Investors of Tata Motors Ltd were jittery on Tuesday, sending the company’s shares 1.2% lower. It was almost a warning of what was to come in the June quarter results. And indeed, the global automotive giant’s performance dashed investor hopes of a near-term recovery. The consolidated net loss of 1,863 crore is baffling especially when analysts’ much-toned-down estimate was of a net profit of around 920 crore.

Without doubt, the already-beaten-down stock will get a pounding on the Street on Wednesday.

Its iconic UK-based subsidiary Jaguar Land Rover Ltd (JLR) continued to bleed, dragging the parent down after negating the strong profitability posted by its stand-alone business. Consolidated Ebitda (earnings before interest tax, depreciation and amortization) margin of 7.5% was way below Bloomberg’s average estimate of 10.5%.

True, the story of Tata Motors’ losses is not new. The problem is that there is not even a glimmer of a recovery. The headwinds for JLR are only getting stronger. The adverse impact of Brexit-linked changes in trade policy or steadily falling demand for diesel vehicles in the UK, Europe and even the US, that is the mainstay of JLR, is well-known. Sales growth has fallen to single-digits since the third quarter of FY17.

June quarter sales declined by 5% year-on-year as the lower import duties on vehicles in China led to customers deferring sales. Inventory mounted too. Consequently, JLR’s pain increased, adding to its existing headwinds. So, the China situation, destocking in the region and adverse forex movement led to a 7% drop in net revenue.

With lower operating leverage and mounting costs, JLR’s Ebitda margin narrowed by 170 basis points to a dismal 6.2%—the lowest since its recovery after acquisition by Tata Motors and way below the Street’s forecast of 10.5%.

True, the stand-alone entity’s operations brought some succour. Fortunately, the commercial vehicle (CV) segment is churning out strong numbers, even as the passenger vehicle business is improving in size and profitability. The 83% year-on-year jump in net revenue and 890 basis points Ebitda margin expansion certainly limited the fall in consolidated performance to some extent.

That said, it is not a smooth road ahead in CVs as the impact of the new axle load norms on truck sales will be known in the months ahead. For now, the stand-alone entity is turning out healthy profits.

Yet, this is not sufficient to pull Tata Motors out of the quagmire that it is sinking into. Ultimately, the consolidated performance hinges on JLR, which has more pain along the way.

Already, the weak operating performance, and JLR’s need to keep abreast of technology and markets in the near future has begun weighing on its balance sheet. Net debt has ballooned.

Certainly, JLR is in for a major refit. The efforts may be on. But it would cost Tata Motors and its investors much pain.

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