About the Company
Tata Motors Limited (formerly TELCO, short for Tata Engineering and Locomotive Company) is an Indian multinational automotive manufacturing company headquartered in Mumbai. It is a subsidiary of Tata Group, an Indian conglomerate. Its products include passenger cars, trucks, vans, coaches, busses, sports cars, construction equipment, and military vehicles. It also owns the British luxury car brand Jaguar Land Rover.
Q3 2020 Updates
Financial Results & Highlights
Standalone Financials (In Crs) | ||||||||
Q3FY20 | Q3FY19 | YoY % | Q2FY20 | QoQ % | 9MFY20 | 9MFY19 | YoY% | |
Sales | 11194.42 | 16477.07 | -32.06% | 10381.9 | 7.83% | 35309.43 | 52776.21 | -33.10% |
PBT | -1023.85 | 518.02 | -297.65% | -1269.99 | 19.38% | -2341.51 | 2133.42 | -209.75% |
PAT | -1039.51 | 617.62 | -268.31% | -1251.97 | 16.97% | -2418.52 | 1914.41 | -226.33% |
Consolidated Financials (In Crs) | ||||||||
Q3FY20 | Q3FY19 | YoY % | Q2FY20 | QoQ % | 9MFY20 | 9MFY19 | YoY% | |
Sales | 72576.2 | 77582.71 | -6.45% | 66104.51 | 9.79% | 200983.7 | 217618 | -7.64% |
PBT | 1349.92 | -29228.4 | 104.62% | 621.23 | 117.30% | -1267 | -32636 | 96.12% |
PAT | 1755.68 | -26961 | 106.51% | -187.7 | 1035.36% | -2111.48 | -29833 | 92.92% |
Detailed Results
- The company saw another dismal domestic quarter with revenues falling 32% YoY in standalone terms.
- In consolidated terms, the revenues fell 6.5% YoY with JLR revenues rising 2.8% YoY.
- Consolidated free cash flows for the company were at Rs 4000+ Cr for the quarter vs Rs (5000+) Cr in Q3FY19.
- Consolidated finance costs for the quarter grew Rs 175 cr YoY to Rs 1744 Cr in Q3.
- MHCV segment declined significantly with segment revenues falling 47.7% YoY.
- System stock levels were reduced by Rs 3800 Cr to Rs 7200 Cr.
- Wholesale revenues for domestic sales were down 25% YoY while retail revenues were down 17% YoY.
- CVs were down 24% YoY while PVs were down 26%.
- The company made investments of Rs 1318 Cr in products and technologies.
- Tata Altroz has also received 5 Star global NCAP rating making it the safest car available in India after Tata Nexon.
- In JLR, retail volumes were down 2.3% while wholesale volumes rose 2.7% YoY. China retail revenues up 24.3% YoY.
- New Range Rover Sport sales were up 30%. Land Rover Discovery sales were also up 9.2%.
- The quarter also saw an EBITDA margin of 10.8% for JLR.
- JLR made investments of 892 million pounds into products and technologies in the quarter.
- Overall consolidated EBIT margin rose 240 bps to 2.3% in Q3.
- JLR’s Project Charge has already completed its goal of cost savings of 2.5 billion by March 2020 and has already achieved cost savings of 2.9 billion till date. The company has launched Project Charge+ for an additional savings target of 1.1 billion pounds (0.4 billion in Q4 and 0.7 billion in FY21).
- The Project Charge transformation has reduced operating costs by 154 million, investment by 200 million and inventories by 405 million pounds in Q3.
- Free cash flows from JLR were at (144) million pounds which is up 217 million YoY.
- New Land Rover Defender model unveiled which will be launched in Spring 2020.
- New Jaguar F-Type was unveiled in December.
- Tata Motors Limited remains focused on retail expansion and on a smooth transition into BS-VI.
- TML remains focussed on expanding and capturing the EV market in India. The company already has a 43% market share in the nascent domestic EV space.
- It is also looking into market development in the fleet segment for Tigor EV.
- The company is also looking to continue to work with Tata Power to establish public charging network with fast chargers. It has already established 80+ public chargers in 5 cities so far.
- Tata Motors Finance had a muted 9M with AUM growth of 7% YoY and NNPA expansion of 200 bps to 3.9% in the period.
- On the other hand, the market share of the company has risen 24 bps YoY to 29.3% in Q3FY20.
- Total disbursals have fallen 28% YoY mainly due to slowdown in the market for long haul trucks.
