Analyst voices concern over Jag’s financial future

cash flows have improved from the depths of the first fiscal half, S&P Global Ratings estimates that its measure of free operating cash will continue to be significantly in the red for two years.

“If the cash burn matches the average £670m a quarter seen since March 2017, JLR may struggle to make it through another year.”

Ms Trivedi said the company was continuing to spend billions on investment and hundreds of millions in dividends to its parent company Tata Motors in the face of “deepening operational woes”.

She also expressed concern that operating cash flow was falling relative to capital expenditure, which made it harder to pay for investments without dipping into debt.

She said: “If the company’s attempts to deliver on its cost-cutting programme continue failing to deliver and sales do not improve, further spending on tangible assets will be the only credible way to improve cash flows - but Jaguar Land Rover is already backed too far into that particular corner.

“Free cash flow remains in the red, at a negative £361m in the December quarter. Management has attributed that to the pace of its technology investments, but given the weak return on previous expenditures investors are entitled to ask whether future spending could do any better.”

One option Ms Trivedi identified was for Jaguar Land Rover to receive financial support from Tata Motors but she expressed doubt as to whether it was “strong enough for the task”.

Another option would be to utilise a £1.9 billion undrawn revolving credit facility but Ms Trivedi warned “the moment Jaguar Land Rover taps its loan of last resort, investors will take it as a sign of a severe cash crunch”. Saying the company has not been reluctant to tap debt markets she said investors were demanding “an increasingly high price” and said Jaguar Land Rover’s further bond options might be limited.

In conclusion Ms Trivedi said much remained to be done.

She said: “In China, Jaguar Land Rover continues to perform far worse than its luxury peers. Its underwhelming turnaround plan has only realized about a fifth of its £2.5 billion savings target. Investors should hope management stops the cash from bleeding as fast as it has been spending.”