The saving grace is that the results are better compared with the January-March quarter, with the firm’s volumes rising by about 10%. While there are no comparable profit numbers for the March quarter, the firm has said the results are better on a quarter-on-quarter (q-o-q) basis because of manufacturing efficiencies, headcount reduction and improvement in working capital.

But the major worrying factor is that retail sales of JLR (different from the company’s factory sales) have been flat q-o-q, with an improvement in some markets such as China and North America being offset by sharp declines in the UK and Russia. While the company is improving efficiency and cutting costs wherever possible, it desperately needs volumes to pick up to near break-even levels. As Ravi Kant, vice-chairman of the company, stated at the press conference to announce the results, “We need help from the markets."

Meanwhile, a dangerous combination of low capacity utilization and high product development spending are resulting in high cash burn at JLR. JLR’s results between June 2008 and March worked out to an annualized cash burn of around $1.6 billion. Based on the June quarter results alone, the annualized cash burn works out to over $1.7 billion. This is after accounting for product development expenses of around $240 million and normal capital expenditure of $100 million. Note that the acquisition debt sits on the books of a special purpose vehicle and so actual cash burn would be even higher, after accounting for the related interest cost.

At this rate, Tata Motors would need to continue raising capital, and investors should be worried about further value destruction.

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