For the second consecutive quarter, Jaguar Land Rover (JLR), due to an "unprecedented" plunge in china volumes, continued to roil the finances of Tata Motors, which Wednesday reported a net loss of Rs 1,009 crore for the September quarter.
The company had reported a net profit of Rs 2,501.7 crore in the year-ago period.
Total revenue from operations, however, rose 3.3 per cent to Rs 72,112.08 crore, thanks to the robust show by the domestic business and despite an 11 per cent decline in JLR revenue to 5.6 billion pounds, Tata Motors said.
On a sequential basis, the net loss has been narrowed from Rs 1,902.4 crore in the June quarter, which again was led by JLR, which since its turnaround from 2010 has been keeping the group afloat.
The hugely underwhelming set of numbers, driven by an all-round poor show by JLR, its till-recently its cash-cow and the profit centre, has forced the company to announce massive cost savings to the tune of 2.5 billion pounds over the next 18 months.
JLR, which the Tatas had bought form Ford Motor in the thick of the global financial crisis for USD 2.2 billion, on a standalone logged in a net loss of 101 million pounds.
"While 500 million pounds of the announced 2.5 billion pounds of capex reduction for JLR will come this fiscal, a similar amount will be saved next fiscal as well. The rest of the savings will come from other cost recalibrations," group chief financial officer PB Balaji told reporters here.
But Balaji, who joined the company 11 months ago from HUL, was quick to underline that the capex re-calibration "does not in any which way will see the company cutting down on its products investments".
"We are a product-driven company, which thrives on cutting-edge technologies. We've around 16 nameplates in the pipeline by 2024 and none of them will be subjected to this capex reduction. But that does not mean won't rationalise out inventories. We have already announced plant shutdowns in a phased manner to rationalise cost, inventory among others," he said.
The company described the situation in China, the largest profit and volume centres for many years now for the marquee British arm of Tata Motors, as "grave and very, very unprecedented", where its volume plunged 43.8 per cent against an industry decline of 7.7 per cent.
On a standalone basis, the domestic arm and the parent Tata Motors reported a net profit of Rs 109.14 crore on the back of an industry leading volume growth of over 31 per cent against the industry growth of a little over 3 per cent in the quarter.
It had reported a net loss of Rs 283.37 crore in the second quarter of fiscal 2018. But the bottomline pales sequentially as in the June quarter it had posted a whopping Rs 1,187.65 crore, which is down by 91 per cent now.
Balaji said over 50 per cent of the net loss of Rs 1,009 crore came in from a one-time charge of Rs 530 crore, most of which arose from the shuttering of its Thailand operations, and over one million pounds in forex losses due to the continuing plunge in the rupee.
The domestic revenue grew to Rs 17,758.69 crore during the quarter from Rs 13,310.37 crore as standalone volume rose 25 per cent to 1,90,283 units driven by robust sales of commercial and passenger vehicles.
Tata Group chairman N Chandrasekaran said the domestic business continued to deliver strong improvement in operational and financial performance by implementing the 'Turnaround 2.0' strategy effectively.
"We've improved our market shares whilst delivering robust improvement in profitability in both the commercial vehicles and passenger vehicles and generated positive free cash flows," he said, adding this strong performance in the face of a competitive market augurs well for the future.
"Our solid, all-around performance in Q2 has demonstrated that our 'Turnaround 2.0' is in full swing. This was possible due to a robust product and innovation pipeline, strong market activation, rigorous cost cuts and structural process improvements," chief executive Guenter Butschek said.
The JLR leadership team is in mission mode to achieve the deliverables under this plan. "With these concerted actions, we remain committed to deliver an improved all-round performance from the H2 of FY19," Chandrasekaran added.
Provision for impairment of capital work-in-progress and intangibles stood at Rs 93.21 crore and provisions for closure of operations of the Thailand subsidiary stood at Rs 537.08 crore, hitting the bottomline, the company said.
Operating margin fell by 130 bps to 9.9 per cent and pre-tax margin contracted 310 bps to 1.7 per cent in the reporting quarter.
JLR chief executive Ralf Speth described the China as a "very, very difficult situation", where consumers are just holding back from buying. Its sales plunged a whopping 43.8 per cent against overall luxe car market fall of 7.7 per cent.
But he did not offer a clear answer to the plight of his sales, except saying there has been a very large inventory pile up and dealers have been facing margin troubles.
"As the situation came in our face, we decided to cut back inventory at the same time not to follow a push strategy as other have been doing. As a premium luxury car maker we believe in pull strategy and not a push strategy," Speth said, implying that the company has not been and will not be offering discounts as the rivals are doing to push volumes.
JLR revenue degrew 11 per cent to 5.63 billion pounds as retail sales dropped 13.2 per cent to 1.29 lakh units and wholesales plunged 14.7 per cent to 1.3 lakh units. This has its operating margin dropping 270 bps to 9.1 per cent.
But China still remains its single largest market in volume terms with around 20 per cent market pie, which is down by over 200 bps.
Speth also said there is no certainty about the Brexit outcome, which as of now will be effective March 29, 2019. "We ship 25 million parts annually from Britain and we wish the transition does not affect this. The just opened 1.2 billion pounds Slovakian plant with an annual capacity of 1.5 lakh units should be able to help. Slovakia will rollout Discovery initially and then the Defender in the second phase," he said.
Tata Motors shares rose 0.76 per cent at Rs 178.65 on BSE, whose benchmark Sensex jumped over 551 points.
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