Investor Conference Call Highlights
- The company had some increases in manufacturing and material costs in the quarter. The management assures that most of them were binary one-off items.
- The management has mentioned that a significant item in the cost improvements in the new Project Charge+ will be material cost reduction in all components of the company’s vehicles.
- The management expects the CV market to start to revive with the government’s push on infrastructure development and replacement demand coming back.
- The company will look to focus on demand recoveries in all of its domestic segments.
- The management feels that the company is adequately prepared for the BSVI transition and thus it has already started to launch BSVI vehicles in the market.
- Despite the rise in allowance of CO2 emissions target in the EU, the company will be focussed on transitioning all of its existing product portfolios into PHEV (Plugin Hybrid) versions. The company will also be driving more of its high-end vehicles portfolio to take advantage of this relaxed emission allowance.
- The company has been aggressive in targeting savings of 0.4 billion pounds in Q4 under Project Charge+ as the management believes that the company has made good structural cost reductions and it should continue at a similar pace going forward.
- The company has already amassed a 3-month order book for the new Defender model.
- The management has stated that most of the cost savings will arise from advanced analytics and forensics which helps the company arrive at an appropriate amount of savings which it can negotiate with its suppliers.
- The warranty cost for the company has been at 4% of revenues.
- The depreciation will rise with the launch of Defender from 8th The management is convinced that this product should generate good profit for the company even if it incurs increases in investment costs.
- The management maintains that it has already gone after fixed cost structures and found that the scope for cost reductions is greater in the variable segment. Thus the company is focussing more on rationalizing variable costs at the moment.
- The management has maintained that the upcoming reduction of workforce by 500 in the Halewood facility is not just for cost reductions but for increasing efficiency as the company is looking to invest 5 million and speed up the production line which will require fewer people t operate.
- The main reason for the drop in realization per unit in TML was the rise in variable marketing expenses to clear out the existing BSIV inventory in the quarter.
- The new Discovery Sport is set to go on sale from 20th February onwards. This model accounts for half of the sales in China and the company is expecting good demand for the new version.
- The management has stated that in case the extension of the disruption from coronavirus in China, the company will only conduct an online virtual launch instead of a physical launch at the date.
- The company is also looking to launch the new Jaguar XF in China towards the end of the quarter.
- The company is not worried about the entry of Tesla into the Chinese market. This is because the company is operating predominantly by importing parts and most of its products are PHEV, mild hybrid and ICE in mostly non-competing segments.
- The management has mentioned that the profit generation has not been as high as revenue and cash generation for the company because inventory was too high at the start of the year and the company is only now coming to normalized levels of inventory. The management expects inventory levels to bottom out in Q4 before rising with a rise in demand in FY21.
- The management has guided that an EBITDA margin of 11.5% is a sensible number for the company’s wholesale business. The management believes that the PV business should turn EBITDA breakeven in FY21.
- The management has mentioned that the normalized tax levels for the company is around 20%.
- The management believes that JLR is doing well in the Indian market with 3rd largest sales for luxury car segment. The sales for the year is expected to be around 5000.
- The company is seeing good demand for BSIV vehicles in the cargo segment. It is also seeing sequential growth in MHCV division.
Analyst’s View
Tata Motors continues to be on the slow path to recovery. The performance in JLR has been encouraging with revenues rising almost 3% YoY. The company saw impressive cost savings under Project Charge which spurred the company to target additional cost savings under the new Project Charge+. The performance of JLR in China continues to improve and the launch of the new models of Discovery Sport and Jaguar XF should help further. The brand relaunch of the Defender should help the company even more on sales in other markets like the USA and UK where sales have started to stagnate. But the threat of coronavirus and its impact on the company’s China sales in the quarter cannot be underestimated. It remains to be seen how this coronavirus situation pans out in the near future and how TML will recover in the domestic market where it saw a dismal performance despite gaining market share in certain segments. Nonetheless, given the company’s market position in both India and the major auto markets of USA, EU and China, Tata Motors remains an important stock to watch out for all investors interested in the auto sector.
