Tata Motors revises margin guidance downwards to 3-6% from 4-7%; stock sinks 16%

The luxury car market was down 15 percent year-on-year in China. However, the same for JLR was down 47 percent to 22,000 units.

Uncertainty over China and with the possibility of a hard Brexit looming large, Tata Motors on February 7 said it is revising its pre-tax margin guidance to 3-6 percent in FY20 from 4-7 percent announced six months back.

The Mumbai-headquartered company reported a consolidated loss of Rs 26,961 crore for Q3 FY19, the biggest in its history. While non-cash asset impairment of Rs 27,838 crore was taken during the quarter under review, a severe slowdown in China impacted margin.

PB Balaji, CFO, Tata Motors, said, “The 4-7 percent guidance was for the period between FY20 and FY22. That is something that we have now calibrated to 3-6 percent. If the markets pick-up, we will revise it upwards.” For the period post FY22, the management has given an earnings before interest and tax (EBIT) guidance of 7-9 percent.

For the quarter, Jaguar-Land Rover (JLR) reported a negative EBIT of 2.6 percent, which was 520 basis point (100 bps= 1 percentage point) lower than the same period last year. Lower China sales, production shutdown, higher depreciation and amortisation affected the company.

N Chandrasekaran, Chairman, Tata Motors said, “For JLR, market conditions continue to be challenging, particularly in China. The company has taken decisive steps to step up competitiveness, reduce costs and improve cash flows, while continuing to invest in exciting products and leading edge technologies. With these interventions, we are building Tata Motors to deliver strong results in the medium term.”

China is one of the largest markets for the company’s luxury brands: Jaguar and Land Rover. While JLR’s rivals such as Mercedes-Benz, BMW and Audi may be offering higher discounts in China, the marque British brands are aiming for reduced discounting, better dealer profitability and profits at the joint venture level.

The luxury car market was down 15 percent year-on-year in China. However, the same for JLR was down 47 percent to 22,000 units. About 36 percent of JLR dealers in China are less than three years into the business, so they are yet to break-even.

Retails in UK were up 18 percent as against an industry-wide drop of 3.8 percent. The US remained the largest market for the two brands, with retail sales of nearly 40,000 units, a growth of 21 percent in January.

Read: No deal Brexit will force 3-weeks JLR plant shutdown in April, profitability to be hit: Tata Motors

“Instead of trying to push vehicles into the Chinese market and go for wholesales, we are adopting a push strategy wherein we are focusing on retail demand and thereby aim for profitability,” Balaji explained.

The stock is currently trading (09:22 am) at 15.83 percent lower at Rs 153.95 on the BSE.

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