Jaguar Land Rover Ltd, the UK subsidiary of Tata Motors Ltd, is not out of the woods yet. The 12.2% sales decline in May makes it the twelfth consecutive month of falling sales for the luxury carmaker.
What’s worrisome is that in May, sales fell across regions, unlike in earlier months where poor China sales had dragged overall performance.
True, the magnitude of sales decline in China is moderating. At 26.4% year-on-year, the drop in China sales is lower than the 46.7% drop in April, and the steep decline of 51% in the March quarter. But trade tensions and weak domestic consumer demand continues to haunt the region.
Adding to Jaguar Land Rover’s cup full of woes is the U-turn in sales in the UK, North America and Europe in May, snapping the improving trend in these regions.
The company’s media release said that higher retail sales of the new models and the all-electric I-Pace were offset by lower sales of other models, primarily in China.
If the slowdown in other markets continues, it may again raise concerns on Tata Motors’ financial performance in FY20. Jaguar Land Rover seemed to be on a recovery path, especially after the March quarter results announcement, which were better than forecasts. Ebitda (earnings before interest, tax, depreciation and amortization) margin of 10.5% was better on a sequential basis by nearly 130 basis points. Of course, margin improvement was mainly due to cost-cutting measures, such as workforce reduction, and lower advertising and marketing expense.
In a note to clients, brokerage firm JM Financial Services Pvt. Ltd said that Jaguar Land Rover has guided for negative free cash flows in the June quarter due to seasonality and plant shutdown (over Brexit woes).
Against this backdrop, plummeting commercial vehicle and passenger vehicle sales on the home ground is an additional drag for Tata Motors’ consolidated performance.
On the whole, it is still raining bad news for Tata Motors. Analysts have steadily been trimming earnings forecasts over the last several quarters. Bloomberg’s estimate for FY20 earnings per share is down from ₹40.60 on 1 April 2018, to ₹17.40 on 11 June 2019.
While Tata Motors’ shares made a relief rally after the announcement of the March quarter results, they are likely to continue the long-drawn underperformance for some more quarters. The stock has fallen 43% from a year ago compared to the 10% rise in the benchmark Nifty 50 Index.