Buying Indian ADRs may not seem like a good idea right now, given the currency crisis in India. However, there are some companies that have been benefiting from a sharp decline in the Indian rupee. One such company is automaker Tata Motors Limited (ADR) (NYSE:TTM).
Now, a bullish sentiment on Tata Motors Limited (ADR) (NYSE:TTM) may surprise you. Its domestic operations have been hurt by the weak macro environment in India, as evidenced by the company’s recently reported quarterly results. However, Tata Motors remains attractive right now for the performance of its Jaguar Land Rover unit, which accounted for a significant portion of the company’s consolidated revenue in the June quarter. In fact, Jaguar Land Rover’s performance has more than offset the weakness in the company’s Indian operations.
Weakness in domestic market offset by Jaguar Land Rover
The Indian economy grew just 4.4% in the June quarter, a sluggish performance that hurt consumer confidence.
Tata Motors Limited (ADR) (NYSE:TTM)’ stand-alone business, which includes the Indian operations and exports, registered a 14% drop in June quarter revenue (based on $1 = 59.39 rupees). Total volume for the quarter was 154,352 units, down 19% on a year-over-year. The biggest drop came in the passenger vehicle business, with volume dropping 42.6%.
Despite the weak performance of the stand-alone business, Tata Motors Limited (ADR) (NYSE:TTM)’ consolidated net revenue for the June quarter rose 8% year over year to $7.88 billion. This was mainly due to the strong performance of the Jaguar Land Rover unit. Net revenue at Jaguar Land Rover rose 12.6% year over year in the same quarter to GBP 4.098 billion (approximately $6.4 billion). EBITDA rose an impressive 28.3%. EBITDA margin improved 200 basis points.
Developed markets and China continue to show signs of improvement
Given that Jaguar Land Rover accounts for approximately 75% of the total net revenue at Tata Motors, the unit’s performance going forward will be very crucial. Fortunately for Tata Motors Limited (ADR) (NYSE:TTM), the outlook for Jaguar’s main markets continues to improve.
Tata Motors Limited (ADR) (NYSE:TTM) had noted in a report that Jaguar retail sales were up in all markets, with China remaining the company’s largest market. At the beginning of the year, there were concerns that the Chinese economy would see a sharp slowdown. However, those concerns have been eased in recent weeks as the Chinese economy has shown signs of significant improvement. Earlier today, a report showed that the country’s manufacturing sector stabilized in August, further signaling an improvement in the world’s second-largest economy.
The other major market for Jaguar Land Rover is U.S. auto sales, which have continued to improve in 2013. In fact, U.S. automakers have seen their sales hit pre-financial-crisis levels.
Last month, Ford Motor Company (NYSE:F) reported an 11% increase in U.S. sales for the month of July. In addition, Ford Motor Company (NYSE:F)’s retail sales rose an impressive 19%. Sales of Ford Motor Company (NYSE:F)’s F-Series rose 23% in the month of July. In fact, July was the best July sales month for the F-Series since 2006, according to Ford Motor Company (NYSE:F).