Tata Motors reports losses of Rs. 26,992.54 crore

For the quarter ended December 2018, Tata Motors reported staggering losses of Rs. 26,992.54 crore as its luxury car unit, Jaguar Land Rover (JLR) continued to struggle.

On a consolidated basis, Tata Motors reported a growth of 3.83 per cent in total income from operations of Rs. 77,000.89 crore in Q3FY19 as against Rs. 74,156.07 crore in Q3FY18. EBITDA stood at Rs. 6,522 crore in Q3FY19, posting a de-growth of 8.5 per cent. Thus, operating profit (EBIT) tumbled 20 per cent to Rs. 6,381 crore. Consequently, margins were compressed by 260 basis points to 8.3 per cent.

The company produced net losses of a whopping Rs. 26,992.54 crore in Q3FY19 versus profits of Rs. 1,198.63 crore in Q3FY18, thereby tumbling drastically. The losses are attributable to an exceptional item of asset impairment in Jaguar Land Rover (JLR) to the tune of Rs. 27,838 crore.

Although, the company showcased robust profitable growth on the domestic front, it was hampered by weak sales in China and de-stocking.

Normally, JLR constitutes approximately 72 per cent of Tata Motors’ revenue. However, JLR had a dismal year as the demand for diesel vehicles dropped sharply for a large part of 2018. The subdued business environment in China combined with the ambiguity revolving around Brexit also served as a dampener.

Furthermore, the company had to shut down one of its plants in October 2018 in response to the deteriorating demand. To make matter worse, the company has announced a further cut in production in April 2019.

In Q2FY19, JLR compressed its planned spending by £500 million to £4.03 billion over the current as well as succeeding financial year. This was done with the hope of withstanding the erratic external conditions.

The CEO of JLR shared concerns pertaining to Brexit, stating that lack of clarity could impede the entire operational set-up of the company and engender losses to the tune of 60 million pounds per day. Needless to say, this could be catastrophic for the company’s prospects. Grave issues involving trade barriers and logistics could arise in the event of a disorderly Brexit. These will negatively impact JLR’s competitive positioning, intensify working capital requirements, and exert undue pressure on profitability due to dwindling sales.

Fitch Ratings has placed Tata Motors’ credit rating on a negative watch due to the substantial increase in risk. Further downgrade is not unlikely.

This increased risk is evident in the stock performance of Tata Motors. The stock plummeted 60 per cent in 2018 despite an increase of 3.15 per cent in the benchmark Nifty index.

On Thursday, the shares of Tata Motors opened at Rs. 179.45, and hit a high and low of Rs. 184.95 and Rs. 179.00. The stock closed at Rs. 182.90, up 2.64 per cent.