November 8, 2012 / 4:27 AM / in 5 years

Tata Motors shares gain as margins at JLR improve

MUMBAI (Reuters) - Shares in Tata Motors(TAMO.NS) gained the most in two months after the auto maker reported that July-September margins at its key Jaguar Land Rover (JLR) subsidiary improved.

A Jaguar Land Rover Freelander 2 vehicle is displayed for the media at the company's plant in Pune, 190km (118 miles) south of Mumbai May 27, 2011. REUTERS/Danish Siddiqui/Files

Shares in Tata Motors, which depends on JLR for 90 percent of the group’s profit, rose 5.1 percent as of 11:37 a.m., and were headed for their biggest gain since September 12. The broader NSE index was down 0.4 percent.

An improvement in profitability at the luxury British brand will bolster the outlook for India’s biggest auto maker, which is facing a tough domestic market for its Tata-branded cars because of a cooling economy.

Margins at JLR increased to 14.8 percent from 14.4 percent a year earlier, Tata Motors said late on Wednesday, in its earnings report.

The auto maker posted a July-September net profit that lagged estimates, but analysts said sturdier margins at JLR and the launch of new Range Rover and Jaguar models bode well for the second half of the year ending March 2013.

Waiting periods in some markets for the new Range Rover model exceed six months, Goldman Sachs said on Thursday in a report, adding that it expects a “strong response” to the new F-type Jaguar model.

    Tata Motors was “cautiously optimistic” about JLR’s sales potential, while saying pricing and margins appeared to be holding up in China, a key market for the iconic brand, said several analysts, citing a conference call with management after the earnings announcement.

    Still, Tata Motors faces a number of challenges ahead, especially in the domestic market where it is suffering from a weaker lineup of models than its rivals, and is being forced to offer discounts and incentives that hurt its margins.

    The operating margin for its India business fell to 5.9 percent in July-September from 7.2 percent a year ago.

    Reporting by Rafael Nam and Manoj Dharra; Editing by Ryan Woo

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