Q2 results: JLR’s China sales drive Tata Motors into loss
Tata Motors reported a net loss of ₹1,009.49 crore in the three months through September, compared with a year earlier net profit of ₹2,502 crore
Mumbai: Tata Motors Ltd, India’s largest automaker by sales, reported a loss for the second consecutive quarter weighed down by a continued weak performance at its unit Jaguar Land Rover Automotive Plc. JLR, which contributes to the bulk of the earnings at Tata Motors, was hammered by fluctuating political events globally, especially the ongoing trade war between the US and China. Sales in India stayed on the growth path, thanks to demand for passenger as well as commercial vehicles.
Tata Motors reported a net loss of ₹1,009.49 crore in the three months through September, compared with a year earlier net profit of ₹2,502 crore. It is the company’s second quarterly loss in three years, since a ₹1,902 crore loss in the June quarter.
A Bloomberg poll of six analysts estimated Tata Motors to post a loss of ₹874.4 crore last quarter.
Slowing sales in China—JLR’s single-biggest market and one of its most profitable—hit earnings in the just-ended quarter as retails there fell 44% to 21,096 units. As a result, JLR turned in a quarterly loss of £101 million on an 11% drop in sales to £5.6 billion.
“I haven’t seen so many political developments affecting the business. I can’t do anything about it,” said Ralf Speth, chief executive officer at JLR, referring to the various geopolitical headwinds faced by JLR at the moment.
“It’s the slowest growth (in sales)—in perhaps a decade,” Speth said, adding he sees “a very, very weak market situation in the premium segment” in China owing to a slowdown in economic growth and uncertainty due to the trade war with US.
JLR’s global retail sales fell 13% from a year earlier to 129,887 vehicles last quarter. The UK unit posted an earnings before interest, tax, depreciation and amortization (Ebitda) margin of 9.1%, surpassing analyst expectations of about 7.5%. JLR’s profits were also hit by a 15% drop in overall dealer dispatches and higher depreciation and amortization costs, according to Tata Motors.
Existing headwinds such as a model rundown cycle, the possibility of an adverse Brexit and regulatory and customer disfavour for its diesel-heavy portfolio continue to persist as only three out of 13 JLR models recorded sales growth last quarter.
To address these challenges, JLR has drawn up a turnaround plan to save £2.5 billion over the next 18 months through sales rejuvenation, improving cash flows and profitability, and fixing some long-term structural issues, said P. Balaji, group chief financial officer at Tata Motors. Of the £2.5 billion, £1 billion will come from reducing capital expenditure of £500 million each in FY19 and FY20. It will be the first time when capex for JLR has been scaled down, Balaji said, adding demand is expected to remain muted for JLR in the near-term.
Another £500 million would come from generating cash from working capital by pulling back inventory from showrooms, while the remainder would come from rationalising internal cost structures.
To rejuvenate sales, JLR plans to have 16 nameplates by 2024. It aims to drive profitable growth in China by capitalizing on the growing premium market there, in addition to taking advantage of reduced import duty from 1 July.
Meanwhile, Tata Motors posted robust performance in its home market of India. The local operations recorded a net profit of ₹109 crore thanks to higher commercial and passenger vehicle sales, and a cost-saving programme implemented since August 2016. Sales climbed 33% to ₹17,759 crore, albeit off a lower base.
The Ebitda margin widened 2.1 percentage points to 8.7% due to higher volumes and operating leverage, and a richer product mix of bigger trucks and buses.
Balaji said the Ebit margin guidance for FY19-21 has been increased to 4-6% from 3-5% given the success of the turnaround plan.
Total domestic sales of Tata’s namesake brand of vehicles jumped 30% year-on-year to 174,773 units in the September quarter. Commercial vehicles led the way, clocking a 33% increase to 120,845 units on the back of infrastructure-building and broad-based economic growth creating robust demand in sectors such as road construction, mining, retail and e-commerce. Passenger vehicle sales surged 24% to 53,928 units.
On Wednesday, Tata Motors shares rose 0.76% to ₹178.65 on the BSE while the benchmark Sensex gained 1.63% to 34,442.05 points. The results were declared after market hours.
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