UPDATE 2-Tata Motors Q1 net surges, JLR worries remain

* Unexpected profit surge send shares soaring in late trade

* Cost reduction efforts at Jaguar Land Rover to stem losses

* Says to look at capital raising at an appropriate time (Recasts, adds quotes, analyst comments)

By Janaki Krishnan

MUMBAI, July 27 (Reuters) - India's Tata Motors Ltd (TAMO.BO) reported an unexpected surge in first-quarter net profit, helped by a change in accounting policy, but concerns remain over its loss-making Jaguar Land Rover unit and how it will strengthen its balance sheet.

The maker of the Nano, the world's cheapest car, has appointed two consultants to advise Jaguar Land Rover (JLR) on cost cuts, set objectives for breaking even and tapping its cash flow effectively.

"We are going ahead with their proposals and this is going to improve the cost reduction efforts in JLR," Vice Chairman Ravi Kant said.

Monday's results showing net profit surged 58 percent, when analysts had expected it to halve, did not include Jaguar Land Rover operations. Officials declined to provide information on the performance of JLR, saying it would be announced later.

"On a standalone basis the company is doing well. The domestic business is good. But the two concerns are JLR and its ridiculously high debt-to-equity ratio," said Jatin Chawla, auto analyst with India Infoline.

In year to March 2009, India's largest vehicle maker posted its first loss in eight years, hit by losses at JLR. On a standalone basis, it had posted a profit in the year [ID:nBOM433658]

The company has $850 million outstanding of the original bridge loan of about $3 billion it took to buy JLR, having recently paid off $150 million using funds from its sale of a 1.5 percent stake in group firm Tata Steel (TISC.BO). [ID:nBMA003448]

Its funds crunch was eased to some extent by the $500 million it raised from Nano bookings in April. It raised $884 million through debentures to pay off part of its bridge loan and has extended the maturity of the remaining amount to end of 2010.

"We will look at capital raising at an appropriate time. We are committed to improving the capital structure of the company and going to the market, but no decision has been taken yet," Chief Financial Officer C. Ramakrishnan told reporters.

UNEXPECTED PROFIT

Tata Motors, which delivered its first Nano earlier in July, said standalone net profit rose 58 percent to 5.14 billion rupees ($107 million), up from 3.26 billion rupees a year ago helped by lower costs and a change in accounting policy which saw lower foreign exchange-related losses.

Its shares reacted by erasing all losses, and quickly rising to be up as much as 3.9 percent before ending 0.4 percent up in a flat Mumbai market .BSESN.

Last week, leading passenger car marker Maruti Suzuki, 54.2 percent owned by Japan's Suzuki Motor Corp (7269.T), surprised the market with a 25 percent rise in net profit as demand for its higher-end models boosted profitability. [ID:nBOM523672]

Tata said its forex losses were 55.4 million rupees in the June quarter, from 1.62 billion rupees a year earlier, and said a focus on cost cuts, a fall in raw material prices, inventory cuts and improvement in per unit prices yielded considerable benefits.

Expenditure fell 10.7 percent to 59.17 billion rupees and operating margins rose to 11.4 percent from 7.1 percent year-ago.

Revenue fell 8 percent to 64.05 billion rupees.

A Reuters poll of 14 brokerages had forecast net profit at 1.5 billion rupees on net sales of 61.76 billion rupees.

Auto demand, which was hit from mid-2008 by tight credit, high interest rates and a slowing economy, is now showing signs of a recovery due to easier credit and discounts. But sales of commercial vehicles have yet to pick up.

The company is banking on launches, including a new version of its Indigo sedan and the retail launch of its Daewoo-made World Truck, to boost sales.

Shares in Tata Motors valued at $3.1 billion, rose 61.5 percent in the June quarter, outperforming rises of 49 percent in both the main index .BSESN and the sector index .BSEAUTO. ($1=48.20 rupees) (Editing by John Mair and Rupert Winchester)