Tata Motors profit lags as demand cools

Jaguar Land Rover Freelander 2 vehicles are displayed on the production line for the media at their production plant in Pune, 190km (118 miles) south of Mumbai, May 27, 2011.

MUMBAI (Reuters) - Tata Motors Ltd (TAMO.NS) net profit fell short of expectations as rising marketing costs hurt its margins and slowing economic growth curbed demand for its commercial vehicles.

India's largest car maker by revenue said net profit rose to 20.75 billion rupees in July-September from 18.77 billion rupees a year ago, while revenue increased 20 percent to 434.03 billion rupees on rising demand at its key Jaguar Land Rover subsidiary.

Analysts expected profit of 24.41 billion rupees on revenue of 441.91 billion rupees, according to Thomson Reuters I/B/E/S.

The operating margin for its India business fell to 5.9 percent for the quarter down from 7.2 percent in the year ago period.

Tata Motors' Chief Financial Officer C. Ramakrishnan said that the company expected to improve its India profit margins, as it continues to focus on cutting operational costs, but the demand outlook was clouded by the slowing economic growth.

"We continue to see sluggish economic activity," he said. "We continue to see demand pressure in the market."

Tata Motors, which depends on JLR for 90 percent of the group's profit, said the iconic British brand's operating margin stood at 14.8 percent in July-September, down from 14.9 percent a year earlier.

Revenue at the luxury British brand rose 12.8 percent to 3.29 billion pounds in the period, less than the 34.4 percent gain seen in the previous quarter.

Tata has grown dependent on JLR, which it bought for $2.3 billion in 2008, as domestic sales of its own models struggle.

JLR's recent success has also driven Tata's stock price 50 percent higher over the past 12 months.

Profit from the company's Tata-branded Indian business, which had fallen for four straight quarters, rose nearly eight-fold to 8.67 billion rupees. That was mainly because the company took an exceptional charge in the year-earlier quarter.

Domestic sales of Tata's own brand of cars and trucks have sagged due to India's cooling economy.

Tata also faces strong competition in India from global carmakers such as Ford Motor Co (F.N) and Volkswagen AG (VOWG_p.DE) and truck manufacturers such as Daimler AG (DAIGn.DE) as they scale up operations in the company's backyard.

Shares in Tata Motors ended 0.9 percent higher ahead of earnings announcement at 269.35 rupees, while the main Mumbai market index closed 0.5 percent higher.

(Reporting by Kaustubh Kulkarni; Editing by Louise Heavens)