Sharp profit downgrades for Tata Motors on weak Jaguar Land Rover outlook

Domestic operations also hit by BS-VI transition impacting CV volumes

Tata Motors shed 7.4 per cent on Monday in a weak market on worries of sluggish Jaguar Land Rover (JLR) sales in China and volume decline in the commercial vehicles portfolio in India. JLR reported an 85 per cent year-on-year fall in China retail sales in February because of the impact of the coronavirus epidemic.

JLR had reported volume growth of 34 per cent in the December quarter and average sales in the six months prior to the outbreak were upwards of 25 per cent. While retail sales and production are expected to be ramped up gradually, brokerages believe sales will not only be impacted in the March quarter but also in the June quarter. Given that the epidemic has also impacted markets, such as Japan, Italy, and South Korea, sales in these markets are expected to fall, too. 

In view of the reduction in China volumes, the management has cut JLR’s FY20 earnings before interest and taxes by about 1 per cent, as against the earlier guidance of 3 per cent. However, free cash flow in the March quarter is expected to be positive. 

 

 

The commercial vehicle segment in the India business is also expected to be impacted, because of the coronavirus epidemic, as well as the transition to the BS-VI emission norms. The slowdown has impacted its medium and heavy commercial vehicle portfolio the most -- February sales were down 46 per cent year on year. Given the higher cost of BS-VI compliant units amid low demand, analysts expect sales in the commercial vehicle segment to remain subdued. 

Motilal Oswal Financial Services expects the current financial year to turn in a loss, against the earlier estimate of a profit. The brokerage has cut its FY21 consolidated earnings estimates by 35 per cent because of the impact of the coronavirus epidemic in the June quarter, as well as weak volumes for the commercial vehicle business for FY21.