India’s largest commercial vehicle (CV) and fourth largest passenger vehicle (PV) manufacturer Tata Motors is expected to post a decline in its consolidated revenue for Q1FY20 due to weak demand in the domestic market and a slowdown in China that has hit Jaguar Land Rover’s (JLR) global performance.
On the domestic front, Tata Motors’ total PV sales stood at 42,034 units, down 29% year-on-year in April-June. Sales of CVs, the backbone of the company’s domestic business, reported a decline of 15% year-on-year to 89,845 units during the last quarter.
Meanwhile, JLR reported total sales of 128,615 units for Q1FY20, which was down 11.6% YoY.
According to Motilal Oswal Securities, Tata Motors’ consolidated revenue in April-June is estimated to decline 15% YoY and about 35% quarter-on-quarter (QoQ), resulting in net loss of about ₹11.8 billion against net loss of ₹19 billion in Q1FY19 and a net profit of ₹21.4 billion in Q4FY19.
The brokerage firm also expects JLR’s (including China joint venture) net realization to decline 1.6% YoY (+0.3% QoQ). It has estimated Tata Motors’ Q1FY20 EBIDTA margin at 7.4% compared with 7.6% in Q1FY19 and 9.3% in Q4FY19. JLR’s Q1FY20 EBIDTA margin is also estimated at 7.4% as against 6.2% in Q1FY19 and 9.8% in Q4FY19.
Edelweiss Securities has suggested that JLR’s China sales remains a key concern amidst its elevated capex in a weak demand environment. JLR’s sales in China, its biggest global market, declined more than 34% YoY in FY19, with the British carmaker facing headwinds in Europe as well. A number of internal factors including high fixed cost structures, dealer network profitability and high investments leading to cash outflows have hit some key financial metrics.
However, the company appears to be taking critical steps to revive its financial viability which include meeting pre-determined cost reduction targets, optimizing material and other development expenses (for example, alliance with BMW on development of electric vehicle technologies), launching new products among others.
Back home, Tata Motors has lined up at least 3-5 product launches including new variants, which improves the outlook for its sales performance over the coming quarters. Edelweiss report points out that strong focus on cost reduction via consolidating platforms and supplier base, and creating a flat organisational structure should cushion cash outflows.
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