Tata Motors posts ₹26,993 cr Q3 loss
MUMBAI: Tata Motors Ltd on Thursday forecast its UK unit Jaguar Land Rover (JLR) Automotive Plc. to incur an operating loss this fiscal year mainly because of continued muted demand in JLR’s single-largest market, China.
In the quarter ended 31 December, Tata Motors plunged to a consolidated loss of ₹26,992.54 crore due to its biggest ever writeoff of £3.1 billion (₹28,675 crore) for JLR. Tata Motors had a yearearlier net profit of ₹1,214.60 crore.
Brexit-related worries and a global shift away from diesel cars both in Europe and North America along with the impact of China-US trade tariffs is also hurting the maker of Land Rover Discovery and Evoque sport-utility vehicles and Jaguar XE and XF cars. “JLR’s margin level is likely to be marginally negative during FY19. China, one of our most profitable markets, is hurting us,” Tata Motors’ group chief financial officer P.B. Balaji said in a conference call with reporters.
The surprise non-cash writeoff has been attributed to slowing sales in China, technology disruptions linked to a shift towards eco-friendly hybrid and electric vehicles, and also the rising cost of debt. The step raises questions on whether it could affect Tata Motors’ credit rating that has already been revised downward in the recent past.
While JLR, which contributes two-thirds of the earnings at Tata Motors, surpassed the overall industry growth for premium passenger vehicles in the US, UK and Europe, it continued to face sustained weakness in demand in China amid slowing economic growth, Balaji said.
“We see a gradual improvement in China ahead, and expect our numbers stabilize and now we have to work on profitability for our dealers,” Balaji said. Tata Motors consolidated revenue grew 4.4% in the December quarter to ₹77,582.71 crore, from ₹74,337.70 crore a year earlier.
The non-cash write-off is expected to result in annual savings of £300 million in depreciation and amortization costs for JLR, Balaji said adding “it is a right step taken in terms of reducing our cost, improving our break-even and ensuring our competitiveness.”
JLR’s sales, which has been contracting every month since July, fell 6.4% y-o-y in the Decem- ber quarter to 144,600 vehicles.
Sales in China fell 47% y-o-y last quarter offsetting 21% and 18.4% increase in North America and the UK respectively.
According to Nitesh Sharma, an analyst at Phillip Capital, “we are concerned about the magnitude of equity erosion led by investment write off that could hurt debt covenants and lead to downgrades.”
JLR, the largest car maker in the UK, shut one of its plants there in October. To prepare for a scenario where there could be disruptions due to Brexit, JLR also plans to temporarily close plants in the UK from April this year.
“It is impossible for us to stock up production material to keep us going. From the end of first week of April, we have two and half weeks to three weeks of production shutdown that will happen, which will prepare us for the worst case scenario (regarding Brexit),” Balaji said.
“We still believe that there will be a negotiated settlement sooner or later,” Balaji added.
JLR is impacted by growing consumer preference for ecofriendly options such as hybrid and electric as diesel vehicles comprise about 90% of its sales in Europe. Tata Motors’ profit for its Indian operations grew threefold from the year earlier in the December quarter to ₹618 crore. Stand-alone revenue grew 1.85% to ₹16,477 crore.