Tata Motors Q3 net profit tanks 52% as Jaguar Land Rover margins dwindle

"Over the next couple of years, they are unlikely to generate much cash. That's a worry," said Joseph George, analyst at IIFL Institutional Equities in Mumbai.

JLR had net cash of 437 million pounds ($684 million) at end-September, but as it ploughs money into a new engine plant in Britain and a factory in China, it will no longer drive cash generation at its owner, Asia's seventh-biggest carmaker by market value.

Shares in Tata Motors, which is also listed in New York , fell 2.5 percent in Mumbai on Thursday before the results. The broader market ended down 0.6 percent.

MARGIN PRESSURE

JLR's cash was the primary reason behind an improvement in Tata Motors' consolidated net adjusted debt to operating EBITDA ratio to 0.98 in the year to last March from 1.21 in the previous year, ratings agency Fitch said in a recent note.

The maker of sleek Jaguar saloons and rugged Land Rover sport utility vehicles (SUV), raised $500 million in fresh debt last month and said it would raise funds from capital markets and banks to fuel its capital expenditure as required.

In China, the world's biggest auto market, JLR sales jumped 71 percent in 2012, making it the marque's No.2 market after Europe. JLR is investing $1.7 billion with local partner Chery Automotive to build a factory in China.

JLR contributed around 90 percent of Tata Motors' net profit in the last financial year, so its margins are scrutinised more by investors than those of Tata's domestic business.

The Indian automaker's core domestic business making trucks, buses and cars lost 4.58 billion rupees ($85 million) in the quarter, against profit of 1.74 billion a year earlier, as revenue fell 20 percent.

Operating margin for the India business fell to 2.2 percent from 6.7 percent a year earlier. The Indian parent's chief financial officer said the margin was one of its lowest ever.

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