Q2 2020 Updates
Financial Results & Highlights
Standalone Financials (In Crs) | ||||||||
Q2FY20 | Q2FY19 | YoY % | Q1FY20 | QoQ % | H1FY20 | H1FY19 | YoY% | |
Sales | 10361.9 | 18102.56 | -42.76% | 13753.11 | -24.66% | 24115 | 36299 | -33.57% |
PBT | -1270 | 150.35 | -944.70% | -47.67 | -2564.15% | -1317.66 | 1614 | -181.64% |
PAT | -1281.97 | 109.14 | -1274.61% | -97.1 | -1220.26% | -1379.07 | 1296.79 | -206.34% |
Consolidated Financials (In Crs) | ||||||||
Q2FY20 | Q2FY19 | YoY % | Q1FY20 | QoQ % | H1FY20 | H1FY19 | YoY% | |
Sales | 66104.51 | 72729.3 | -9.11% | 62302.98 | 6.10% | 128407.5 | 140035.4 | -8.30% |
PBT | 621.23 | -623.44 | 199.65% | -3236.18 | 119.20% | -2616.95 | -3407.67 | 23.20% |
PAT | -187.7 | -1009.49 | 81.41% | -3679.36 | 94.90% | -3867.36 | -2872.06 | -34.65% |
Detailed Results
- The company saw a dismal domestic quarter with revenues falling 43% YoY in standalone terms.
- In consolidated terms, the revenues fell 9% YoY with JLR revenues rising 8% YoY.
- MHCV segment declined significantly with segment revenues falling 59% YoY.
- System stock levels were reduced by Rs 3400 Cr.
- Wholesale revenues for domestic sales were down 45% YoY while retail revenues were down 26.9% YoY.
- CVs were down 41% YoY while PVs were down 51.3%.
- The company made investments of Rs 1202 Cr in products and technologies.
- In JLR, retail volumes were down 0.7% while wholesale volumes rose 2.9% YoY. China retail revenues up 24.3% YoY.
- New Evoque and Range Rover Sport were up 54.6% and 17.5% respectively.
- The quarter also saw EBITDA margin expansion by 480 bps YoY to 13.8% for JLR.
- JLR made investments of 841 million pounds into products and technologies in the quarter.
- Overall consolidated EBIT margin rose 210 bps to 3.8% in Q2.
- JLR’s Project Charge is on track to complete its goal of cost savings of 2.5 billion by March 2020 and has already achieved cost savings of 2.2 billion till date.
- The company sanctioned a preferential allotment of shares and warrants to the promoter Tata Sons for Rs 6500 Cr at an issue price of Rs 150. This allotment will bring the voting rights of Tata Sons up to 45.7% from 37.7% on the conversion of the warrants issued.
- The company achieved a reduction in investment spending of 154 million pounds YoY.
- New Land Rover Defender model unveiled which will be launched in Spring 2020.
- JLR’s 625 million pound UKEF backed loan facility completed in October.
- Tata Motors Limited remains focused on retail expansion and on a smooth transition into BS-VI.
- In PVs, passenger cars’ market share has fallen 200 bps to 3.9% while UV & vans market share has fallen 90 bps to 6.1%.
- Tata Motors Finance had a mixed quarter with AUM growth of 16% YoY and NNPA expansion of 130 bps to 3.7% in the current quarter.
- On the other hand, the market share of the company has risen 710 bps YoY to 31.8% in Q2FY20.
- New vehicle disbursals dropped 40% YoY while used disbursals fell 17% YoY.
Investor Conference Call Highlights
- The management expects performance in China to improve in the coming quarters as 4 new products are set to be launched in the next 6-9 months.
- Tata Motors has taken a write-off of Rs 230 Cr in the quarter for the models and platforms that they won’t be taking forward and making in the future.
- The dealer stock levels are at 35 days currently. The management believes that these are good levels that would enable the company to pick up faster when the industry turnaround takes place.
- The company has now developed an extended range TIGOR with a range of 213 km. It has also developed ZIPTRON technology which can be used to developed custom EVs.
- The company plans to shut down its JLR plant for a week.
- The management expects JLR volumes to rise in H2 and the division to stay profitable in the upcoming half.
- In Q2, warranties were at 4% of revenues which was a significant improvement from 6% in Q1.
- The management expects volumes to rise gradually and bring about margin improvement in the Chinese JV.
- The management has indicated that the primary use of the fund infusion for the company will be to reduce overall debt levels and strengthen their consolidated balance sheet.
- The effective tax rate is expected to be around 22% on a yearly basis.
- The CV volumes for the industry were the lowest for September in the last 10 years. But the company is seeing freight rates and transporters’ sentiments revive after Q1 and the company is expecting a rise in demand for BS-IV vehicles as people look to replace BS II and BS III vehicles.
- Under Project Charge, the company achieved cost savings of 350 million in H1 so far. The management expects to achieve further 450 million savings in H2.
