Higher-than-anticipated losses from Jaguar Land Rover (JLR) and a tepid domestic auto market impacted the financials of Tata Motors, the automotive arm of the salt-to-software conglomerate Tata Group, in the first quarter of FY19-20.
Tata Motors reported a consolidated loss of ₹3,238 crore for the quarter ended June 3, 2019. In the same quarter of the last fiscal, Tata Motors had reported a loss of ₹2,584 crore. The company’s net revenue in this period declined 7.7% year-on-year to ₹61,467 crore. The EBITDA (earnings before interest, tax, depreciation and amortisation) margin reported by the company during the April-June 2019 quarter stood at 6.2%, down 130 basis points year-on-year.
Much of Tata Motors’ stress is on account of British carmaker JLR, which it owns and which continues to struggle operationally. In the first quarter of the current fiscal, JLR’s revenue decline 2.8% year-on-year to £5.07 billion. The business reported a pre-tax loss of £383 million.
“Tata Motors Group financial performance reflects the historical seasonality and continued challenging market conditions globally. The results are consistent with our outlook provided for the quarter,” says an earnings statement issued by the company post market hours on Thursday. “The domestic auto industry has declined sharply and significantly. In this environment, Tata Motors is focusing on doing things right for the long-term success of this business.”
At Tata Motors’ standalone business (excluding JLR), wholesales (including exports) decreased 22.7% to 136,705 units. Standalone revenue for the quarter declined 19.9% to ₹13,352 crore. The standalone business, which primarily comprises domestic sales and exports of Tata-branded passenger and commercial vehicles, reported a pre-tax loss of ₹40 crore, against a pre-tax profit of ₹1,464 crore in the first quarter of FY2018-19 “due to negative operating leverage and lower other income including dividend,” the company said.
"The continued slow down across the auto industry due to weak consumer sentiments, liquidity stress and the impact of axle load effect particularly in medium/heavy duty, impacted overall demand,” Guenter Butschek, chief executive officer and managing director of Tata Motors said.
“Over the past few years we had struck a good balance between managing market dynamics and financial health. However, this time, despite our continuous Turnaround effort we could not prevent some impact on our 01 performance. Looking ahead, both our businesses, CV and PV, will leverage TATA Motor's revived agility and strive to boost consumers' confidence by various market interventions - all round from best in class product offerings, retail activations and further improved service experience.”
Tata Motors’ net automotive debt rose to ₹46,500 crore as on June 30, 2019 due to negative free cash flow, as a result of net cash outflow at both Tata Motors as well as JLR on “account of seasonality and challenging market conditions.”
However, the company’s management struck an optimistic note when it observed in its statement that the company had managed to gain market share in commercial vehicles, as well as the passenger utility vehicles space on account of strong products like the Harrier and Nexon.
On July 24, credit ratings agency Fitch Ratings had downgraded the long-term issuer default rating issued to Tata Motors to ‘BB-’ from ‘BB’ with a negative outlook. “The downgrade reflects the reduction in Fitch's expectations for TML's (Tata Motors’) profitability and free cash generation in the next two to three years,” said a statement issued by Fitch. “Fitch revised its estimates because business risks have increased in both its India operations and its fully owned UK-based subsidiary, Jaguar Land Rover, while TML is likely to invest to bolster its long-term competitiveness. This will result in sustained deterioration in TML's financial profile, including its leverage.”
Tata Motors’ share price fell 4.56% on the BSE on Thursday to close at ₹144.35 per share. The bourse’s benchmark index, S&P BSE Sensex lost 0.04% to end at 37,830.98 points on the same day.