Tata Motors on Thursday reported a debilitating operational loss of Rs 3,679 crore for the June quarter even as it braces for more challenges due to Brexit and a sharp slowdown in global automobile sales. Slower sales in China and India — volumes fell 29% year-on-year in China and 20.5% in the Indian wholsesale segment — largely contributed to the negative operating leverage; the firm’s consolidated net loss nearly doubled on a y-o-y basis, missing street estimates by a wide margin.
Consolidated net sales fell 8% y-o-y to rS 61,466 crore, above analyst estimates. The Ebitda was impacted by a 180 basis points y-o-y drop in the margins of subsidiary JLR. The consolidated Ebitda fell sharply by over 24% y-o-y to rS 3,810.95 crore, while the margins stood at 6.2% down a steep 130 basis points y-o-y.
CFO PB Balaji said on a call the company was holding on to the guidance for Ebit margins of JLR at 3-4% in 2019-20. However, the Ebit margins for the domestic business, the CFO said, would come in at 3-4% range over the next two years, “a marginal correction due to the market uncertainties that we see”.
Despite the weak numbers, Balaji was positive on the outlook for both JLR and the home business, saying the company viewed the last quarter as the worst in terms of market demand. “Therefore, from a retail perspective, things will gradually start improving with the interventions to arrest liquidity challenges that the Union Budget has signed off on and as festive season and BS VI start kicking in,” he said.
Balaji said the company is readying its supply chain and not over investing in inventory as its prepares to migrate to BS VI. “In all this, the focus will be unabashedly retail,” he said. The sharp plunge in vehicle sales globally and liquidity constraints in India contributed to the company’s dismal performance. The company’s management told analysts over a conference call that Brexit will be painful and that the company may find it hard to transfer an increase in duties making the rest of FY20 a rough year.
The cash flows at JLR are expected to remain negative for the full year on account of continued investments in the luxury car maker, while the profit before tax though positive will remain in the lower band of the guided range.
The company’s poor performance has been reflecting in stock price movement. Ahead of results, on Thursday, Tata Motors share price fell the most on Sensex and closed 4.6% lower on BSE at Rs 144.35 per piece. The stock hit its lowest level since September 2011.
The company had reported a net loss of Rs 26,961 crore in October-December 2018 on account of an exceptional item of asset impairment in its UK arm — JLR (Jaguar and Land Rover) of Rs 27,838 crore. However, the net loss in quarter ended June 2019 is its highest ever on an operational basis. In December 2008, the company posted a consolidated net loss of nearly Rs 2,599 crore.
The company’s earnings during the quarter came under pressure impacted by the 395 million pounds loss posted by JLR. With industry volumes down in most regions, JLR reported a 11.6% decline in its global retail sales to 128,615 vehicles for the quarter. China, reported an over 29% decline in volumes during the quarter. Additional plant shutdown time and delays resulting from Brexit contingency planning also contributed to the lower sales and profits.
As for China market, he reiterated that company is banking on a turnaround in JLR’s China business as the market is showing some signs of recovery. Balaji had said in the previous quarter that the company expects the growth to be back for the luxury car in the quarter ended September 2019.
While Tata Motors standalone business in India had been posting strong numbers over the last few quarters, the stress in India’s automobile industry with declining sales and liquidity crunch impacted the company’s performance. The wholesales including exports decreased 22.7% to 136,705 units. In the domestic market, M&HCV trucks declined 30.4%, ILCV trucks grew 2.5%, SCV and Pick Ups declined 11.2% and CV passenger declined by 9.4%. Domestic passenger vehicle volumes were down 30.1% during the quarter.
Gautam Duggad, research head (institutional equities), Motilal Oswal said, “Tata Motors performance was weak dragged by JLR which reported a loss of $391 million versus our expectations of loss of $83 million. However India business delivered a positive surprise with loss at just Rs 90 crore versus expectations of Rs 510-crore loss. Domestic CV and PV margins surprised despite strong QoQ volume decline.”
Tata Motors finance cost increased by Rs 336 crore to Rs 1,712 crore during the quarter. This includes Rs 112 crore on account of lease liability accounting under IFRS 16. Net Automotive debt stood at Rs 46,500 crore versus 32,977 crore versus at the end of June 30, 2018, reflecting the cumulative negative free cash flow and increase of Rs 6,000 crore on account of ease liability accounting under IFRS 16.