Eyes are now on how soon the auto parts supply chain can streamline production across the region
A quick demand pickup also becomes crucial for a rebound in profitability, but the virus effect may linger for some time
The road to recovery for Tata Motors Ltd’s subsidiary Jaguar Land Rover Ltd (JLR) has been hit by the Covid-19 outbreak. The impact on its business has been immense. Tata Motors’ sales, which grew about 25% year-on-year between July and December, have nosedived 85% in February.
That has driven the management to cut JLR’s FY20 Ebit (earnings before interest and tax) by one percentage point, from 3% earlier. Another worry is that the near-term supply disruption of auto parts from China may dent the BS-VI transition, too. The markets have now started to pencil in a loss in FY20 for the auto manufacturer.
Despite reports that Chinese factories have resumed operations, analysts point out that it would take a few quarters before production and sales return to normal. According to a Motilal Oswal Financial Services Ltd report, “The spread of the virus to South Korea, Italy and Japan will impact sales in those regions."
The brokerage firm has slashed Tata Motors’ FY21 consolidated earnings by 35%, given the spillover of the coronavirus impact on JLR’s Q1 FY21 performance and the weaker-than-expected commercial vehicle business in India.
The pessimism, along with the nearly 5% meltdown in the benchmark Nifty index, saw the Tata Motors’ scrip tumble to a 52-week low of ₹104.25 on Monday. Eyes are now on how soon the auto parts supply chain can streamline production across the region. A quick demand pickup also becomes crucial for a rebound in profitability, but the virus effect may linger for some time.