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Photo: Ramesh Pathania/Mint
Photo: Ramesh Pathania/Mint

Tata Motors’ weak sales outlook may keep profitability on the  bumpy lane

The India operations have been hit hard by covid-19 and this could be a drag for a few more quarters

Tata Motors Ltd’s first quarter results were badly hit largely because of the lockdown put in place to contain the spread of coronavirus and the consequent shuttered dealerships. Revenues fell about 48% year-on-year as vehicle sales slumped across the globe.

Jaguar Land Rover (JLR) revenues fell about 44% year-on-year (y-o-y) in Q1. Europe and US sales remained weak. As such, the break-even this quarter by its Chinese arm is encouraging. Substantial cost savings and grants from the UK government meant that JLR’s operational performance was impressive. JLR showed an Ebitda margin of 3.5%, which was lower by just about 70 basis points from the year-ago period. This was despite sales volumes being sharply lower than the year-ago period.

In contrast, the India operations have been hit hard by covid-19 and this could be a drag for a few more quarters. Revenues fell about 80% y-o-y, which had a big impact on operating performance. As a result, the domestic unit’s Ebitda stood at a negative 770 crore.

Pandemic woes
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Pandemic woes

Low trucking activity has impacted truck utilization levels. The upcoming freight corridor could also see the road transport segment losing some business to the railways. This will weigh on a recovery in the medium to heavy commercial vehicle segment.

Globally, demand for vehicles remain soft because of the pandemic. The management also declined to give guidance for the coming quarters. Even so, the company has cut back on capital expenditure. It has also increased the cost savings target by about £1.5 billion for JLR. The India arm also embarked on cost-saving measures.

Still, the firm’s net losses are a worry. The cost-saving programme initiated by the company may not suffice for the firm to return to profitability, according to analysts. Fixed-cost remains high and debt levels increased this quarter, which is an added worry.

This will also bear on the recovery in Tata Motors’ stock, which has halved since its January highs. The stock was showing promise early in 2020 on the back of JLR’s improving performance. However, an increase in volume becomes critical in addition to cost-saving measures. As that continues to look dull, the stock may not be able to step up the gear just yet.

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