Impairment charge hurts Tata earnings
Jaguar Land Rover unit hit by US-China trade tensions
Indian vehicle maker Tata Motors lowered its profit margin guidance for the current fiscal year after it posted its biggest quarterly loss on Thursday, hurt by an impairment charge for its British luxury car business Jaguar Land Rover (JLR).
Tata Motors expects the earnings before interest and tax margin for fiscal year 2018/19 to March 31 to be “marginally negative” compared with an earlier guidance of breaking even, CFO PB Balaji said.
Troubles at the JLR unit, which has been hit hard by USChina trade tensions, low demand for diesel cars in Europe and Brexit worries, tipped Tata Motors into its first loss in three years in the quarter ended June 2018.
While Tata Motors has announced plans to turn around JLR, the slide in the unit’s sales has continued, with retail sales in China falling nearly 50% in the quarter ending December 31.
“We are now taking clear and decisive actions in JLR to step up its competitiveness, reduce costs and improve cash flows and make the business fit for the future,” Balaji told reporters.
The carmaker has taken steps to address the slide in sales in China by changing its strategy to focus on profits of dealers instead of sales and incentivising retail sales over wholesale, Balaji said.
“We see a gradual improvement in China going forward. We are happy to see our numbers stabilise now in terms of off-take,” he said.
Tata Motors’ loss came at 269.93-billion rupees ($3.78bn) for the three months ended December 31, compared with a profit of 11.99-billion rupees a year ago. Revenue rose 5.8% to 762.65-billion rupees.
The company took a noncash charge of 278.38-billion rupees to cover the impairment at JLR in the three months to December 31. Changes in market conditions, especially in China, technology disruptions and rising cost of debt resulted in the charge.
JLR, Britain’s biggest carmaker, is also facing disruption because of uncertainty over a Brexit deal and has decided to halt production for a couple of weeks in April.
British Prime Minister Theresa May’s Brexit deal was rejected in parliament in January and the government is trying to make changes to win the support of MPs even as the divorce date for Britain’s departure from the EU looms in less than two months.
Tata Motors has also embarked on a plan to deliver cash savings of £2.5bn over 18 months to March 2020.
Balaji said it has already achieved savings of £500m and is well on course to achieve the target.
Tata Motors has faced a decline in sales in India as well.