Depreciation in British pound over the US dollar in the last three months is helping Tata Motors-owned Jaguar Land Rover (JLR) at Ebitda level.
?On the margin side, the recent depreciation of the pound should boost margins despite the hedges of 65%,? Credit Suisse said in a report.
The pound has depreciated by 6.5% in the last three months and around 2.5% in one month alone to 1.51 levels against the US dollar. JLR does close to 60% of its billing in US dollar.
?Any favourable movement in currency for JLR is positive for Tata Motors as well, since the former makes most of its profit today,? said Mahantesh Sabarad, analyst, at Fortune Financials.
He added, citing the currency movement in favour of JLR from last three months, ?We expect the quarter to show some positives on margins and profitability of Tata Motors, though the fall in sales in February in China was a one-time setback due to New Year holidays.?
China makes 22% of JLR retail sales. The Credit Suisse report, however, added that the JLR margins and average selling point of vehicles (ASP) will remain under pressure in the long term due to higher share of smaller vehicles and Jaguars in the overall volumes.
For the December quarter, JLR has reported an Ebitda margin of 14% as against 17% reported in the same period last year on the back of product mix, higher marketing and launch costs and continued growth in product investments and related costs to support future business growth. JLR, in a trading update in January, indicated concerns over margins and possibility of free cash flow to get negative in FY?14.
The firm expects capital spend to become a greater percentage of its revenue in the near to medium term. JLR’s capital spending target as a percentage of revenues is 10-12%. In 2013, JLR estimates total capital spending to be in the region of ? 2 billion, which is seen at ?2.75 billion in FY?14.