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Tata Motors log derivative losses

An analysis of Tata Motors’ annual report has highlighted a weak operating performance. The company’s EBITDA declined 16 per cent YoY to `25,600 crore, despite continued capitalisation of product development expenditure by `16,900 crore (80 per cent of cash spent) and lower pension cost recognised in P&L (at `1,400 crore) than cash paid to the pension fund (`2,400 crore). JLR’s underfunded pension liabilities increased from `4,000 crore in FY18 to `6,000 crore in FY19. Earnings continued to be impacted by recognition of derivative losses of `7,000 crore on hedges, while unrealised hedge loss of `5,600 crore was outstanding in the hedge reserve. Hedging positions have changed materially YoY, with derivatives to hedge USD/CNY sales declining to £4.2 billion/£3.4 billion due to the change in hedging policy due to commencement of plant operations in Europe. The broking house remains neutral on the stock.

Broking firm: Motilal Oswal Rating: Neutral Closing Price: `129.55