Two years ago, not many companies would have invested in high-end carmaker Jaguar Land Rover. Now Tata Motors is seeing its bold takeover pay off.
Two years ago the £1.5bn that Tata paid Ford for its loss-making Jaguar Land Rover operation looked a decidedly shaky investment, but figures just released by the Indian parent company make it appear money well spent. In a remarkable turnaround in fortunes the famous car maker delivered pre-tax profits of more than £1bn.
Tata Motors announced that JLR's profits had increased to £1.1bn in the year to 31 March, up from £14.6m the previous year, while revenues jumped 51 per cent to £9.9bn. Chief financial officer C Ramakrishnan said Tata Motors' consolidated earnings margin before interest, taxes, depreciation and amortisation expanded to 14.4 per cent last year from 9.3 per cent because of an increased contribution from Jaguar Land Rover.
Ramakrishnan warned, however, that high material costs and interest rates and slower industrial production would have an adverse impact, but he said freight rates are stable and conducive for the Indian commercial vehicle industry.
The CFO also promised a bright future for the British arm, estimating that Tata would spend £1.5bn in capital expenditure in the current financial year. That would be almost double the £775m spent last year.
'The JLR business is entering into an interesting phase of an improving geographical sales mix and a high margin base,' said Ambrish Mishra, Mumbai'based analyst at Daiwa Capital Markets. 'In the domestic market, freight demand remains solid, which lends strength to the commercial vehicle cycle.'
Car sales were up 26 per cent to 243,621 cars as the new Jaguar XJ and Land Rover ranges proved popular and demand strengthened, particularly in emerging markets such as China. Loss-making former owner, US giant Ford, sold fewer than 50,000 Land Rovers and nearly 15,700 Jaguars in 2007, shortly before it offloaded the brands.
In the recent return Tata Motors revealed that annual sales of the luxury cars were nearly 244,000 globally and that more than 80 per cent of its bumper £1.25bn annual profits came from the JLR unit.
For Howard Wheeldon, senior strategist at the BGC Partners financial services group in London, Tata Motors' energy and investment has revived JLR's fortunes. The Indian car maker has pumped £2bn into JLR to bring it out of losses, analysts say, even at a time when British manufacturing is widely seen to be in decline.
'JLR has proved the point that competitive volume or semi-volume investment manufacturing in the UK can be profitable for those prepared to invest,' Wheeldon said.
Most of all, though, the company and industry watchers agree that Jaguar Land Rover now has a range of quality products to entice consumers in India's fast-growing luxury car sector, and elsewhere, as economic recovery continues.
The results are a boost to a UK workforce that has been facing a troubled future. Tata was said to be considering closing one of its production plants in the West Midlands in a bid to cut costs.
But as the car market began to recover, the management last year performed a U-turn and said that all three plants, at Castle Bromwich and Solihull in the West Midlands and Halewood on Merseyside, would stay open.