- The management has assured that they will keep discounting in CVs at industry levels to ensure that they do not lose market share.
- The current market share in the PV segment for the company is expected to be at around 6% currently.
- The management has also indicated that they are open to access the bond market for raising funds. The company is only looking for unsecured financing and has no plans to issue secured debt.
- The company has seen retail sales pick up in October and expect the festive season to provide a reprieve in the otherwise tough domestic half.
- The management is confident that they will compliant with emission norms in all of their operating geographies.
Analyst’s View
Tata Motors continues to be on the slow path to recovery. The performance in JLR has been encouraging with revenues rising 8% YoY. But the domestic business of Tata Motors has deteriorated further with CV and wholesale volumes declining significantly. The company remains optimistic about the sales pick up after the festive season. Overall the revival of JLR in China and the upcoming launches of 3 major models bodes well for the company. The company still faces a massive risk event in Brexit and the uncertainties arising from it. It remains to be seen how the company will fare in the economically and politically turbulent time to come ahead. Nonetheless, Tata Motors is still an auto stock to keep an eye out for, given the revival of JLR performance and China in particular.
Q1 2020 Updates
Financial Results & Highlights
Standalone Financials (In Crs) | |||||
Q1FY20 | Q1FY19 | YoY % | Q4FY19 | QoQ % | |
Sales | 13753 | 18197 | -24.42% | 18981 | -27.54% |
PBT | -47.67 | 1464 | -103.26% | 265.51 | -117.95% |
PAT | -97.1 | 1188 | -108.17% | 106.2 | -191.43% |
Consolidated Financials (In Crs) | |||||
Q1FY20 | Q1FY19 | YoY % | Q4FY19 | QoQ % | |
Sales | 62303 | 67306 | -7.43% | 87285 | -28.62% |
PBT | -3238 | -2584 | -25.31% | 1265 | -355.97% |
PAT | -3680 | -1863 | -97.53% | 1109 | -431.83% |
Detailed Results
- The company saw another dismal quarter with revenues falling 24% YoY in standalone terms.
- In consolidated terms, the revenues fell 7% YoY with JLR revenues falling 2.8% YoY.
- In standalone terms, other income saw a fall to Rs 106 Cr from Rs 1310 a year ago.
- In domestic operations, Turnaround 2.0 is on track and the company is focused on staying on track for long term success.
- The company gained a market share of 30 bps YoY in MHCV segment and 80 bps YoY in ILCV segment.
- The CV profitability was adversely affected by the negative operating leverage and the adverse mix.
- PV EBITDA margins improved substantially by 190 bps YoY and 130 bps QoQ.
- The improvement in PV EBITDA margins was driven by improved product mix and continued cost reductions.
- Tata Motors has spent Rs 946 Cr in the current quarter on investments into new products and BS VI.
- The company continues to stay ahead of the competition in the EV space with sales of 163 Tigor EVs achieving 65% market share in this segment.
- The company has also won new tenders for its electric buses segment and occupy 56% market share in this space.
- JLR and BMW are collaborating on the next-gen Electric Drive Units.
- UKEF (UK Export Finance) to provide a 500 million pound guarantee for a planned 625-million-pound loan facility from commercial banks.
- In terms of volumes for Tata Motors Standalone, wholesale volumes shrank 20.5% YoY while retail volumes fell 12.6% YoY.
- Volumes for JLR were also down with retail volumes falling 11.6% YoY and Wholesale volumes falling 9.9% YoY.
- The company has communicated that Q1 for Tata Motors Standalone was impacted mainly by demand slowdown, higher axle loads, liquidity stress and low freight availability for cargo operators.
- In JLR, the company sold 128,615 units with strong demand for the i-PACE and new Range Rover Evoque.
- The company expects increased sales from new models and cost savings from Project Change to improve results with profits coming back within a year.
- June sales for China were up 23% vs May, showing evidence of revival for the company is China. Overall volumes were still down 11.6% YoY.
- The investment spending for the quarter was 271 million pounds lower than initial estimates.
- The retailer stock levels in China are at their lowest since 2017 and local registration has risen to 80% thus showing balancing of supply and demand in the region.
- The company has also planned and prepared risk mitigation strategies for a possible “No Deal” Brexit outcome.
- In Project Charge, the company has already achieved 1.7 billion out of the 2.5-billion-pound target set at the start. The company expects to achieve a total of 1 billion savings in costs and profits from the rest of the financial year.
