Tata Motors, the country's largest automobile company, continues to face margin pressures from rising operating costs and interest expenses. Though volume growth, especially in commercial vehicles, so far this year has been quite impressive - the bottom line growth has fallen short of market expectations. Performance of the company for the latest reporting quarter is poor when compared to the performance of its listed competitors in the auto sector.

For the quarter ended 30 September 2006, Tata Motors has reported a consolidated net profit of Rs536.44 crore, or Rs13.24 per share, after minority interests - an increase of 36.39 per cent over Rs393.31 crore, or Rs9.84 per share, for the same quarter of previous year. Net revenues increased 41.88 per cent to Rs7,702.66 crore from Rs5,428.88 crore a year ago.

Revenue growth in the automotive business was 39.42 per cent over the previous year quarter. Revenues from other operations, including manufacture and sale of construction equipment, engineering services and software development services, jumped 69.73 per cent over the previous year quarter to Rs613.78 crore.

Sequentially, net profits have increased 40.55 per cent from Rs381.67 crore reported for the first quarter ended June 2006 on a revenue growth of 13.76 per cent from Rs6,770.94 crore.

Operating profits, or EBIDTA - excluding other income, increased 35.5 per cent to Rs922.19 crore from Rs680.61 crore for the previous year quarter. Operating margins as a percentage of net sales declined to 11.97 per cent from 12.54 per cent a year ago. Sequentially, operating margins improved from 11.43 per cent achieved during the previous quarter.

Tata Motors's margin pressures are in sharp contrast to the performance of its competitors - Maruti and M&M - during the quarter. While Maruti's operating margins expanded 240 basis points to 13.9 per cent of net revenues, M&M saw its margins improve by 217 basis points to 13.22 per cent, adjusted for one-time income.

As in the first quarter, higher operating expenses ate into margins. Input costs went up by 40.85 per cent while staff costs increased by a substantial 55.56 per cent. Other operating expenses were higher by 46.14 per cent over the previous year quarter.

Interest costs for the quarter more than doubled to Rs100.87 crore, impacting net margins. Product development expenses were higher at Rs17.52 crore as compared to just Rs5.81 crore a year ago. Depreciation charges were modestly higher by 13.66 per cent.

Bottom line growth was helped to some extent by a 60.42 per cent rise in other income to Rs95.05 crore from Rs59.25 crore a year ago.

Helped by new product launches in the passenger car and SUV segments, Tata Motors achieved healthy volume growth during the first half of the current financial year. During the first half, Tata Motors sold a total of 266,098 units - a growth of 37 per cent over the same period of previous year. Cumulative exports for the first half of the financial year were 27,224 units - an increase of 18 per cent over the previous year period.

Tata Motors also managed to improve its market share in various segments during the first half. Commercial vehicles market share improved considerably to 65.2 per cent as at the end of the quarter, mostly helped by strong sales of light truck model Ace, from 58 per cent a year ago. In the passenger car segment, its market share improved marginally to 16.3 per cent from 15.8 per cent as the end of previous year quarter.