Higher domestic sales and turn around at the Jaguar Land Rover unit boosts performance
MUMBAI: Tata Motors on Thursday reported an over three-fold rise in its consolidated net profit to Rs9,273.62 crore for the fiscal year 2010-11, driven by higher domestic sales and by its Jaguar and Land Rover unit. The company posted a net profit of Rs2,571.06 crore in the previous year.
Consolidated total income from operations in the year under review also jumped by 33.09% to Rs1,23,133.30 crore from Rs 92,519.25 crore, PTI reports.
In 2010-11, Tata Motors sold 10,80,994 vehicles across the world, up 24.2% over that in the previous financial year, the company said. Jaguar Land Rover, which it bought from Ford Motor Company in 2008 and was initially a loss-making unit, has turned around recently and reported profit after tax of £1,043 million on net revenue of £9,906 million.
The company's board recommended a dividend of 200%, which is Rs20 per share, for every ordinary share. It has also recommended a dividend of 205%, which is Rs20.50 per unit, for every 'A' ordinary share.
The company said the board has approved a proposal to split the stock, under which its ordinary and 'A' ordinary shares, both of Rs 10 each, will be divided into shares of Rs 2 each.
Tata Motors shares closed 2.45% up at Rs1,161.25 a share on the Bombay Stock Exchange on Thursday, on a day when the benchmark Sensex climbed 1.11%, or 197 points, to 18,044 points.
Nifty has crossed the first resistance of 5,400; watch out for 5,470
The market traded above yesterday's close from the start, tracking a firming trend on the bourses across Asia. The Sensex and Nifty opened at 17,917 and 5,373 respectively. Good earnings by Tata Steel and Coal India that came in after the market closed yesterday also assisted early gains. Support also came from metals, oil & gas and banking sectors in the early session.
There was a small decline in the first hour of trade, which is when the indices registered the day's lows. But the market overcame this and resumed its upward movement. A 1.04 percentage point rise in the weekly food inflation numbers for mid-May contributed to nervousness around noon.
In the last hour, short-covering and news that the government may decide on Cairn Energy's stake sale to Vedanta Resources helped the Nifty to cross the first support level of 5,400 and close above that level.
The next resistance is at 5,470. The intra-day highs by the Sensex and Nifty were 18,073 and 5,422 respectively. The Sensex rose 197 points to close at 18,045 and the Nifty closed 63 points up at 5,412. The advance-decline ratio on the National Stock Exchange was 751:620.
The broader indices underperformed the Sensex today with the BSE Mid-cap index adding 0.14% to its pervious close and the BSE Small-cap index gaining 0.46%.
BSE Oil & Gas (up 2.90%), BSE Metal (up 1.50%), BSE Auto (up 1.49%), BSE PSU (up 1.32%) and BSE Realty (up 1.24%) were the top sectoral gainers. BSE Consumer Durables (down 0.78%), BSE IT (down 0.19%) and BSE TECk (down 0.12%) were the losers.
The key performers on the Sensex were ONGC (up 4.44%), Hero Honda (up 3.97%), Sterlite Industries (up 3.45%), DLF (up 2.95%) and Reliance Industries (up 2.92%). ITC (down 1.08%), Infosys (down 0.56%) and HDFC (down 0.26%) were the major losers on the index.
After the petrol price hike a fortnight ago, the prices of diesel, LPG and kerosene could be hiked next month when the ministerial panel headed by finance minister Pranab Mukherjee meets to decide on the issue.
On 14 May, state-owned oil firms hiked the price of petrol by a steep Rs5 per litre and it has been reported that the oil ministry is pushing for a Rs4 per litre increase in the price of diesel and about Rs20-Rs25 increase in the domestic cooking gas (LPG) price. A kerosene price hike is also being considered.
Food inflation, which had been declining over the previous three weeks, rose by 1.08 percentage points to 8.55% in the week ended 14th May, over the 7.47% recorded in the previous week.
Markets in Asia closed mostly higher, as higher crude and metal prices lifted commodity-related stocks in the region. On the other hand, the Chinese benchmark Shanghai Composite declined, erasing some of its previous gains.
The Hang Seng gained 0.67%, the Jakarta Composite surged 0.92%, the KLSE Composite rose 0.48%, the Nikkei 225 finished 1.48% higher, the Straits Times added 0.16%, the Seoul Composite jumped 2.75% and the Taiwan Weighted climbed 0.70%.But the Shanghai Composite fell by 0.24%.
Back home, foreign institutional investors were net sellers of stocks worth Rs370.79 crore on Wednesday. On the other hand, domestic institutional investors were net buyers of shares worth Rs179.41 crore.
ICICIdirect research says that with stock prices having fallen significantly over the past few months, several firms that have pledged their shares would have to top up the margin requirements, failing which lenders could sell the shares leading to a further drop in prices
The significant erosion in the value of shares in the market fall over the past few months, will require promoters who have pledged shares for loans to increase the quantum of pledged shares to maintain the margin requirement, according to a research report by ICICIdirect.com.
The Sensex has corrected by more than 10% over the past few months and the value of shares of most companies has fallen. The research report suggests that in the event that promoters default in fulfilling the margin requirements, this could result in the sale of pledged shares by the lenders and could cause a further decline in the share prices and promoters’ holdings. This in turn could pull the market further downward.
ICICIdirect estimates that on an average 8%-9% of the promoters’ shares has been pledged during the period March 2009 to March 2011.
Most promoters pledge shares to raise working capital or to bring in new investors. This is a method of taking a loan against shares, where the value of the promoters shares pledged is two to three times of the loan amount sought.
As for the lenders, if the company’s share price goes below a certain level, the company will have to make immediate payment in cash or pledge more shares. If the company cannot do this, the lenders will sell the shares to recover the money.
This may appear beneficial to both promoters and lenders, as the promoters have an easy way to raise capital and the lenders have the right to sell the shares, whose value is about twice the loan amount if the promoter defaults or if the value of the pledged shares fall.
Though promoters pledge shares on a regular basis, this may not be a very good sign. This implies that the company’s financials are weak as it is cash-strapped for even working capital and the only way it can raise money is through pledging its shares. Consequently, the share price of a company usually falls after the announcement of shares being pledged.
An example is Malwa Cotton which has increased the quantum of shares pledged by 44% from the December 2010 quarter to the March 2011 quarter, while the company’s share price has dropped by 27% from Rs51.85 on 31 December 2010 to Rs38 on 24 May 2011.
Royale Manor is another company that has increased the number of shares pledged by 39% in the last quarter-on-quarter period, while the company’s share price has lost 25% in five months. (See table, 'Shares Stumble'.)