- In Tata Motors Finance, the market share has risen to 25.9% from 24.2% a year ago. The AUM for this segment has risen to Rs 38280 Cr from Rs 29751 Cr a year ago.
- Disbursal for the quarter was down 16% due to poor demand scenario. The company expects the changes from Project Sparkle to stabilize by Oct 2019 and improved performance from that time onwards.
Investor Conference Call Highlights
- In JLR, the company spent 100 million pounds for Brexit in the current quarter.
- The management has also mentioned that Q1 is usually the worst quarter for JLR due to model year runouts and sales cannibalization of older models for newer variants.
- The company has identified BS-VI readiness as the largest challenge for the company in the last 15 years and the company is well on track to fulfill it by the deadline next year.
- The company is also optimistic about the future of EVs in India mainly due to the FAME II initiative launched by the government and the GST reduction for sales of EVs.
- The company already has 14 city departments as customers and has more than 250 electric buses on the road currently. It expects more than 7000 buses to be subsidized by the government in the near future.
- The company’s working capital has shot up in this quarter mainly due to the sharp fall in commercial vehicle demand.
- The company is finding it difficult to define how deep the prebuy before BS-VI will be and when it will take place.
- Overall the EBITDA margins for Tata Motors Standalone fell almost 35 bps.
- In JLR, the company expects to be hedging from 55% to 70% of all revenues. The hedging reserve is expected to be around 600 million pounds.
- The company is confident of achieving 250 million pounds in material cost savings for JLR under the ongoing Project Charge initiative.
- The company expects to see YoY improvements from next quarter onwards for JLR in China.
- The warranty cost for the company stood at 6% of revenues for this quarter. The company expects this figure to stay within the range of 4%-6% in the near future.
- In Tata Motors Finance, the current collection efficiency is at 96% and the company expects this to rise to 100% by Oct 2019. The management has also indicated that they are comfortable at the ROE levels of above 15% for this division.
- In Tata Motors Standalone, the company has gained almost 80 bps benefit from the cost savings measures from Turnaround 2.0 plan.
- In China, the company expects the SUV- 4 sales to be difficult but are confident of the sales of the SUV-5 in Q2.
- In JLR, the gross revenue per vehicle has increased in part due to the company’s strong position in sterling and a weak sterling is good for a major British exporter like JLR.
Analyst’s View
Tata Motors continues to be on a very slow path to recovery. The performance in JLR has not been encouraging with a 2.8% fall in revenues with a more than 10% fall in volumes. The domestic business of Tata Motors has been hit badly due to the domestic auto slowdown. This fall in domestic demand for the auto industry is expected to persist for a while and is expected to keep industry volumes down. Despite all this, the slow revival of JLR and their rising sales figures in China seem like a good omen for the company. The company still faces a massive risk event in Brexit and has spent a lot of money and effort in planning to stand ready in case of the adverse event of “No Deal”. It remains to be seen how the company will fare in the economically and politically turbulent time to come ahead. Due to sustained poor performance through several quarters, the stock has been battered consistently in the last year.
Q4 2019 Updates
Financial Results & Highlights
Standalone Financials (In Crs) | ||||||||
Q4FY19 | Q4FY18 | YoY % | Q3FY19 | QoQ % | FY19 | FY18 | % Change | |
Sales | 18981 | 20456 | -7.21% | 16477 | 15.20% | 71757 | 61182 | 17.28% |
PBT | 265.5 | -473.73 | 156.04% | 518.92 | -48.84% | 2398.93 | -946.92 | 353.34% |
PAT | 106.2 | -499.94 | 121.24% | 617.62 | -82.80% | 2020.6 | 1034.85 | 95.26% |
Consolidated Financials (In Cr) | ||||||||
Q4FY19 | Q4FY18 | YoY % | Q3FY19 | QoQ % | FY19 | FY18 | % Change | |
Sales | 87285.6 | 91643.4 | -4.76% | 77582.7 | 12.51% | 304903.7 | 296298.2 | 2.90% |
PBT | 1264.9 | 2307.6 | -45.19% | -29228* | 104.33% | -31371* | 11155 | -381.23% |
PAT | 1153.5 | 1330.5 | -13.30% | -26823* | 104.30% | -28724* | 9091.36 | -415.95% |
*including provision of impairment for JLR at Rs 27,837.91 Cr
Detailed Results
- FY19 consolidated revenues grew 3% YoY while domestic standalone revenues grew a robust 17% YoY.
