Tata Motors reaffirms plan to turn debt-free by FY24 despite negative impact of Covid2 min read . Updated: 31 Jul 2021, 05:40 AM IST
- The firm is confident of reducing debt because of the improved free cash generated by JLR
Tata Motors Ltd, the country’s largest automaker by revenue, will stick to its plan to turn debt-free by FY24 despite its businesses being adversely impacted by the pandemic, chairman Natarajan Chandrasekaran said on Friday.
Addressing the company’s annual general meeting (AGM), Chandrasekaran said the Tata Motors management is confident of reducing debt due to improved free cash generated by Jaguar Land Rover (JLR) and the growing domestic passenger and commercial vehicle businesses.
The global semiconductor chip shortage will, however, impact its fiscal first half financial performance, he said.
Tata Motors, announced at last year’s AGM, its aim to become a debt-free company within three years. The automaker now has three “fundamentally strong" businesses—the India passenger vehicles business, the commercial vehicles business, and the JLR business, he said at Friday’s AGM.
The Mumbai-based automaker earlier reported an improved operating performance in the fiscal third and the fourth quarter following improved sales of JLR vehicles in key markets such as China and the US. Besides, a sharp recovery in passenger vehicle sales and gradual improvement in demand for commercial vehicles helped improve financials of the India business.
Stringent cost-cutting measures in all three verticals helped reduce the minimum volumes required to break even. JLR now needs to sell around 400,000 units to maintain profitability compared to more than 600,000 units in FY19. “Structurally, the businesses have achieved a lot of efficiency through various transformation initiatives in such a way that the break-even volumes have come down in each of these businesses," he said.
“The company declared a goal to become a zero-debt company by FY24. Last year, because of internal cash flows and tight management, we were able to reduce the debt by more than ₹7,500 crore and are very much on our path and stay committed to meeting our target of FY24," Chandrasekaran said in the virtual meeting with shareholders.
The turnaround in financials will, however, be short-lived as an acute shortage of semiconductors will impact JLR’s production in the fiscal first half. The domestic business has also been hit by the pandemic’s second wave during April and May.
JLR had already guided for a negative operating margin, or earnings before interest and taxes (Ebit), and an operating cash outflow of £1 billion in the second quarter as a consequence.
“The supply situation, however, is expected to be adversely impacted for the next few months because of disruptions from covid-19 lockdowns in India and semi-conductor shortages worldwide for the auto industry globally, which will take time to work through. This will impact production volumes, sales, cash flows, and margins," Chandrasekaran said.
Recently, Tata Motors announced plans to launch 10 battery electric vehicles across its commercial and passenger vehicle range in India by 2025 in its quest to lead the domestic electric vehicle market. Tata Sons, the parent of Tata Motors, is also exploring opportunities to invest in lithium-ion cell manufacturing in India and Europe to establish a proper supply chain for its zero emission vehicles in the coming decade.
JLR also announced a new global strategy, Reimagine, wherein the company will shift towards manufacturing EVs and target double-digit operating margins from its global operations.
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