Tata Motors did far worse than expected in the June quarter, with a consolidated loss of Rs 3,680 crore.
Most brokerages had expected a loss of around Rs 2,000 crore. This is its fourth loss in five quarters, with sales volume down 21 per cent over the year-ago period.
A high cost base and negative operating leverage, coupled with rising levels of competitive intensity across markets, led to the disappointment. The volume decline was led by the China unit of Jaguar Land Rover (JLR, the Britain-based subsidiary of Tata Motors), where it fell 29 per cent. China is one of the biggest and most profitable markets for JLR; it accounted for 19 per cent of volume in the quarter.
The sales volume at the Indian unit, which makes commercial vehicles and passenger cars, fell 23 per cent over the year-ago period. The consolidated operating profit margin was 4.5 per cent, down 159 basis points (bps) in a year and the lowest in a decade, excluding the December 2018 quarter.
Most of the consolidated loss was due to JLR. The pre-tax loss here was £383 million (Rs 3,300 crore), about 49 per cent higher than the year-ago quarter. Lower
volumes, production shutdowns and delays in pollution-related certification as part of the contingency planning ahead of Brexit (the impending departure of Britan from
the European Union) were responsible for the dip in revenue, margin and loss at JLR.
Revenue was down 2.8 per cent to £5 billion (Rs 44,000 crore). What has compounded the problem for JLR is higher marketing costs, given the de-stocking in China as it moves to the next level of emission standards, CN-6. Stocking out of older models, warranty costs, commodity and foreign exchange losses added to these.
This will be tough, as the company will have to increase prices, with the new and higher cost BS-VI compliant engines. And, when dealer profitability is under
pressure, freight rates are muted, operating cost for fleet owners is rising and freight demand continues to weaken.