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A successful turnaround at Jaguar Land Rover coupled with a recovery in the domestic auto markets has been the driving force behind the massive three-year returns posted by the Tata Motors stock. Compared to a consolidated net profit of Rs 2,168 crore in FY08, the burden of the debt raised for the Rs 9,200-crore acquisition of JLR, a slowdown in the domestic auto industry and the onset of the global economic crisis pushed the company into a loss of Rs 2,505 crore in FY09.
However, cost control efforts, a pruning of working capital needs, superior product mix from launches such as the new XJ and Range Rover vehicles, strong demand in developing markets and a favourable exchange rate environment aided the turnaround of JLR in FY10.
By March 2010, the company's consolidated profits had shot up to Rs 2,571 crore, with its debt to equity ratio (automotive business) down from a precarious four to a more moderate 2.05. Now, the debt to equity ratio stands at a comfortable 0.67. But, with the current global uncertainty and a moderation in volumes, the company's ride in the next few months may not be smooth.
Tata Motors' fortunes would continue to sink or swim with JLR. But, with the countless streamlining efforts, the ride could be less bumpy.
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