2 min read.Updated: 12 May 2020, 04:38 PM ISTAmit Panday
Tata Motors’ luxury car unit, Jaguar Land Rover, or JLR, is the only driver of the company's valuation
The country’s largest commercial vehicle maker had reported a 32% yoy decline in domestic CV sales in FY20
MUMBAI: Tata Motors, a homegrown vehicle manufacturing giant, has no equity value due to rising net debt levels, covid-19-related disruptions delaying the much-needed deleverage cycle and no hope of recovery in the commercial and passenger vehicle segments, according to a report by brokerage firm, CLSA.
CLSA said, “we assign zero equity value to (Tata Motors’) India business." This comes at a time when auto industry experts estimate that the covid-19-led disruptions will lead to a fall of up to 40% in volumes in case of a flat GDP growth this fiscal.
Tata Motors’ luxury car unit, Jaguar Land Rover (JLR), is the only driver of the company's valuation, the report said.
Revenues from JLR contributed to 79% of Tata Motors’ consolidated turnover for the first three quarters of FY20, the company financials showed. Tata Motors is yet to report its results for the March quarter of the last fiscal.
While the pandemic that originated in China had put brakes on JLR’s turnaround plan, Mint last month reported that the British carmaker’s Chinese joint venture, Chery Jaguar Land Rover Automotive Company Ltd (CJLR), has already resumed 75% of its budgeted production.
CJLR’s June quarter production plans are now similar to that of last year’s, which is a relief for Tata Motors.
Meanwhile, India business continues to be the pain point on its balance sheet. The country’s largest commercial vehicle (CV) maker had reported a 32% year-on-year (yoy) decline in domestic CV sales in FY20, as against the industry loss of 29% yoy. In the passenger vehicle (PV) segment, the company posted a yoy decline of over 40%, against the industry fall of 18% yoy last fiscal.
Sharp decline in the company’s CV volumes last fiscal had offset gains from JLR recovery, Mint reported in January.
PB Balaji, group chief financial officer (CFO) at Tata Motors, told Mint earlier this year that the company had delivered positive free cash flow (FCF) of ₹2,400 crore for the quarter ended December 2019 in the domestic business by correcting inventory and tightly monitoring its working capital.
However, the CLSA report projects that the company’s overall net debt would expand from ₹284 billion in FY19 to ₹681 billion in FY22. “We believe future equity infusions are also likely to be utilised for loss funding, and hence, we do not attribute any equity value to its India business," the brokerage said.
Nevertheless, CLSA forecasts that JLR and India CV business would recover in FY2022 with PV business continuing to be a drag.