Adverse market conditions in China and sudden drop in demand for premium vehicles in that market have severely impacted the performance of Tata Motors-owned Jaguar Land Rover in the second quarter. This, as a consequence, dragged the overall performance of Tata Motors.
Tata Motors, during the quarter ended September 30, 2018, reported a consolidated net loss of ₹1,009 crore compared to a net loss of ₹1,663 crore in the same period the previous year.
During the period, the consolidated total revenue increased by 3% to ₹72,112 crore (₹69,839 crore).
Challenges ahead
While the company’s domestic business showed improved results, the performance of JLR remained a concern. Considering the challenges ahead for JLR, mainly in its biggest market China, and uncertainties concerning Brexit, the firm has announced a turnaround plan to drive £2.5 billion of profit, cost and cash flow improvements in the next 18 months. JLR has also scaled down its capital investment by £500 million to £4 billion this year. For the next year also, investment has been cut to £4 billion from £4.5 billion.
Group chief financial officer P.B. Balaji clarified that investment in new products and innovations had not been touched. “Innovation is the lifeline of JLR. We will protect it at all cost. We are reducing costs where we can. There is no better time to solve the long-term issues at JLR. We are only making it leaner so that it is fit to flight,” Mr. Bajali said.
N. Chandrasekaran, chairman, Tata Motors, said: “In JLR, market conditions, particularly in China, have deteriorated further. To weather this volatile external scenario, we have launched a comprehensive turnaround plan to significantly improve our free cash flows and profitability.”
“JLR leadership is in a mission mode to achieve the deliverables under this plan. With these concerted actions, we remain committed to deliver an improved all-round performance from H2 FY19,” he said.
During the quarter, JLR’s retail sales were down 13.2% to 1,29,887 units, wholesale sales were down 14.7%. This dragged down JLR’s net revenue by 11% to £5.6 billion and JLR reported a net loss of £101 million during the quarter.
“The sales decrease primarily reflected challenging market conditions in China, where demand was adversely impacted by consumer uncertainty following import duty changes and escalating trade tensions with the US. In North America, demand for SUVs remained strong, but overall sales were held back by slowing orders for passenger cars – in line with the market as a whole,” JLR said.
Ralf Speth, Jaguar Land Rover CEO, said: “In the latest quarter, we continued to see more challenging market conditions. Our results were undermined by slowing demand in China, along with uncertainty in Europe over diesel, Brexit and the WLTP changeover.”
“Together with our ongoing product offensive and calibrated investment plans, these efforts will lay the foundations for long-term sustainable growth. We remain focussed on delivering improved profitability and cash flow in the second half, while pressing ahead with our product offensive,” he said.
In the domestic business, Tata Motors’ revenue increased by 33% to ₹17,759 crore and the it reported a profit after tax of ₹109 crore.
“Our solid, all-around performance in Q2FY19 has impressively demonstrated that Tata Motors ‘Turnaround 2.0’ is in full swing. The continued improvements were made possible due to a robust product and innovation pipeline, strong market activation, rigorous cost reductions and structural process improvements,” said Guenter Butschek, CEO and MD, Tata Motors.
Aditya Bapat, analyst, IIFL Securities Ltd. said: “While results were not good, one could find respite in the fact that there were no negative surprises in this quarter. On the positive side, the company is looking conserving cash and rationalising investments. A lot of negatives for JLR have been priced in, however, their China woes are unlikely to ease in the next quarter.”
