMorgan reduced the expense it recorded for credit costs to $1.81 billion in the second quarter from $3.36 billion a year earlier. However, that was up from $1.17 billion in the 2011 first quarter. After announcing earnings, the bank went to the corporate debt market and sold $1.75 billion of bonds due in 30 years, an unusually long term for bank debt, but JPMorgan's second 30-year issue in nine months, according to IFR, a Thomson Reuters capital markets service. TAKING TIME WITH MORTGAGES Mortgage costs were down slightly, but Dimon cautioned that the housing market was still working through difficulties. "Unfortunately, it will take some time to resolve these issues and it is possible we will incur additional costs along the way," he said. JPMorgan expects to have to repurchase $3.6 billion of mortgages that it packaged into bonds. Such repurchases are usually because a bank failed to properly collect payments on the mortgages, or should never have sold them to investors. JPMorgan said it added $1.3 billion to its litigation reserves, mainly for mortgage-related matters. It also continued to add to its loan reserves for losses on mortgages. "It is possible we are very over-reserved in mortgage land," Dimon said in a conference call with analysts. He expects to win a legal battle with the Federal Deposit Insurance Corp over liabilities left from busted lender Washington Mutual, pieces of which JPMorgan bought in a government-arranged deal during the financial crisis. Credit card delinquencies are improving so quickly that the bank drew down its reserves for losses on those balances, adding 15 cents a share to second-quarter profit. The charge-off rate for uncollectable card debt will be down to about 4.5 percent this quarter, nearly a year earlier than previously expected, said Chief Financial Officer Douglas Braunstein. The improvement echoed comments Wednesday from card lender Capital One Financial Corp. JPMorgan has been hiring people to work out its problems with mortgages, still the biggest drag on its business. The bank said it hired 10,000 people in the second quarter. It has 250,095 people as of the end of June. Compensation expenses slid in the last three months as pay for employees in the investment bank declined 22 percent from the first quarter when trading revenue shrank. Compensation costs at the investment bank fell by $730 million to 35 percent of revenue, down from 40 percent in the first quarter. "When revenues are down, JPM manages to bring down their costs faster than everyone else. That really did cushion some of the earnings decline," said Credit Suisse analyst Moshe Orenbuch.