Hedging losses crimp Tata Motors Q2 profit

Tata Motors reports net profit of Rs848 crore in September quarter, compared with a loss of Rs1,740 crore in the year-ago period


Jaguar Land Rover’s factory in Solihull, UK. Tata Motors said that higher sales volume at JLR was offset by the realized hedging losses of Rs3,510 crore, following the UK’s decision to leave the European Union. Photo: Bloomberg
Jaguar Land Rover’s factory in Solihull, UK. Tata Motors said that higher sales volume at JLR was offset by the realized hedging losses of Rs3,510 crore, following the UK’s decision to leave the European Union. Photo: Bloomberg

Mumbai/New Delhi: Tata Motors Ltd on Monday posted a quarterly profit but missed the analysts’ earnings estimates by a wide margin because of currency hedging losses at its UK Jaguar Land Rover unit following the nation’s decision to leave the European Union.

The Mumbai-based company reported a consolidated net profit of Rs848 crore in the three months ended 30 September compared with a loss of Rs1,740 crore in the year-ago period. The company still missed the Rs2,758.3 crore profit estimate in a Bloomberg survey of 24 analysts.

Tata Motors said that higher sales volume at its Jaguar Land Rover unit was offset by the realized hedging losses of Rs3,510 crore and adverse commodity derivatives impact of Rs187 crore.

“The Brexit effect has led to unintended losses for the last two quarters on the company’s hedges,” said Mahantesh Sabarad, deputy head of research (equity), SBI Cap Securities Ltd.

Hedging losses on the account of Jaguar Land Rover was £123 million (about Rs1,050 crore) during the preceding June quarter.

Fiscal second-quarter consolidated revenue grew by 6.94% to Rs67,000 crore, in line with analysts’ estimates of Rs67,061.4 crore.

The numbers reflect strong sales of Jaguar and Land Rover vehicles across all its markets in the UK, Europe, North America, China and other markets, the company said.

The performance of its India business deteriorated further because of a decline in sales of its medium and heavy commercial vehicles.

Tata Motors’s loss, excluding its units, widened to Rs631 crore during the quarter from Rs289 crore in the year earlier. Revenue of the standalone business also declined to Rs11,406 crore in the September quarter from Rs11,794 crore in the year-ago period.

This comes despite the company reporting higher sales in segments such as light commercial vehicles, passenger vehicles and exports.

Passenger vehicles sales grew 20.5% from a year earlier, while car sales rose 26.4% because of demand for its recently launched Tiago model. Exports grew 20.1% from a year earlier.

“These were more than offset by degrowth of 16.5% y-o-y in the M&HCV segment,” the company said in a statement.

Led by the introduction of new models and a pick-up in China sales, volumes at the company’s UK subsidiary Jaguar Land Rover grew 29.3% to 142,459 units, reflecting strong sales of the Discovery, Discovery Sport, Evoque, XE and the new F-Pace.

Retail sales grew across all key regions. North American sales rose 39%, the UK 28%, China 49% and Europe 31%, the company said.

Tata’s profit margin may improve in coming quarters as a lower British pound starts to buoy translated revenue from overseas sales, according to Steve Man, senior industry analyst at Bloomberg Intelligence.

Production of two Land Rover SUVs by the joint venture with China’s Chery is ramping up and should aid margin expansion, Man said.

The India business may extend its profit streak as sales of light trucks recover and those of the new Tiago hatchback rise, he added.

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