- JLR division has returned to profitability now.
- In the domestic front, the company gained market shares of 50 to 70 bps in 3 of its 4 product categories.
- The company delivered 11% EBITDA margins in commercial vehicles for FY19 which was at the top of the industry while EBITDA margins for private vehicles reached breakeven at 0.1%.
- In JLR, the company launched new Range Rover Evoque with hybrid options.
- The i-PACE car won 3 World Car of the Year awards and 1 European Car of the Year award this year.
- JLR revenues were down 6.1% YoY but the division saw strong sequential improvement of EBIT of more than 560 bps QoQ.
- The ongoing Project Charge in on track to achieve its target of 2.5 billion pounds with cash flow of 1.3 billion pounds in FY19.
- In volumes, Tata Motors standalone saw wholesale growth of 15% YoY with CVs up 15.6%, PVs up 13.6%. Domestic wholesale volumes were up 16.2% while domestic retail volumes were up 16.5% YoY.
- The company has also invested Rs 5.3K Cr in FY19 in new products and technologies.
- In JLR, retail volumes were down 5.8% while wholesale volumes were down 10.8% for FY19.
- The company has spent around 3.8 billion pounds in new products and technologies in FY19.
- The management have communicated that the company is progressing well with their Turnaround 2.0 strategy which has helped them deliver good performance in standalone basis despite slowdown in the domestic auto market in the past year.
- In JLR China, the company is has seen operational KPIs like retail target achievement, local registration rate and retailers’ return on sales improving while retailers’ stock levels are falling helping balance supply demand relationship in the country.
- The company sees growing demand for the electric vehicle products of JLR like the I-PACE, E-PACE and Range Rover Velar in the near future.
- The company received a favourable FX impact of around +5% on total revenue growth in FY19.
- The company sees the impacts of their Project Accelerate to start materialising from FY20 onwards.
- For the next 2 years, the company has guided that it will focus on improving EBIT margins for JLR with a target of achieving 3%-4% by FY21 and 4%-6% by FY23.
- Moreover, the company expects to keep up investment spending in JLR at up to 4 billion pounds each year for the next few years.
Investor Conference Call Highlights
- FY19 saw record high sales volumes for JLR in the USA and UK.
- As part of Project Charge, the company has achieved 204 million pounds in total value management savings.
- The project has also helped the company to reduce their investment spending guidance of 4.5 billion to 3.8 billion pounds.
- Premium level discounts for JLR have plateaued at 15% which is an all-time high.
- The sales in USA have been positively affected by the low fuel prices and the string credit availability in the country. This is evident in the fact that more than 60% of the total US sales are through leases or financing.
- The management believes that JLR are in a good position in the USA market due to their emphasis and brand value in SUV market through the Land Rover brand. This is especially important as the SUV market has grown rapidly in the last 5 years and currently makes up around 70% of total personal vehicles market in the USA.
- The F-PACE, I-PACE and E-PACE have also been contributing significantly to the company’s sales in FY19 and are expected to form a large chunk of the company’s sales in the near future in the USA.
- JLR’s average transaction price remains higher than the industry average thus highlighting a strong brand value for the company.
- The company has also reduced their headcount to 6000 in order to improve efficiency. This reduction is expected to help deliver around 400 million pounds of cost savings each year.
- Q1FY20 is expected to be another tough quarter for JLR as they had an extra week of plant shutdown in April for the possible potential Brexit and production seasonality. The management expects some loss to be incurred in this quarter along with negative cash flow but they remain optimistic that they can overcome it.
- In Tata Motors India, out of the Rs 5300 Cr of overall investment spending around Rs 4200 Cr has been regarding BS-VI upgrades.
- The big challenge for the company in FY20 is to smoothly transition into the upcoming BS-VI norms. The management insists that they are on track to deliver on it currently.
- The company expects the market share for their Magic and Iris brands to run off as they will not be able to fulfil the crash test norms for BS-VI and thus will be discontinued.
- The company is ramping up production for Harrier as retails for the product have not started as they had envisioned and there is already a 2-month order cover on it right now.
- The management states that execution metrics in China have started to stabilise and H2FY20 they can start to expect growth to resume in China.
- JLR will continue to stay invested in the internal combustion engine as well as electrical engine development and the company already has more than 200 pending patents which should help them stay ahead of their competition going forward.
- The company is well on its way with the turnaround and transformation plan that they have envisaged. As per that plan, the first stage shall be focused on cash burn while the second stage will be on improving working capital, reducing fixed and variable costs, etc.
