Tata Motors dips 10% from day's high as JLR eyes negative EBIT margin in Q2

In Q1, JLR's wholesales were lower than demand would have permitted due to semiconductor supply issues affecting the global auto industry

Shares of Tata Motors declined 10 per cent from the day's high of Rs 358.10 and were quoting 7 per cent lower at Rs 323 on the BSE in intra-day trade on Tuesday after its UK subsidiary Jaguar Land Rover (JLR) said it expects an operating cash outflow of about £1 billion, with negative earnings before interest tax (EBIT) margin in the second quarter ended September 2021 (Q2FY21), due to the supply constraints.

However, JLR added that it sees a substantial improvement in underlying operating cash flow in the second half of the financial year as chip supply improves.

JLR retail sales for the first quarter ending June 30, 2021 (Q1FY22) were at 124,537 vehicles, 68.1 per cent higher than 74,067 vehicles sold in Q1 last year. 

"Retail sales were significantly up year-on-year (YoY), reflecting the continuing recovery in demand from the Covid 19 pandemic, particularly compared to a year ago. However, wholesales, in particular, were lower than demand would have permitted due to semiconductor supply issues affecting the global auto industry," the company said in a press release.

Wholesales were at 84,442 units for the quarter (excluding the China JV), up 72.6 per cent YoY. The figure was about 30,000 units lower (c. 27 per cent) than otherwise planned as a result of semiconductor supply constraints and the impact of Covid-19, although this reduction had been broadly anticipated, JLR said.

At the end of the period, the company had about £3.7 billion of cash and short term investments (unaudited). Based on this, and broadly in line with expectations given the supply constraints, the company expects to report a cash outflow of about £1 billion with a negative EBIT margin for the quarter.

Based on recent input from suppliers, the company now expects chip supply shortages in the Q2FY22 to be greater than in the first quarter, potentially resulting in wholesale volumes to be about 50 per cent lower than planned, although it said it is working to mitigate this. We expect the situation will start to improve in the second half of our financial year, the company said.

While the present supply constraints continue, the company will continue to prioritise production of higher-margin vehicles for the chip supply available as well as make chip and product specification changes where possible to reduce the impact, JLR added.

Encouragingly, the company continues to see strong demand for its products when semiconductor supply ultimately improves. It, presently, has about 110,000 global retail orders, the highest in the history of the company, representing 3 months of sales cover, with five months in Europe and four months in the UK. Orders for the Defender alone are over 29,000, representing over four months' cover. CLICK HERE FOR THE FULL PRESS RELEASE