by Sean Geary
Indian automobile manufacturer Tata Motors (TTM) reported fantastic numbers Tuesday morning before the bell. In spite of macroeconomic headwinds, the Indian conglomerate has proven it can continue to make money in challenging economic climates.
Consolidated net profit in the fourth quarter was up 136% year-over-year, up to Rs 6250 crore from Rs 2623 crore. Also, Tata’s sales rose more than 40% and consolidated revenue increased 44%. Although the Indian economy faces many structural impediments, Tata Motors is able to overcome these macroeconomic impediments because of the diversified nature of its offerings.
In addition to its own domestic offerings such as the Nano, Tata Motors operates a sizable heavy truck manufacturing unit, in addition to owning British luxury car maker Jaguar-Land Rover. Increased demand in emerging markets for Range Rovers and Jaguars more than offset its struggles in the Indian domestic market.
Although the Indian rupee (INR) has dropped precipitously this quarter as a result of poor government management of the economy, currency weakness may actually have helped Tata Motors’ bottom line. Because Tata reports its earnings in rupees but generates much of its income in other currencies, large revenues from stronger currencies vis à vis the rupee–like the yuan, dollar, and won– would translate into higher earnings when evaluated in rupee terms.
Investors can extrapolate from Tata Motors’ earnings that other Indian firms with strong revenues from abroad may report upside surprises during their next earnings release. Information technology firms like Infosys (INFY) and Wipro (WIT) look poised to benefit from this trend.
As for Tata Motors itself, after Tuesday’s earnings beat the investment thesis for the company remains intact. Although emerging market growth may be sputtering, there’s little evidence that the expensive consumer habits of the upper crust of emerging society have waned. Furthermore, it’s important to not dismiss all Indian stocks (INDY) categorically, but instead, to evaluate individual stocks and invest in those whose fundamentals remain strong.
Technically, traders should look for a move above both the 100 and 50 day moving averages on the back of this positive earnings report. A move through those levels could see the stock fly higher; if either the 100 or 50 acts as resistance, the stock may stall.
Disclosure: Author is long TTM