 "China spooks Tata Motors investors")
Concerns over China's meltdown saw investors dumping the Tata Motors' stock, which closed 6.17 per cent lower on the Bombay Stock Exchange on Wednesday.
The world's largest automotive market contributes to a fourth of total sales of British brands Jaguar Land Rover owned by Tata Motors. As prices in China are more than twice compared to any other market, the country also generates the highest margins for the company.
With this decline, Tata Motors has been dislodged from being India most valuable automotive company (excluding Tata Motors DVR shares). At a market capitalisation of Rs 116,462 crore on the BSE Tata Motors is now trailing car market leader Maruti Suzuki, whose market capitalisation stood at Rs 119,368 crore by end of day's trading.
The Tata Motors stock closed Rs 405.15 on Wednesday -- down from its previous day closing of Rs 431.80 on the BSE. The Sensex closed 1.72 per cent down compared to its Tuesday’s close.
The meltdown in the Chinese capital markets, which has consistently wiped off investor wealth in the last few weeks (Shanghai Composite down 30 per cent in three weeks), will surely impact consumer buying, fear market watchers.
JLR sales in China, which is also its single biggest market, fell 27 per cent in the April-May period to 15,678 units as against 21,358 units sold in the same period last year. JLR sales has come under pressure in China because of phasing out of one its models, besides being hit by the general slowing in demand for luxury cars.
However, the slowdown seems to be hitting JLR more in China than its peers. While retail sales for JLR fell as much as 21 per cent in April alone its German rivals like Mercedes-Benz, Audi and BMW posted double-digit growth during the same month.
China's share in JLR thus stands reduced to 20.81 per cent by end of May as compared to 25 per cent recorded last financial year, according to data shared by Tata Motors.
Last year JLR was forced to reduce prices of three of its models, the Range Rover V8, the Range Rover Sports V8 and the Jaguar F-Type, in response to an anti-monopoly investigation by Chinese authorities.
The Chinese media had been alleging that luxury car makers have been overcharging customers as the Range Rover in the US is sold for 540,000 yuan compared to 1.89 million yuan in China.
Thus to remain competitive in China, the company hinted it was not averse to cutting prices again. Speaking to reporters in May Vijay Somaiya, vice-president and head of treasury and investor relations at Tata Motors had said, "Competitors are going to reduce prices. (But) We will not be the first to reduce prices." Reducing prices might put further pressure on margins, analysts warned.
"A ramp-up of the China joint venture will be margin dilutive for JLR. Dealer discounts in China have increased and are expected to remain at these levels in 2015-16," Jay Kale from Elara Capital said in a report.
Tata Motors recently inaugurated a local manufacturing plant in China in partnership with Cherry Automobiles. Evoque, the compact luxury SUV under the Range Rover brand, was the first product to roll out from the assembly line. Margins are expected to be lesser on locally made products compared to those imported, said analysts.