Tata says rising costs to hit margins as Q2 profit up

Higher volumes and sale prices, lower raw material costs, cost cuts and a lower foreign-exchange loss all helped boost its profit on vehicles sold in India and offset interest charges, which were up nearly 50 percent from a year earlier.

"We benefited from a drop in commodity prices last quarter, but prices are rising. That and component costs will exert pressure on margins going forward,' Chief Financial Officer C. Ramakrishnan told reporters.

Tata, which builds the Nano, the world's cheapest car, said on Monday that its margins had increased to 13.4 percent, up 580 basis points from a year ago. The results did not include its British-based luxury Jaguar and Land Rover units.

"The results have been very good. The huge increase in operating margin was due to the raw material costs going down," said Surjit Arora, auto analyst with Prabhudas Lilladher.

"Their core India operations are doing very well... their volumes will go up. So they should be able to ride out a rise in raw material costs. The only worry is their high interest costs."

Tata, which has about a 60 percent share of India's truck and bus market -- the world's fifth-biggest -- reported a net profit of 7.29 billion rupees ($156.4 million) for the quarter to September, up sharply from 3.47 billion rupees a year earlier and well ahead of a Reuters consensus forecast of 4.3 billion rupees.

Total income from Indian operations rose 13 percent to 79.79 billion rupees.

The company's foreign exchange loss was lower, at 150 million rupees compared with 2.45 billion rupees a year ago.

However, interest charges nearly doubled to 3 billion rupees from 1.5 billion year earlier.

CUTTING DEBT

After a dismal 2008/09, sales of vehicles are picking up in India with lower interest rates and improved consumer sentiment.