Mumbai: Having beaten Street estimates with lower consolidated net loss than predicted by analysts for the second quarter, Tata Motors bets on aggressive cost-cutting measures and stronger performance from Jaguar Land Rover to deliver better numbers in the second half.
With uncertainties over Brexit, JLR will resort to yet another production cut in this quarter, which will lead to 12,000 units lesser and a loss of £100 million as seen in the first quarter. But, operationally and fundamentally, JLR has forecast a better second half. It is expected to meet its £2.5-billion ‘Project Charge’ cost-saving plan three months ahead of schedule, and is already working on a ‘Project Charge Plus’ plan to sustain the momentum.
While Tata Motors retained 3-4% operating margin target for JLR this fiscal, it has withdrawn margin guidance for the standalone entity in face of severe demand slump in the domestic market that is expected to continue the rest of the year as well as FY21.
“With an Ebitda (earnings before interest, taxes, depreciation and amortisation) of 13.8%, a growth of 8% in revenue and an Ebit of 4.8%, this is—you will agree with me—is a well-rounded delivery from JLR,” a senior company executive told analysts on an earnings call. “Be it on revenue or wholesale volumes, retail is broadly there with strong performance coming through in China, albeit on a weak base. The headline number is starting to stabilise and improve and the launch is firing well. Of course, from a cost side, we see ‘Charge’ delivering.”
Project Charge is delivering in all facets of the programme. Investment, inventory, people costs, and overheads are all adding up to support the business.
A 24% spike in volumes for JLR in China in the second quarter although on a low base supported the company’s earnings in Q2. With four to six new models lined up in China, the growth momentum is likely to sustain in the second half, the company told analysts.
Capex for JLR has been further reduced by £100 million to £3.7 billion for FY20, whereas the standalone entity has reduced capex by Rs 500 crore to Rs 4,500 crore.
There was also Rs 230 crore of write off from the PV business in the last quarter.
On the standalone business, Tata Motors’ push towards retail over wholesale has also started to show results. The company knocked off about Rs 1,000 crore of stock on its own end during the second quarter, whereas dealers’ stock was reduced by Rs 2,500 crore. So far this financial year, the retails were higher by 23,000 units for the standalone entity than the wholesale despatches.
The company has spent Rs 2,148 crore on capital expenditure in the first half of the current fiscal. The capex target for the domestic operations this fiscal has been one of the highest in recent years.
A large part of capital expenditure is related to investment in the equipment and technology for making engines the new emission norms, BS6-compliant.
The company’s average capex for the last five years was Rs 2,441 crore, according to Bloomberg and the cumulative capital investment stood at Rs 12,209 crore in the same period.
Tata Motors was expecting Ebit margins of 3-4% and positive free cash for this fiscal and FY21, after the first quarter of FY20.