* Q1 net 17.26 billion rupees vs forecast 22.34 billion
* Net sales up 8 percent to 467.51 billion rupees
* JLR margin for June qtr at 16.5 pct versus 14.5 pct
* Tata operating at 40-50 pct capacity for passenger cars
* Shares slide more than 5 pct, close 3 pct lower
By Aradhana Aravindan
MUMBAI, Aug 7 (Reuters) - Tata Motors Ltd, India's biggest truck and bus maker, expects lean times at home to run into next year, after higher sales at its luxury cars unit Jaguar Land Rover (JLR) failed to plug a sharp drop in first-quarter profit.
"The external environment is relatively weak particularly for the automotive industry," said Chief Financial Officer C Ramakrishnan. "Generally, margins will be under significant pressure this year for all."
Tata Motors has been hurt by rising ownership costs and sluggish economic growth over the last few quarters, making it increasingly reliant on JLR sales overseas to offset weak domestic demand.
The luxury-focused subsidiary has thrived by turning its attention to China, now the largest auto market in the world, where its sales have increased more than six-fold since its $2.3 billion acquisition from Ford Motor Co in 2008.
In the three months from April through June, JLR sold 20,427 vehicles in China, more than it sold in North America, Britain or in Europe.
"We have got the ambitions of (selling) 100,000 cars in China this year," JLR Chief Executive Ralf Speth said. The company sold about 77,000 vehicles in China last year.
JLR has defied those sceptical of its future under Indian ownership to roar back into profit over the past four years as the main growth driver for its now-struggling parent.
Its parent Tata Motors also needs a new hit car in India to regain its share of the local passenger vehicle market.
Karl Slym, who previously headed the India operations of General Motors Co and became Tata Motors' managing director last year, has been tight-lipped about new vehicle plans, besides saying there is a product portfolio through 2020.
He has set about upgrading existing cars, improving service offerings and is trying to breathe life into the underperforming ultra-cheap Nano in a bid to revamp the company's staid image in India.
The company, part of the $100 billion Tata group, said net profit for the quarter through June was 17.26 billion rupees ($281 million), compared with 22.45 billion a year ago. Net sales rose 8 percent to 467.51 billion rupees.
Analysts had on average expected net profit of 22.34 billion rupees, according to Thomson Reuters data.
"This year, it looks like Tata Motor's domestic business will be making losses, unless we see a very sharp recovery in the commercial vehicles market," said Jinesh Gandhi, analyst at Mumbai-based brokerage Motilal Oswal, ahead of the results.
"It is definitely important for them to have a refreshed portfolio in passenger vehicles ... which will help them to re-gain consumers' interest and confidence."
Of the 51 Tata Motors analysts tracked by Thomson Reuters StarMine, 39 have a positive recommendation on the stock, mainly due to expectations of continued strong sales volumes at JLR, which expects to see higher demand in China, its biggest market.
Tata said JLR's operating margin rose to 16.5 percent in the three months ended June from 14.5 percent a year ago.
As demand stays weak, the company is operating at 60 percent of its domestic plant capacity for commercial vehicles and between 40 and 50 percent in passenger vehicles.
Shares in Tata Motors extended their slide to more than 5 percent after the results to end down 3 percent at 278.9 rupees. The broader market index fell 0.4 percent. The stock is down nearly 11 percent this year.