UPDATE 2-Tata Motors Q3 net up 40.5 pct on strong JLR sales

* Net profit 34.06 bln rupees vs. market forecast 26.13 bln

* Revenue rises 44 percent to 452.60 billion rupees

* Shares surge to highest level in more than a year

By Henry Foy

MUMBAI, Feb 14 (Reuters) - India's Tata Motors reported a stronger-than-expected 40.5 percent rise in quarterly profit as robust sales at Jaguar Land Rover more than made up for weakness in its home market, sending up its stock to its highest level in more than a year.

Rising demand for luxury models, especially in China and other emerging markets, has swelled Tata's earnings over the past few quarters as demand for cars waned in India.

"JLR has shown improvements in volumes and margins in ways that were way beyond what the market expected," said Deven Choksey, Chief Executive of KR Choksey Shares & Securities.

Chief Financial Officer C.R. Ramakrishnan said strong sales at Jaguar Land Rover reflected a better product and market mix as well as strong demand in China and Russia, especially for the new Range Rover Evoque sport utility vehicle.

Tata Motors, part of the salt-to-software Tata conglomerate, said consolidated net profit rose to 34.06 billion rupees ($691 million) in the three months to Dec. 31 from 24.24 billion a year earlier. Revenue rose 44 percent to 452.60 billion rupees.

Analysts on average had forecast a net profit of 26.13 billion rupees on revenue of 416.73 billion, according to Thomson Reuters I/B/E/S.

Tata, which also makes the ultra-cheap Nano, bought Jaguar Land Rover in 2008 from Ford Motor Co for $2.3 billion, and has since turned it into its main profit driver.

Net profit in the company's India business dropped by more than half to 1.74 billion rupees, partly as a result of higher commodity costs and increased spending on marketing.

"An easing of commodity prices should see improvement on margins in the near term," Ramakrishnan said a news conference after the release of the results on Tuesday, adding that higher sales volumes would help margins in coming quarters.

Choksey, however, noted that overall car sales in China appear to be coming down. "How the China demand moves is the only caution looking forward," he said.

January car sales in China fell 23.8 percent from a year earlier, the biggest monthly drop in more than three years.

In India, car sales are heading for their first annual fall in 10 years as high interest rates and rising fuel costs dampen demand.

"Concerns remain on the overall macroeconomic picture ... which could impact commercial and passenger vehicles," said Ramakrishnan. "But we are cautiously optimistic."

JLR SOARS

Revenue at Jaguar Land Rover rose nearly 41 percent to 3.75 billion pounds ($5.92 billion), while profit rose 57.4 percent to 440 million pounds. Profit margins at JLR were 20.1 percent, compared with 6.7 percent in the domestic business.

China and Russia accounted for 22.4 percent of JLR's sales during the quarter, Ramakrishnan said, as total vehicle sales rose 37 percent to 86,322.

Tata's planned manufacturing joint venture with an as-yet unnamed Chinese partner was "on track," JLR Chief Executive Ralf Speth told reporters, without providing details.

Tata assembles some Land Rover models in India for the local market, and this will gradually increase as growth in luxury car demand far oustrips that for overall car demand, he said.

Shares in Tata Motors, which the market values at about $15 billion, rose as much as 5.6 percent to 272.70 rupees, their highest level since December 2010, before closing up 3.7 percent at 267.95 rupees.