Tata Motors’ Q1 bleeds due to wider losses at JLR

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Tata Motors, the biggest home-grown automaker, reported a loss of Rs 3,698 cr loss as UK subsidiary Jaguar Land Rover continued to bleed.

The company had posted a loss of Rs 1,902 cr in the same quarter last year, and had reported a profit of Rs 1,117 cr in the preceding quarter (Jan-Mar).

The biggest hit for the overall bottom line came from the UK unit, which has been feeling under the weather for quite some time now because of macro economic factors such as a global trade war, Brexit and tighter emission norms in European countries.

INDIA OPS

On a standalone basis, Tata Motors reported a loss of Rs 97 cr for the June quarter, compared to a profit of Rs 1,188 cr in the same quarter last year. In the preceding, March quarter, the company had a profit of Rs 106 cr.

The reason for the big fluctuation on the bottom line of its India business was the absence of dividends from subsidiaries this time.

Last year, Tata Motors Ltd had received Rs 1,310 cr in the form of dividends from subsidiaries for the June quarter. This year, it fell to just Rs 106 cr, accounting for much of the decline in profit seen this year.

The second big contributor to the swing from profit to loss was the sharp slowdown seen in the Indian auto market, which impacted revenues.

India revenues fell by a whopping 20% on year to Rs 13,352 cr.

“The continued slow down across the auto industry due to weak consumer sentiments, liquidity stress and the impact of axle load effect particularly in medium/heavy duty, impacted overall demand,” said Guenter Butschek, CEO and MD, Tata Motors.

“Over the past few years we had struck a good balance between managing market dynamics and financial health. However, this time, despite our continuous Turnaround effort we could not prevent some impact on our 01 performance.

“Looking ahead, both our businesses, CV and PV, will leverage TATA Motor’s revived agility and strive to boost consumers’ confidence by various market interventions – all round from best in class product offerings, retail activations and further improved service experience.

“With the budget announcement and upcoming festive season, we expect some tailwinds for the remaining FY20. Furthermore, our Turnaround actions are in full swing and will provide us a great level of confidence to master this unprecedented market challenge and we will get out of it even stronger,” he added.

JLR

However, in terms of sheer size, the company’s UK operations dwarf its India business.

JLR, for example, posted revenue of around 5.07 billion pounds (around Rs 45,000 cr) during the quarter, which is about 3.5 times the India revenue.

However, it was JLR’s impact on the bottomline that really hurt the parent. The UK subsidiary sustained a pretax loss of 395 million pounds or about Rs 3,500 cr. In the same quarter last year, JLR had a pretax loss of 264 million pounds.

In comparison to this, the Indian business generated a pretax loss of just Rs 40 cr in the June quarter this year.

Part of the reason for the wider losses at JLR was a 2.8% decline in revenue from last year, the company said.

There was a 2 percentage point decline in the EBITDA margin at JLR at 4.2% and a 1.8 percentage point decline in EBIT margin to negative 5.5%.

“The results are consistent with the outlook for the quarter and primarily reflect lower revenue resulting from the weaker market conditions. Additional plant shutdown time and delays in WL TP certification resulting from Brexit contingency planning also contributed to the lower sales and profits. “

“Jaguar Land Rover is in a period of major transformation,” said JLR CEO Ralf Speth.

“We are simplifying our business, delivering on our product strategy and adapting to the tough market environment. We will build on our strong foundations and increased operating efficiency to return to profit this fiscal year.

“In this period, we expect to see the impact of growing demand for new models such as the Range Rover Evoque, Discovery Sport and Jaguar XE, whilst implementing our ‘Charge’ transformation programme.

“Despite challenging conditions in the first quarter, Jaguar Land Rover is creating a more robust and resilient business, in which we will continue to deliver a strong pipeline of products that our customers will love. Break through products such as the exciting all new Land Rover Defender will pave the way for sustainable profitable growth,” he added.

Jaguar Land Rover said it continued to benefit from the ongoing impact of its £2.5 billion profit and cash improvement programme, which delivered a further £100 million of cost-savings and £300 million reduction to previously planned investment in the quarter, taking the total savings to date to £1.7B.

“While free cash flow was negative £719 million after £795 million of investment spending in the quarter, this represented a £954 million improvement year-on-year.

“This improvement reflects £756 million of favourable working capital (including £305 million from utilization of a new receivable financing facility) and £271 million from lower investment spending.”

The UK government has also announced that UK Export Finance (UKEF) will provide a £500 million guarantee for a planned £625 million loan facility from commercial banks,” it noted.

The loan facility is expected to be completed in the coming months and amortize over five years, it added.

“Jaguar Land Rover reiterates that its financial results will improve over the balance of the year and continues to target a 3%-4% EBIT margin for the full year with continued investment resulting in negative but improving cash flows.”

Tata Motors said JLR’s performance reflected the impact of “seasonality in the backdrop of weak markets”.

“Project Charge is on track to achieve £2.5 billion of profit and cash improvements by the end of the year. With China stabilizing and an exciting product lineup, JLR expects to return to growth soon and its financial results to improve over the balance of the year,” it clarified.

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