Tata Motors Q1 pre-tax loss widens to Rs 6,184 cr as lockdown stifles sales

Firm does not issue guidance stating that it does not see demand coming back in a hurry

Tata Motors’ loss for the June 2020 quarter widened over the year-ago period, as it ran into rough terrain caused by the lockdown in several countries and poor domestic performance.

The Tata Group’s flagship reported consolidated pre-tax loss 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 demand will not revive in a hurry. We have, therefore, suspended our guidance,” said P B Balaji, CFO of Tata Motors.

Even as the firm is making all efforts to prune costs and reduce cash burn, demand — which remains a vital lever — will not revive soon, he said.

“There has to be a time when volume exceeds the break-even number. That is what we are aiming for,” said Balaji, adding that for JLR, they have reduced the volume break-even to sub-500,000 units from sub-600,000.

JLR has enhanced targets for the cost-saving project ‘Charge+’ to £6 billion. It has outlined a capex of £2.5 billion. The company expects to be free cash flow-positive by end-FY22.        

Hit by the drop in overall volumes, the JLR owner also saw revenue fall sharply year-on-year by 48 per cent. Revenue from operations during the quarter fell to Rs 31,983 crore, compared to Rs 61,467 crore last year. Global wholesale units in the three-month period fell 64 per cent to 91,800 units YoY.

JLR segment’s revenue was £2.9 billion, and the company made a pre-tax loss of £413 million. However, this was down only £18 million YoY and Ebitda margin was 3.5 per cent, with £500 million in ‘Charge+’ cost action making up for lower sales substantially. Retail, including CJLR (China JLR), dropped 42 per cent to 74,100 units YoY.

Arjun Yash Mahajan, head (institutional business) at Reliance Securities, said that while a lower capex and the UK government’s stimulus would support JLR, focus on cost control would improve TaMo’s margin. “Though we expect debt to increase over the next 2-3 years, tight control on capex and R&D may keep debt expansion under control,” said Mahajan.

In view of the expected recovery in JLR’s global business (lower deterioration) and restructuring of domestic business at an attractive valuation, Reliance Securities has a ‘buy’ rating on the stock.

Balaji said that while there were signs of recovery in JLR volumes across regions, caution is advised. In June, North America showed a YoY rise, while the UK showed significant sequential improvement. China, too, is showing healthy sequential recovery. Despite Covid-related challenges, the transformation programme gained momentum, resulting in positive Ebitda. This was despite a significant drop in volumes in the quarter, along with lower cash outflow compared to estimates. 

‘Charge+’ delivered £1.2 billion in cost, profit, and cash flow improvement in the quarter, the firms said.

Owing to the lockdown, commercial vehicle (CV) volumes collapsed, thus weighing on domestic numbers. Losses at the stand-alone entity widened to Rs 2,190 crore against Rs 47.67 crore last year. While retail sales (those to customers) of the more-profitable CV business dropped 97 per cent YoY, passenger vehicle sales fell 55 per cent during the quarter. 

TaMo will continue deleveraging the business significantly over time, and aims to generate positive free cash flows in the final three quarters of the year by focusing on product range and executing its cost and cash savings, said the firm while speaking about domestic operations.