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Why Shares of Tata Motors Are Surging Today

By John Rosevear - Oct 25, 2019 at 11:44AM

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A strong pre-tax profit from Jaguar Land Rover helped Tata beat expectations.

What happened

Shares of Indian automaker Tata Motors (TTM 0.72%) jumped on Friday morning after the company's Jaguar Land Rover (JLR) subsidiary reported strong quarterly earnings, helping its parent beat analyst expectations.

As of 11 a.m. EDT, Tata's American depositary shares were up about 11% from Thursday's closing price.

So what

Tata Motors is India's largest maker of commercial vehicles, but much of its revenue and profit comes from subsidiary Jaguar Land Rover (JLR), the British luxury-vehicle company it purchased from Ford Motor Company (F 0.75%) in 2008.

A silver Jaguar I-Pace, an upscale five-passenger electric crossover SUV.

The success of the electric Jaguar I-Pace has helped power a turnaround at Jaguar Land Rover. Image source: Jaguar Land Rover Ltd.

Tata's loss in the quarter ended Sep. 30 narrowed to 2.17 billion rupees ($30.6 million) from 10.49 billion rupees a year ago, on JLR's pre-tax profit of 156 million British pounds ($174.5 million). Analysts polled by Refinitiv had expected a loss of 15.5 billion rupees ($219 million).

Tata's overall operating revenue fell 9% from a year ago, to 654.32 billion rupees ($9.24 billion). But it would have been worse without JLR's revenue growth. JLR's revenue jumped 8% from a year ago to 6.1 billion pounds ($7.8 billion) on improved product mix and a strong increase in sales in China.

That gain helped to offset the effects of a market slump in India that has pushed Tata's shares down about 35% over the last six months.

TTM Chart

TTM data by YCharts.

Now what

JLR CEO Ralf Speth said that the company has "returned to profitability and revenue growth" thanks to the success of an ongoing restructuring plan called Project Change, and investors can expect to see further improvements over the next several quarters.

JLR's latest guidance calls for a year-over-year profit improvement in the fiscal year that will end on March 31, 2020, with an operating margin between 3% and 4% and stronger cash flow. 

John Rosevear owns shares of Ford. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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