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Tata Motors Profit Flat, Lags F'cast

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Tata Motors on Thursday posted roughly flat profit in the fiscal first quarter that lagged estimates as higher costs squeezed margins, and said rising interest rates in Asia's third largest economy was a matter of concern.

Tata Motors, part of India's salt-to-software Tata conglomerate, whose range includes utility vehicles and the ultra-cheap Nano, said revenue rose, driven by British luxury brands Jaguar and Land Rover, which it bought from Ford Motor Co for $2.3 billion in 2008.

But the rising costs of steel, rubber and other raw materials have squeezed margins and forced some Indian carmakers, including Tata and Maruti Suzuki, to raise prices.

"Going forward, (we expect) slowing growth in commercial vehicles prompted by rising costs, interest rates and inflationary concerns, and expectations of slowing industrial growth," Chief Financial Officer C. Ramakrishnan said at a press conference.

India has raised interest rates 11 times since March 2010 to combat stubborn inflation, hurting industries based on credit. The Indian auto industry is spurred by an aspirational middle class that relies on loans to buy cars. It targets families of four that ride on motorcycles, a common sight on Indian roads.

But even the world's cheapest car failed to lure buyers in July. Tata's sales fell in July, led by a slump in sales of the Nano, which slid 64 percent.

Overall car sales in India fell 15.8 percent in July, the first drop in two and a half years, and higher interest rates and car prices are expected to hurt demand further.

Still, Tata has planned annual capital expenditure of 30 billion rupees to 35 billion rupees for its India business, Ramakrishnan said, adding that sales from its JLR unit should continue to improve as it expands into growth markets such as India, China, Brazil and Russia.

"At the most there could be one more rate hike...when the rate hike cycle is over, Tata Motors will be the first stock to jump," Kishor Ostwal, Chairman at Mumbai based CNI Research said, adding that the concern is already baked into the stock.

Lags Forecast
Tata posted first-quarter net profit of 19.99 billion rupees ($441.7 million), compared with 19.89 billion a year earlier. Its net debt at the end of June stood at 150 billion rupees.

Tata Motors' consolidated revenue rose 24 percent from a year earlier to 335.72 billion rupees. A Reuters poll had forecast net profit of 21.6 billion rupees for the quarter on net sales of 329.1 billion.

Tata spent 203.9 billion rupees on consumption of raw materials in the quarter compared with 148.5 billion rupees a year earlier.

Revenue at Jaguar Land Rover rose 20 percent to 2.7 billion pounds. Sales at the unit will not be hurt by economic uncertainty in the short term, its Chief Executive Ralf Speth said at the media briefing.

In June, India's top carmaker Maruti Suzuki beat estimates with an 18-percent rise in its fiscal first quarter net profit, but posted a 25-percent drop in July sales.

Shares in Tata Motors, valued at $11 billion, closed up 0.57 percent at 849 rupees in a weak Mumbai market. They have fallen 35 percent this year, compared with a 16 percent fall in the sector index and a 16.8 percent drop in the main index.