Shares in Tata Motors tumbled in Mumbai following an unexpected profit warning from its highly profitable UK-based luxury division Jaguar Land Rover.
JLR accounts for nearly all of the profits at the otherwise struggling diversified Indian carmaker, whose domestic passenger car division in particular has performed poorly over the past year.
The UK group has been a bright spot in the British car industry and in 2012 sold 350,000 vehicles, an increase of 30 per cent on 2011 and almost double the growth it achieved that year.
All but a handful of the vehicles were made in three UK plants in which the company employs about 23,000 people – a third of them taken on in the past two years to cope with the recent growth.
In Tata’s statement, the company warned that earnings before interest, tax, depreciation and amortisation at JLR in the three months to the end of December 2012 would be flat compared with the two previous quarters, implying about £500m.
The detailed figures will be published on February 7 in its formal third-quarter results statement.
In recent years, profits at JLR have been growing strongly on the back of high demand globally for its upmarket cars, led by the company’s new Range Rover Evoque.
The latest announcement indicates that the run of big year-on-year increases in profits is unlikely to be sustained.
A heavy investment programme has eaten into earnings. There are also fears of a moderation in demand for new models, especially in China and the US.
A motor industry analyst, who asked not to be named, said: “The stock market reaction [to the profit announcement] has been perhaps a bit overdone because it was always hard to imagine the big year-on-year rises in profits was likely to last for ever.”
JLR has been spending £2bn a year on investments for the past three years, and is recruiting 800 people for its UK operations. The investment spending is to rise to £2.75bn in 2014 as it seeks to update products and keep pace with larger German competitors such as BMW and Audi.
In the first and second quarters of 2012, ebitda at JLR rose on a year-on-year basis by 45 per cent and 16 per cent respectively.
JLR said: “We plan to continue to increase and accelerate capital spending to develop new products in new and existing segments . . . and to grow our manufacturing footprint in China and explore manufacturing opportunities in other markets.”
Deepesh Rathore, managing director for IHS Automotive in India, said: “The make-or-break for profitability at Tata is JLR, so any warning like this will be taken very seriously by the market.”
Tata Motors shares, having fallen almost 10 per cent, closed down more than 6 per cent on Thursday at Rs293.45.
The decline comes after a strong year for India’s largest carmaker by revenues, whose stock rose more than 75 per cent in 2012 following impressive growth in emerging markets.
Tata Motors has been one of the brightest performers for the wider Tata conglomerate over the past two years, seemingly justifying the group’s decision to buy JLR from Ford in 2008.
However, the latest announcement comes at a time of once in a generation transition within the parent company, whose longtime head Ratan Tata handed over to successor Cyrus Mistry in January.