- The drop in margins for JLR and India operations have been mainly due to the drop in Chinese volumes which were the most profitable in JLR and the slowdown in the domestic auto market where the company had undergone price reductions in order to stay competitive.
- The company has guided that FY20 and FY21 will be FCF negative. This is mainly due to new launches in the upcoming years and the relaunch of the Range Rover and Range Rover Sport brands which have proved to be some of the biggest mainstays of the company in terms of profitability.
- The management insists that they are well on their way to provide good value to each customer while staying within the permissible CO2 emission norms as legislated.
- The management states that they have found it difficult to ramp up the launch of EVs or plugin EVs as the supply of batteries is limited. Nonetheless, the company sees this situation to normalise in the next 12 months as battery costs go down.
- For most of their internal demand, the company is assembling EV batteries by itself in its Indian manufacturing sites.
- The management is not much concerned with the loss in market share in the heavy and medium CV segment as they see this loss to be a short term phenomenon. In FY19, the company was undergoing stock reduction in this category as evidenced in whole sale volumes for this segment being lower than retails volumes.
- Out of the remaining cost savings target of 850 million pounds, 50% is expected to arise from workforce reductions while the rest is expected to be derived from streamlining of business processes and reducing overheads and SG&A costs.
- The reduction in depreciation from the impairment earlier in FY19 is expected to continue into FY20 but underlying depreciation and amortization values are expected to rise in the long term with addition of new assets and the new model program in place.
Analyst’s View
Tata Motors continues to be on the slow path to recovery from the sharp drop in performance due to the China sales slowdown and the company has been very prudent and efficient in focussing on achieving their proposed turnaround as soon as possible. The coming financial year is expected to be tough for JLR though there are encouraging signs originating mainly from the USA presence and the good demand for their award winning EV car line-up. Thus we can expect flat to modest performance from JLR for FY20. On the other hand, Tata Motors India has been on the rise in FY19 despite slowdown in the domestic auto market. This augurs well for the company as they look to enhance their domestic presence and gain market share going forward. Thus, it remains to be seen how well the company can adhere to its ‘Turnaround 2.0’ strategy and rise back as one of the biggest global auto manufacturers.
Q3 2019 Updates
Financial Results & Highlights
Standalone Financials (In Crs) |
||||||||
Q3FY19 | Q3FY18 | YoY % | Q2FY19 | QoQ % | 9M FY19 | 9M FY18 | 9M% Change | |
Total revenues | 16477 | 16186 | 1.80% | 18103 | (8.98)% | 52776 | 40726 | 29.59% |
PBT | 519 | 239 | 117.15% | 150 | 246.00% | 2133 | (473) | 550.95% |
PAT | 618 | 212 | 191.51% | 109 | 466.97% | 1914 | (535) | 457.76% |
Consolidated Financials (In Crs) |
||||||||
Q3FY19 | Q3FY18 | YoY % | Q2FY19 | QoQ % | 9M FY19 | 9M FY18 | 9M% Change | |
Total revenues | 77583 | 74338 | 4.37% | 72729 | 6.67% | 217618 | 204655 | 6.33% |
PBT* | (29228.4) | 2029 | (1540.53)% | -823 | 3451.45% | -32636 | 8847 | (468.89)% |
PAT* | (26961) | 1214.6 | (2319.74)% | -1010 | 2569.41% | -29833 | 6916 | (531.36)% |
*including provision of impairment for JLR at Rs 27,837.91 Cr
Detailed Results
- On a consolidated basis, revenues grew 5% despite fall in volumes of 5.5% YoY.
- This was mainly due to favourable forex conditions.
- Tata Motors standalone earnings were up 1.5% while JLR earnings were down 2.3%.
- JLR EBIT margin fell 5.2% while Tata Motors EBIT margin improved by 0.7%.
- A massive write-down of 3.1 billion pounds was recognized which plunged the profit levels on a consolidated basis.
- This resulted in a loss of 3.4 billion pounds for JLR and brought its net worth to 6 billion pounds.
- This action shall reduce growth in depreciation and amortization by 300 million pounds per year.
- In JLR, the North American and UK markets grew 21% and 18% YoY but the biggest market of China contracted 47% resulting in an overall contraction of 6.4% in terms retail volumes.
- Similarly, wholesale volumes were up for North America, UK and EU but were down in China and other markets which resulted in an overall contraction of 11% in terms of volume.
