Tata Motors consolidated net loss widens in Q2 on weak operational show

However, the quarter reflected strong sequential recovery with positive pre-tax profit and major positive free cash flows following restart of production and reopening of global retailer network

Tata Motors’ consolidated loss for the quarter ended September more than doubled over the year-ago period. But a better geographic mix and a higher contribution by the expensive models to the overall sales helped the owner of Jaguar Land Rover (JLR) beat Street estimates.

The Tata group flagship reported a consolidated net loss of Rs 307.3 crore in the quarter ended September, compared with a net loss of Rs 187.70 crore a year ago. This was much lower than the loss of Rs 1,970.3 crore forecast by a Bloomberg poll of five brokerages.  The total revenue from operations during the period crimped. It was 18.19 per cent to Rs 53,530 crore, from Rs 65,431.95 crore a year ago.

“There is significant quarter-on-quarter (QoQ) recovery across all markets,” said P B Balaji, group chief financial officer, Tata Motors. 

JLR has reported a positive profit before tax and an equally positive earnings before interest and tax, he added. 

Balaji attributed it to a recovery in sales, Project Charge+ (a cost-saving project), and cost efficiencies. Project Charge+ has delivered £600 million of cost, profit, and cash-flow improvements in the quarter and £1.8 billion year-to-date.

“The JLR performance has surprised us. Even the India business is picking up well,” said Aditya Makharia, analyst at HDFC Securities.

Mitul Shah, head of research at Reliance Securities, said, “While we believe lower capital expenditure (capex) and the government’s stimulus will support JLR, the focus on cost control will improve Tata Motors’s margin.”

He added that debt reduction, however, would be at a much lower pace. A tight rein on capex and research and development would keep its debt in check. “In view of expected recovery in JLR’s global business (lower deterioration) and restructuring of domestic business, coupled with attractive valuation, we maintain a positive view on the stock. We have a buy rating on the stock,” said Shah.

JLR’s retail sales during the three-month period rose 53.3 per cent QoQ to 113,569 units, but sales in most markets continued to be impacted by Covid-19. They were down 11.9 per cent year-on-year (YoY). But China showed an encouraging sales trend - up 14.6 per cent in the prior quarter and 3.7 per cent YoY.

Meanwhile, on the back of a strong performance by the passenger vehicle (PV) segment and recovery in the commercial vehicle (CV) business, losses on the domestic front narrowed to Rs 1,212 crore, against Rs 1,269.99 crore a year ago. 

During the quarter, the company saw YoY increase of 3.3 per cent in its PV sales, selling a total of 110,000 PVs.  “The speed at which the demand has recovered has caught us by surprise,” said Balaji, referring to the demand scenario in the overall car business.  Driven by small and light CVs and tippers, even the CVs are showing signs of recovery, said Balaji. “The worst is over for CVs,” he said.