Tata Motors, the owner of Jaguar Land Rover (JLR) luxury car brand, reported consolidated net loss of Rs 9,894 crore in the quarter ending 31 March, 2020. The auto major had reported net profit of Rs 1,117 crore in the year-ago period.
The consolidated revenue from operations declined 28% to Rs 62,493 crore as against Rs 86,422 crore in March 2019. The novel coronavirus pandemic has severely impacted its financials.
In India, demand which was already adversely impacted by the general economic slowdown, liquidity stress and stock corrections due to BS-VI transition, was further affected by the lockdown.
Steep volume decline, particularly medium/heavy commercial vehicle (MHCV), and resulting negative operating leverage impacted profitability and cash flows
With regards JLR, the overseas operations, after its return to profit in the second and third quarters, which reflected improvements achieved through its transformation programme, fourth quarter results were significantly impacted by the pandemic.
Tata Motors has put in place rigorous cost and investment controls to conserve cash as much as possible. It has initiated steps to significantly deleverage the Group with JLR to become sustainably cash positive from FY22.
It has put in place a cost savings program of Rs 1500 crore and a cash improvement program of Rs 6,000 crore.
As part of this, company has deferred or cancelled lower margin and non-critical investment and is targeting capex spending of circa Rs 1500 crore in FY21, substantially lower than Rs 5300 crore in FY20 and FY19.
It expects Q1FY21 to be significantly weaker for both JLR and Tata Motors with full impact of lockdowns being reflected in results.
It expects gradual recovery of sales, improving cash flows for remainder of year for JLR. While outlook remains uncertain, Tata Motors expects gradual recovery of sales and improving cash flows in FY21.
Net net we believe that FY21 will still continue to be a year of extreme struggle for Tata Motors and unless there is visible demand revival for both CVs and PVs and reduction of debt the stock is unlikely to be rerated soon
While there is some indication that the PV business may be made independent, this may take some time before its hits the ground to become a reality.
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