- In the domestic market, they have had a good 9MFY19 with revenue growth of 32% on a YoY basis.
- Profits have also risen significantly despite muted growth in revenues for the quarter on YoY basis.
- In the commercial vehicles segment, market share has stayed stable at 45.7% compared to 45.1% last year.
- Market share in private vehicles has grown to 6.2%, with retail volumes rising 9.7% YoY and wholesale volumes rising 3% YoY.
- Tata Motors Finance had a phenomenal performance with AUM growth of 41% YoY and GNPAs reducing at 3.3% from 3.5% last year. The PBT was temporarily impacted this quarter mainly due to upsurge in cost of borrowings due to the market liquidity crunch in the past quarter.
Investor Conference Call Highlights
- Bulk of revenue growth was driven by forex gains which helped offset losses from the JLR division.
- Carrying on various initiatives to make the organisation “Fit for Future”.
- To address the fall in demand, JLR China shall reduce production and inventory to match current demand expectations.
- Otherwise the growth in USA and UK for JLR has been very encouraging and they shall continue to focus on capturing market in these geographies.
- Maintain a cautiously optimistic view of the future with the rejuvenation of the Evoque product with hybrid and plugin options and the global launch of the I-PACE which has been very well received and has won various awards in the EV segment.
- JLR remains optimistic on the China market in the longer term.
- Look to further refine sales and dealer level strategy in order to better compete in the China market which is still projected to rise to 4 million vehicles in 2025 from 2.8 million in 2018.
- JLR has already launched a comprehensive turnaround strategy in China called Dragon to enhance brand building and organisation efficiency to increase the competitiveness of their global cost base.
- A one-time restructuring cost of 200 million pounds is expected to be booked in the coming quarter which is the exceptional cost of the voluntary reduction program to reduce workforce.
- JLR is well on its way to redesigning their current organisational structure to accommodate 6000 less workers in 2019 as compared to before.
- JLR is set to maintain their investment target of 4 billion pounds this year as management believes it is essential to develop their new models both the technology and electrification in order to drive future growth and prosperity for the company.
- In Tata Motors, the management is committed to maintain their pace of retail sales expansion for private vehicles which has seen them consistently gain market share in the past few years.
- They are also very optimistic for their new product offerings Harrier and Nexon which they believe shall drive growth in this segment the near future.
- All in all, Management is looking to cut their expectations for EBIT margins for FY20 to FY22 to 3%-6% from the earlier 4%-7% range estimated earlier, given the challenging environment that the company sees in the near future.
- In regards to the uncertainty to Brexit, JLR is looking to maintain a leaner inventory stock so that this may reduce the pressure on the dealer network. Along with the downtime planned, it should provide sufficient headroom in case market conditions become more challenging.
Analyst’s View
Tata Motors has been one of the mainstays of the Indian automotive industry for a long while now. They have also demonstrated their global ambition in the past by taking over Jaguar Land Rover, one of the most iconic luxury car brands. However, due to the recent slowdown and trade tariff war in China, JLR has been hard hit with declining revenues and big write down and losses recognized. But the company is still optimistic about their future prospects and taking various actions and initiatives to achieve a turnaround from the current situation. But this is surely going to be a slow development and thus JLR’s contributions are expected to be muted for a few years at least.
On the other hand, Tata Motors has been doing great in the domestic market and buoyed by the upcoming launch of two of their most lauded products Harrier and Nexon, which have generated lots of interest and demand in the domestic market. Tata Motors continues to maintain its dominant market share in the LCV segment while slowly grabbing more market share in the personal vehicles segment.
The Cabinet Committee of Economic Affairs (CCEA) has approved a Rs 10,000 crore package for the second phase of Faster Adoption & Manufacturing of Electric (and hybrid) vehicles (FAME) scheme on February 28. “Starting from 1st April 2019, the second package will continue for three years till 31st March, 2022,” Union Finance Minister Arun Jaitley said.
FAME scheme was started in 2015 to incentivize the manufacture of electric vehicles. Incentives up to Rs 22,000 were available for two-wheelers, Rs 61,000 for three-wheelers and Rs 1,87,000 for four-wheelers were provided. The scheme was initially implemented for one year, which was later given three extensions. This is a positive news for the company.
Tata Motors, in the past, has shown tremendous resilience multiple times when it looked really vulnerable. It remains to be seen, whether this time it’s different or not.
Disclaimer
This is not an investment advice. Please read our terms and conditions.