Abhimanyu Sisodia leads with the fiscal Q1 results of Tata Motors (TTM) which beat forecasts despite consolidated profit levels down 57.2% because TTM guidance was too bearish. Profit was $333.7 mn boosted by a one-off insurance payment of about $130 mn from last year's Tianjin port explosions and a staggering $342 mn one adverse forex loss. The prior year Q1 included sales of investments in subs, which means the data are not comparable. Also helping TTM was much lower tax charges, down 56.3%. Operating profit margins excluding FX and extraordinary events were steady at ~14%

Thanks to Jaguar-LandRover, and TTM volume growth, revenues rose 9% y/y to $9.985 bn. Britons so far are still buying more Jags despite Brexit, with sales up 18% nearly matched by North American JLR sales up 17%, and other European sales up 16%. British sales however translated into much lower net profit, down 38% because of lower cable (£-$ exchange rates).The sales were boosted by new JLR models like the F-Pace and XE whose overall sales were up 17% worldwide. The biggest sales growth, from a smaller base was the 19% rise in China. However, I am concerned about the slowdown of its economy. Overall JLR revenues worldwide rose 9.2% beating forecasts.

Back in the real world, TTM's economy hatchback in India, the Tiago, also grew sales by over 15% y/y. Commercial vehicles and truck sales, many to government bodies, rose 11.6%, from a healthy base.

Indian profits jumped nearly 10% to $85 mn on the back of margins at 5% this year vs 4.4% last.

Dow-Jones reported that “investors are hoping JLR's volumes will keep growing as new models are launched and new models are launched in India.
While rising 4.4% in Bombay, TTM t is up 1.6% in US trading today.

*Dutch-incorporated digital security firm Gemalto (GTOMY) produced impressive H1 results, in euros under IFRS despite relatively modest 1% higher revenues, at €1.5 bn, up +1% at constant exchange rates. The revenue mix was very different, however because of shrinking mobile network sales (down 13% Y/Y) and lower SIM card business (down 26%) offset by strong growth in government programs, up 25%; enterprise ones, up 12%, and machine-to-machine ones, up 9%, also at constant exchange rates. Payment & Identity saw a 14% gorth rate and Platforms and Services grew 20%, ahead of schedule for the V1 bn target for next year.

Gross margins rose from 38.3% of revenues to 39.2%, or €585 mn and operating profits came in up 11.5% at €172 mn €1.2/sh. Sales were briskest in the US which offset lower sales in Asia. North America is a market where GTOMY is growing its presence while in Europe it is a mature supplier and Asian markets are soft. GTOMY also cut its capex by more than a quarter and barely made acquisitions (vs €888 mn in H1 2015). This enabled its to cut its net debt to €224 mn from 490 mn. It is spending heavily on platforms for the internet of things where security is a key need for wireless for cars and machines. While incorporated in the Netherlands, GTOMY is run out of France.

CEO Olivier Piou said for the full year “Gemalto expects to generate a 1.5 percentage point gross margin increase, accelerating from operations towards its 2017 objective.” He added that the higher gross margins and strong free cash flow (up €128 mn y/y) confirm the full year outlook. It will produce a new multi-year development plan to “define its next milestones” after next year. GTOMY is up 5.6% today.

Bancos

*Virgin Money (VRGDF), the UK mini-bank founded by Sir Richard Branson, may lose traction after he crashed his bike in Virgin Gorda. He hurt his cheek and tore some ligaments but his bicycle was a write off. VM which reported in Britain is up 2.4% to 313 pence because its underlying profit was up 53% in H1 to June 30, hitting £101.8 mn. Its underlying return on tangible equity rose to 12.2% from 9.5% the prior H2.Its net interest margin came in at 1.6% as forecast, the difference between its cost of deposits and its charges for loans. It has 9% more mortgages out this year than last, £27.7 bn. Happily only 18% of this is buy to let with rest residential mortgages. Moreover people don't fail to pay, as only 0.16% of mortgages are over 3 months in arrears at Virgin vs 1.04% in Britain overall.

Its other lending rose to 3.6% of the market and its net lending to 12.7% at end May (the last period for which data is available. Credit card lending hit £2.1 bn up 31% y/y while deposits rose 8% to £27.1 bn. Here too it is beating banks overall with only 0.79% of balances 2 months or more in arrears vs industry averages of 2.5%. Its costs have been screwed down to 59% of income from 68.3% a year ago, mostly in H2 2015.

VRGDF has a strong balance sheet with Tier I equity at 15.3% and an enviable total capital ratio at 17.5%. Moreover, post Brexit, its CEO Jayne-Anne Gadhia reports that it has “experienced strong customer demand and no evidence of changes in customer behaviour.”

Its guidance, assuming more rate cuts in Britain, is that the net interest margin will stay at 1.6% and a return on tangible equity in double digits by next year. It will even pay us a 1.6 pence dividend next month. The main reason we bought into VM, apart from Sir Richard's strong Bremain credentials, was that his operation is a closed-loop not dependent on central bank. It closed June with £784.3 mn of its total assets from CB balances, out of total assets of £33.148 bn. It is also hived off from the interbank market which accounted for less than 3% of its total liabilities which mostly came from customer deposits. As its equity is £1,365 bn its liabilities are in balance with assets at £31.783 bn.