While we expected losses in the standalone business given sharp 45% y-o-y decline in overall volumes and 59% decline in MHCVs, losses were higher than expected partly due to Rs 230-crore write-off related to PV business in other expenses.
JLR’s Q2 performance was well ahead of estimates as margins improved sharply y-o-y and q-o-q, helped by multiple factors, including mix and project charge. Guidance was maintained as it expects to remain profitable in seasonally stronger H2. Losses were higher than expected in India business partly due to a Rs 230-crore write-off in PV business. Tata Sons plans to infuse Rs 6,500 crore of equity into Tata Motors, which should support the balance sheet, given rising leverage.
Significant beat in JLR. JLR’s Q2 Ebitda/Ebit were well ahead of our (and consensus) estimates as margin surprised positively at 12.6/4.3% respectively vs expectation of 8.5/0.4%. The management attributed the sharp Ebit margin improvement (+640 bps y-o-y and 1060 bps q-o-q) to a combination of factors, including 1> better volume growth with wholesales positive y-o-y and China sales also improving 2> better mix 3> project charge benefits (£162 million y-o-y) 4> operating exchange benefits given a particularly weak pound during Q2. While some like the forex benefit are likely to reverse, we are still positively surprised by impact of project charge and mix improvement, which could sustain. JLR FCF also improved and was negative £64 million in Q2. Chery JLR’s performance disappointed though as its losses widened despite a pick up in volumes as higher incentives and material cost offset topline gains.
Higher than expected losses in India. While we expected losses in the standalone business given sharp 45% y-o-y decline in overall volumes and 59% decline in MHCVs, losses were higher than expected partly due to Rs 230-crore write-off related to PV business in other expenses. However, even adjusted for this gross margin was sharply lower which management attributed partly to weaker mix; we suspect high level of discounts may have also hurt.