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Tata Motors cuts profit margin outlook for JLR over Brexit, China woes

International Business
Fri, 08 Feb 2019
Reuters


* Biggest every quarterly loss due to one-time charge

* Expects profit margin to be negative versus break-even 

* Taking steps to address slide in JLR's China sales

New Delhi - Indian automaker Tata Motors Ltd lowered its profit margin guidance for the Jaguar Land Rover (JLR) unit for the current fiscal year after it posted its biggest quarterly loss on Thursday, hurt by a one-time impairment charge.

Tata Motors expects the EBIT (earnings before interest and tax) margin for JLR for the fiscal year 2018-19 ending March 31 to be "marginally negative" compared with an earlier guidance of breaking even, Chief Financial Officer, PB Balaji said.

Troubles at the JLR unit, which has been hit hard by U.S.-China trade tensions, low demand for diesel cars in Europe and Brexit worries, had tipped Tata Motors into its first loss in three years in the quarter ended June 2018.

While Tata Motors has announced plans to turn around JLR, the slide in the unit's sales has continued for now with retail sales in China falling nearly 50 percent during the quarter ending Dec. 31.

"We are now taking clear and decisive actions in JLR to step up its competitiveness, reduce costs and improve cash flows and make the business fit for the future," Balaji told reporters on a conference call.

The carmaker has taken steps to address the slide in sales in China by changing its strategy to focus on profits of dealers instead of sales and incentivising retail sales over wholesale, Balaji said.

"We see a gradual improvement in China going forward. We are happy to see our numbers stabilise now in terms of off take," he said.

For an interactive graphic on monthly sales at Jaguar Land Rover, click: https://tmsnrt.rs/2te4M1L

Tata Motors' loss came at 269.93 billion rupees ($3.78 billion) for the three months ended Dec. 31, compared with a profit of 11.99 billion rupees in the year-ago period. Revenue rose 5.8 percent to 762.65 billion rupees.

The company took a non-cash charge of 278.38 billion rupees ($3.9 billion) to cover the impairment at JLR in the three months to Dec. 31. Changes in market conditions, especially in China, technology disruptions and rising cost of debt resulted in the charge.

JLR, Britain's biggest carmaker, is also facing disruption due to uncertainty over a Brexit deal and has decided to halt production for a couple of weeks in April.

British Prime Minister Theresa May's Brexit deal was rejected in parliament last month and the government is trying to make changes to win the support of lawmakers even as the divorce date for Britain's departure from the European Union looms less than two months away.

Tata Motors has also embarked on a plan to deliver cash savings of 2.5 billion pounds over 18 months to March 2020. Balaji said it has already achieved savings of 500 million pounds and is well on course to achieve the target.

Tata Motors has faced a decline in sales in India as well.

 ($1 = 71.3560 Indian rupees)

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