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For Tata Motors, concerns around JLR business to remain elevated in near term

Tata Motors has said it expected chip shortages in the second quarter to be higher than in the first, likely resulting in wholesale volumes at JLR about 50% lower than planned. (Photo: Mint)Premium
Tata Motors has said it expected chip shortages in the second quarter to be higher than in the first, likely resulting in wholesale volumes at JLR about 50% lower than planned. (Photo: Mint)

  • JLR's retail sales though up 68% year-on-year, were only marginally higher sequentially. The company said semiconductor shortages curbed wholesales by 30,000 units

Tata Motors suffered a double whammy in the June quarter. While India sales took a hit following lockdowns in the wake of the second wave of the pandemic, its British subsidiary Jaguar Land Rover (JLR) saw its sales impacted by semiconductor shortages.

June quarter wholesales at standalone level, while up more than 4 times year-on-year (YoY) helped by a low base, declined over 45% sequentially. Standalone revenues therefore, too, fell 40% sequentially. Average realisations declined 3% YoY and 1% sequentially, as per analysts at Motilal Oswal Financial Services Ltd.

Meanwhile, JLR's retail sales though up 68% year-on-year, were only marginally higher on a sequential basis. The company said semiconductor shortages constrained wholesales by 30,000 units, which rose 73% YoY to 84,442 units in the June quarter. The luxury carmaker reported a pretax loss of 110 million pounds on revenue of 4.97 billion pounds.

Not surprising that consolidated revenues declined 25% sequentially. Ebitda margin at 7.9%, though much better than 2% in the year-ago quarter was way lower than 14.4% in the previous quarter.

Going ahead, concerns for JLR will stay elevated even as outlook on standalone performance remains strong.

Global carmakers have warned of extended pain due to the chip supply crunch, and Tata Motors has said it expected shortages in the second quarter to be greater than in the first, likely resulting in wholesale volumes at JLR about 50% lower than planned.

Analysts at Kotak Institutional Equities said, “Chip shortage will likely hit JLR’s profitability in the near term. Further, we believe JLR launches in the BEV (battery electric vehicles) space are quite late compared to competition, which could lead to market share loss going forward."

Back home, recovery in commercial vehicle sales, which took a hit in the June quarter, may resume its trajectory with the opening up of the economy and could pick pace by the end of monsoon season. Normalisation of discounts, however, need to be watched for.

Analysts at Credit Suisse said that operator profitability remains below March quarter levels and higher discounting in 1Q meant net pricing at the end of June was back to March levels despite a 2.5% hike in prices in April.

Personal vehicle sales look to continue being strong.

In the near term, JLR will focus on quality over quantity of sales as well as cost efficiency projects say, analysts. The company is looking at primarily £922million reduction in working capital due to lower sequential production volumes.

Analysts, however, are cutting estimates looking at concerns on semiconductor shortages in the near term. Those at Motilal Oswal Financial Services have cut their FY22 EPS estimate by 77%, but said, “Looking beyond the near-term issues, we expect good traction in the JLR and India businesses".

The stock saw more than 1% gains in morning trades on Tuesday.

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