NEW DELHI Weak demand for sleek Jaguars in China battered the profits of its parent Tata Motors, pushing its shares down 5 percent on Wednesday and showing the car maker lacked agility in a market where the appetite for brash luxury has ebbed.
Tata's net profit for the fourth quarter, published late on Tuesday, fell a worse-than-expected 56 percent, and India's largest car maker by revenue also held back dividends for the first time since 2002.
Most of that was down to key unit Jaguar Land Rover's weakness in China, where automakers are under pressure to cut prices to counter slower economic growth - a move some analysts say is unlikely to be reversed any time soon.
Analysts say Tata Motors needs to do the same to revive volumes, though the company has no plans yet to follow suit.
"It is quite clear we will see a certain slowdown in the (China) market and we read that many competitors are going to reduce prices," Ralf Speth, CEO for JLR, told analysts late on Tuesday, adding that the company would not be among the first to cut prices.
Sales of JLR cars in China, its biggest market, fell 20 percent in the quarter to end-March, when overall car sales in China grew 3.9 percent. That compares to JLR's sales increase of 36 percent in the same quarter a year ago.
"Cutting prices will most likely bring back volumes. Whether or not they will do it is a matter of timing," said James Chao, Asia chief of IHS Automotive.
Given inventory accumulating on dealers' forecourts, JLR will need to cut its price tags eventually, whether directly or through discounts offered to dealers.
JLR cut prices on some of its models in August, prompted by an anti-monopoly probe by the Chinese government, but its vehicles are still more expensive than German rivals Audi and Mercedes.
The higher pricing worked in JLR's favour when the Chinese economy was stronger and people were willing to pay the premium associated with imported cars, says Chao, but it is now hurting.
Tata Motors shares fell 5.2 percent in Mumbai on Wednesday to 471.75 rupees, their lowest close in 2015.
MADE IN CHINA
Car makers have fought lower prices with increased local components and cheaper models. JLR commenced sales of the locally-made Range Rover Evoque in February but its price is still not low enough.
Evoque starts retailing for 448,000 yuan ($72,245) versus 358,000 yuan for an Audi Q5 and 378,000 for a Mercedes GLK - both of which are also locally made.
It will also push sales of its recently-launched Jaguar XE, nicknamed "baby" Jag, in the crucial small luxury niche, which could lower margins due to its competitive pricing, say analysts.
Tata also faces challenges in the slow ramp-up of production at its China plant, a joint venture with local partner Chery Automobile. Troubles there have forced some analysts to downgrade their sales outlook for JLR in China.
Jaguar Land Rover accounts for more than 80 percent of Tata's revenues and has propped up profits for years.
($1 = 6.2011 Chinese yuan renminbi)
(Additional reporting by Jake Spring in Beijing, Himank Sharma in Mumbai, Shilpa Murthy in Bangalore; Editing by Clara Ferreira Marques and Muralikumar Anantharaman)
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Updated Date: May 28, 2015 00:00 AM