Coronavirus: Tata Motors sees limited impact on domestic biz; JLR sales to take bigger hit

Tata Motors on Friday said it expects limited volume loss in domestic business during January-March 2020 while British arm JLR could see 1 per cent dip in earnings before interest and tax for the full year due to disruption in supply chain and sales decline in China owing to the coronavirus outbreak.

The auto major said JLR sales in China have dropped 85 per cent in February. The joint venture plant in China reopened in the last week of the month and the production will be ramped up as the number of employees returning to work and demand increase, the company said.

 

"For Tata Motors' domestic business, fourth quarter performance was already planned to be significantly impacted due to the switchover from BS-IV to BS-VI and the shortage of parts is likely to have some additional impact on specific BS-VI models which is expected to be secured in the coming months," the company said in a statement.

While sharing an update on the impact of coronavirus, the company, however, remained optimistic to end the fourth quarter with positive free cash flow.

"With some flexibility in mix (models, trim levels), the current visibility protects production volumes up to mid-March. The further planning horizon contains some uncertainties which are expected to be mitigated to a large extent; situation could lead to limited volume losses in the fourth quarter," Tata Motors said.

It also added that the situation is, however, expected to recover as market demand improves gradually upon transition to BS-VI.

"The timeline for a complete rebalancing of supply and demand is dependent on further developments in the coming 4-6 weeks. Domestic business is positive to overcome the current challenge with a limited impact on its overall FY21 performance," Tata Motors said.

Commenting on the financial impact on the JLR business due to the virus outbreak, the company said, "Recognising the present situation is highly uncertain and could change, the reduction in China sales resulting from the coronavirus presently is estimated to reduce JLR's full year EBIT margin by about 1 per cent."

However, free cash flow in the fourth quarter is still expected to be modestly positive and JLR had GBP 5.8 billion of total liquidity at December 2019 (GBP 3.9 billion of cash and a GBP 1.9 billion undrawn revolving credit facility), it added.

JLR sales in China grew on average about 25 per cent year-on- year for the six months from July through December 2019 and it continued to see strong growth for the first three weeks of January, Tata Motors said.

"Coronavirus has significantly impacted China sales with February retails down around 85 per cent versus the prior year. In the first half of the month, about 20 per cent of dealers were open which has since improved to now over 80 per cent although most are still operating with reduced staffing and facilities," it said.

JLR expects this to improve over the course of March, however, retail sales are expected to recover more gradually.

The spread of the virus to other markets such as South Korea, Japan, and Italy will also impact the company's sales in those markets.

JLR has a joint venture -- Chery Jaguar Land Rover -- in China.

"Our first priority has been the health and safety of our employees. Shanghai-based JLR China and Chery Jaguar Land Rover staff have been working from home since the end of the Lunar Holiday and the offices and JV plant reopened in the week of the February 24," it added.

Tata Motors said JLR's supply chain is primarily based in Europe and the UK, with a relatively small percentage of direct parts from China.

Over 95 per cent of its tier 1 and tier 2 suppliers in China are now open but at reduced capacity, it said.

"In the event of specific parts shortages, JLR would ordinarily be able to still build cars and retrofit missing parts when available, however, we cannot rule out the risk that a shortage of a critical component could impact production at some point," Tata Motors said.

Tata Motors' shares on Friday fell 9.07 per cent to Rs 114.25 apiece on the BSE.