UPDATE 2-Tata Motors Q2 profit leaps, but warns on costs


(Adds comments from news conference, closing share price)

By Arif Sharif and Rina Chandran

NEW DELHI/BOMBAY, Oct 29 (Reuters) - India's top vehicle maker, Tata Motors Ltd. , posted a record quarterly profit on Friday, but warned that higher input costs would remain a cause for concern for the remainder of the business year.

Tata, the leader in India's truck and bus industry and the number three producer of cars and utility vehicles, reported a 49 percent rise in second-quarter profit as a robust economy boosted truck sales and cheap loans helped sell more cars.

Sales of cars and utility vehicles, where it mainly competes with the Indian unit of Japan's Suzuki Motor Corp. , have been spurred by rising incomes and India's cheapest loans in 30 years.

But the company, which listed in New York last month, cautioned that higher input costs and costs related to migrating to new emission rules would weigh on its margins.

"We are looking at a cost management push that is even more aggressive than the one in 2001-03, when we cut costs of about 10 billion rupees," Finance Director Pravin Kadle told reporters.

Its earlier efforts have created a surplus of 35 billion rupees that is now funding R&D and capacity expansions, he added.

Tata's net profit rose to 3.09 billion rupees ($68 million) in the second quarter to Sept. 30 from 2.07 billion, beating a median estimate for 2.93 billion rupees in a Reuters poll. Revenues rose more than 30 percent to 41.47 billion rupees.

Its shares eased 0.2 percent to 416.80 rupees, while the main Bombay index fell 0.76 percent. The stock has risen 8.7 percent since July 1, underperforming a 19 percent rise in the main index.

India's truck and bus sales have surged more than 30 percent in each of the past two years, helped by government investment in big infrastructure projects and a national highway network that needed huge amounts of cement and steel to be moved around.

Tata Motors, flagship of India's powerful Tata Group, is expected to push up full-year net profit by more than a third to more than 11.5 billion rupees, according to Reuters Estimates.

A cyclical downturn could slow growth in trucks to between 5 and 10 percent in 2005/06, though both Tata and third-ranked Eicher Motors hope to beat any downturn with new models, an expanded product range and more exports.


With steel, rubber and plastic prices up, Tata's operating margin fell to 12.54 percent in the quarter from 13.81 percent a year ago, but that beat 12.02 percent in the preceding quarter.

Tata ruled out passing on the entire burden of higher costs to the consumer, and said it would absorb at least a third of it.

"There is a resistance in the market to price increases, and a flood of rebates and discounts is being offered," said V. Sumantran, executive director of the passenger cars unit.

"So we will take a bit of a hit on our bottomline."

Tata, which began making trucks in 1954 in collaboration with Germany's Daimler-Benz AG, sold 44,076 trucks and buses in July-September, up 17.8 percent from a year ago.

Sales of its cars and utility vehicles rose 22.6 percent to 45,167 units, while exports jumped 64.8 percent to 6,333 units. Total vehicle sales rose 22.3 percent.

Rival truck maker Ashok Leyland Ltd. reported a 19.5 drop in second-quarter net profit as rising steel and rubber prices dented its margins, but car market leader Maruti Udyog Ltd. reported a 48 percent jump in profit.

Tata, which bought South Korea's troubled Daewoo Commercial Vehicle Co. Ltd. in March, has ambitious export plans and aims to boost the contribution of foreign sales to revenue to 15-20 percent in the next three years from 8 percent now.

The maker of India's first homegrown car, the Indica, Tata also has an export agreement with Britain's Rover Group.

Tata is India's most expensive auto stock, trading at 13.2 times forecast 2004/05 earnings. The world's top truck maker, DaimlerChrysler AG , trades at a forward PE of 11.9. ($1=45.4 rupees)



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