Losses at Tata Motors for the June quarter widened over a year ago period as a lockdown in several countries and a poor performance of the domestic business dented earnings.
The Tata Group flagship, reported a consolidated loss before tax of Rs 6,183.73 crore compared to a loss of Rs 3,238.18 crore in the year ago period.
“There is a fair amount of challenge out there and the demand will not come back in a hurry. We have therefore suspended our guidance,” said P B Balaji, chief financial officer at Tata Motors Group. He added that while the company is making all efforts to prune costs and reduce cash burn, demand remains a very important lever of the auto business and the company doesn’t see that reviving any time soon.
“There has to be a time the volume also exceeds the break-even number. That is what we are aiming at as the quarters roll by,” said Balaji adding that for JLR the company has reduced the volume break-even to sub 500,000 units from sub 600,000 units.
JLR has enhanced targets for the cost saving project Charge + to 6 billion pounds. It has outlined a capex of 2.5 billion pounds. The company expects to be free cash flow positive by end of FY22.
Dragged down by the drop in overall volumes, the owner of Jaguar Land Rover also saw its revenue fall sharply year-on-year by 48 per cent. Revenue from operations during the June quarter fell to Rs 31,983.1 crore, compared to Rs 61,467 crore in the year-ago period.
Global wholesale units in the three month period fell 64 per cent to 91,800 units over the year ago period.
JLR segment's revenue was £2.9b in the quarter and the company made a pre-tax loss of £413m. However, this was only down £18m year-on-year and the EBITDA margin was 3.5 percent with £500m of Charge+ cost actions substantially offsetting the lower sales.
Retails including CJLR (China JLR) dropped 42 per cent to 74,100 units over the corresponding period.
Arjun Yash Mahajan, Head- Institutional Business at Reliance Securities said while lower capex and UK government’s stimulus would support JLR, focus on cost control would improve Tata Motors’ margin going forward. “Though, we expect its debt to increase over next 2-3 years, tight control on capex and R&D would keep its expansion of debt under control.”
In view of expected recovery in JLR’s global business (lower deterioration) and restructuring of domestic business coupled with attractive valuation, at present Reliance has a BUY rating on the stock.
Balaji said while there are signs of JLR volumes recovery across all the regions, it has to be watched out carefully. In June, North America was up year-on-year UK was up significantly month on month. China is also showing healthy recovery sequentially.
Despite the pandemic related challenges, the transformation programme continued to gain momentum resulting in positive EBITDA despite significant volume drop in the quarter and lower cash outflow as compared to the earlier expectations. Project Charge delivered £1.2b of cost, profit, and cash flow improvements in the quarter, the company said in the statement.
Meanwhile, following the pandemic-induced lockdown, the commercial vehicle volumes collapsed weighing on the domestic business. Losses at the standalone entity widened to Rs2190 crore against Rs47.67 crore a year ago. While retail sales (sales to customers) of the more profitable CV business dropped year-on-year by 97 per cent, passenger vehicle sales fell 55 per cent in the three month period.
Tata Motors will continue to significantly deleveraging the business in the coming years and aim to generate positive free cash flows over last 3 quarters of the year by focusing on product range, and executing its cost and cash savings, the company said of the domestic business.
(In Rs Cr) Q1FY21 Q1FY20 Revenue 31,983 61,467 Losses before tax -6,184 -3238 Losses after tax -8443.98 -3,679.66 Free Cash Flow (Auto) -18,239 -11,635 Ebitda % 2.6 6.1 Source: Company Consolidated earnings