Tata Motors skids on JLR woes, logs Rs 10-bn loss in Q2; revenue rises 3.3%

Tata Motors posted a loss of Rs 10.1 billion at a consolidated level in the quarter ended September 30 as the company’s UK subsidiary, Jaguar Land Rover (JLR) Automotive, reported a loss of £101 million.

Tata Motors had reported a profit of Rs 24.8 billion in the year ago quarter. 

This is the second successive loss for the Tata group flagship. The company reported a net revenue of Rs 712.9 billion against Rs 695.69 billion a year ago.

The earnings were also dented by a one-off charge of Rs 4.37 billion incurred because of a subsidiary closure in Thailand.

The UK unit, which contributes almost 90 per cent to Tata Motors’ revenue, has been suffering due to uncertainty around Brexit and China demand. To get back into profitable terrain, the company launched a turnaround plan as part of which it plans to drive £2.5 billion of profit and improve cost as well as cash flow over the next 18 months.

Apart from other things, it would include curtailing planned expenditure in FY19 and FY20 by £500 million each to £4 billion, the company said.

“The demand situation is likely to remain muted for JLR, considering the multiple things that are happening around the globe. Therefore, the focus will shift on a turnaround plan that we have put in place,” said PB Balaji, chief financial officer, Tata Motors group. This will include rejuvenating sales, improving cash flows and fixing some structural issues, which JLR has been facing, he added. 

The sharp drop in China sales, which is a function of the sluggish economy and loss of consumer confidence, among other factors, will continue to shadow the overall performance of JLR in terms of volumes and profitability.

The company said the curtailment in capex will not have any impact on product launches or investment in future products. JLR will launch 16 nameplates by 2024, said Ralph Speth, chief executive at JLR.

“We are doing everything possible to weather this storm,” Speth said, referring to the challenging market conditions in China that has hit the company’s volumes hard, higher taxation on diesel cars in Europe and uncertainty related to Brexit in the UK. 

China, which is one of the most profitable markets for the firm, both in terms of value and volume, dragged JLR’s sales 13.2 per cent to 1,29,887 units, while wholesale sales dropped 14.7 per cent to 1,30,652 units. JLR’s earnings before interest, tax, depreciation and amortisation (Ebitda) margin during the quarter dropped 270 bps to 9.1 per cent compared to year-ago.

Amid the gloom, the India operations that has steadily been improving on stronger volumes in passenger vehicles and commercial vehicles, offered a glimmer of hope. Revenue of the India business rose 3.2 per cent to Rs 72.12 billion, which is lower than the Rs 72.98 billion estimate.

However, operational performance was better than expected. Ebitda rose 16.4 per cent to Rs 67.57 billion, higher than the Rs 65.60 billion estimate. Ebitda margin contracted to 9.4 per cent from 11.5 per cent in the same quarter last year, but was higher than the 9 per cent estimate.

Encouraged by the impact of the turnaround plan, the company has revised its margin guidance from 3-5 per cent earlier to 4-6 per cent for the ongoing fiscal year, said Balaji. 

“Our solid, all-around performance in Q2FY19 has impressively demonstrated that Tata Motors ‘Turnaround 2.0’ is in full swing. The continued improvements were made possible due to a robust product and innovation pipeline, strong market activation, rigorous cost reductions and structural process improvements. Most importantly, the entire organisation is on its toes and working to embed the turnaround culture as our new way of life. Therefore, despite near-term market challenges, I am confident that Tata Motors will continue its journey of delivering consistent, competitive and cash accretive growth in the coming quarters, too,” said Guenter Butschek, managing director and chief executive officer, Tata Motors.

Nitesh Sharma, analyst at Phillip Capital, said, “Results are better than expected. JLR’s margin came as a surprise despite the lower mix. We believe it has been led by operating leverage and cost control measures.”