Tata Motors, the country’s top commercial vehicle maker, reported its biggest quarterly loss on the back of an impairment charge taken at its luxury Jaguar Land Rover unit. But, analysts still remain positive and expect the domestic passenger vehicle business, which continues to improve and the cost reduction measures implemented at JLR to possibly drive it out of the rough patch.
The company reported a consolidated loss of Rs 26,961 crore in the quarter ended December 31, due to an asset impairment charge at JLR.
The British luxury car unit has been hit by slow sales in China, one of its largest markets, and in Europe, where customers are moving away from diesel to more fuel efficient vehicles.
“The automotive industry is facing significant market technological and regulatory headwinds. At the same time, investment in new models, electrification and other technologies remains high. Given the muted demand scenario and the associated impact on the financials, JLR has concluded that the carrying value of capitalised investments should be written down, resulting in a GBP 3.1 billion pre-tax exceptional charge,” JLR said in a presentation.
Excluding exceptional items, JLR reported a loss before tax of GBP 273 million in the third quarter, versus a profit before tax of GBP 190 million, a year ago. Quarterly revenue stood at GBP 6.22 billion, versus GBP 6.31 billion.
JLR’s China joint venture company reported a net loss of GBP 30 million, versus a year ago profit of GBP 51 million. China JV revenues stood at GBP 348 million, less than half of GBP 768 million, it had reported in the year ago quarter. The wholesale volumes in China were down over 50 per cent.
“In JLR, market conditions continue to be challenging, particularly in China. The company has taken decisive steps to step up competitiveness, reduce the costs and improve the cash flows, while continuing to invest in exciting products and leading edge technologies,” N. Chandrasekaran, chairman of Tata Motors said.
Even as JLR struggles, Tata Motors’ reported a net profit of Rs 618 crore in the standalone entity, compared with a profit of Rs 212 crore, a year ago. Quarterly standalone revenue stood at Rs 16,208 crore, versus Rs 15,962 crore.
JLR has reduced its EBIT (earnings before interest, taxes) guidance to marginally negative from breakeven and EBIT margin guidance over fiscal year 2020-2022 has been revised downwards to 3-6 per cent, versus earlier 4-7 per cent.
“Economic outlook in China remains bleak. The weakness has been much pronounced in tier 2-5 cities where the concentration of JLR dealers is higher... The company intends to improve mix and dealer profitability by increasing sales of models with high profitability and terminating underperforming dealerships,” noted Vivek Kumar of JM Financial Institutional Securities. The analyst expects current headwinds in China and Europe to subside by the end of 2019 calendar year.
Tata Motors has maintained JLR is on track to achieve GBP 2.5 billion of cash and profit improvements by 2020.
“Steady growth in the domestic passenger vehicle/commercial vehicle business, volume recovery in JLR and favourable currency are expected to drive compounded annual revenue growth of 6 per cent over FY18-21,” added Kumar, who has a “buy” rating on the stock.
also read
- Tata Motors total domestic sales rise to 90,822 units in March
- Tata Motors to set up Rs 9,000 crore, maiden plant in Tamil Nadu; inks pact with govt
- Tata Motors to hike commercial vehicle prices by up to 2 per cent from April
- Moody's affirms Tata Motors' Ba3 corporate family rating, maintains positive outlook
Kotak Institutional Equities has also maintained a “buy” rating on Tata Motors.
“We believe management is on course to improve operating margins in both standalone and JLR business led by cost reduction initiatives,” said Hitesh Goel of Kotak Institutional Equities.
Broking firm Motilal Oswal, on the other hand, downgraded the stock to “neutral.”
“With several upgrades and refreshes coming over the next 12-18 months, as well as completion of inventory de-stocking by the fourth quarter of FY19, JLR’s volumes are expected to stabilise in FY2020. We expect JLR’s volumes to grow at three per cent CAGR in FY19-21 after three per cent decline in FY17-19,” said Jinesh Gandhi, analyst at Motilal Oswal.
However, he added that macro uncertainties like Brexit, and trade wars would remain key risks to JLR’s volumes and competitive positioning.
Tata Motors shares plunged over 22 per cent to hit a low of Rs 141.90 following the huge losses. But the stock recovered some what and was trading at Rs 150.95, still down more than 17 per cent in late trading.
