Tata Motors sees net loss on JLR write-offs

Revenue for the quarter in Tata Motors standalone business doubled to `20,000 crore and pre-tax profit before exceptional was `145 crore versus loss of `2,200 crore in Q4FY20.

Tata Motors on Tuesday posted a surprise consolidated net loss of `7,605 crore during the January-March quarter as it took an impairment of `14,994 crore as part of Jaguar Land Rover’s ‘Reimagine’ strategy. As a result, the company missed the Bloomberg consensus estimate of a net profit of `2,774.08 crore. However, it still narrowed the losses from `9,894 crore posted in the same quarter last year.

Of the `14,994 write-off on part of JLR, `9,606.1 crore relates to cancelled models and a restructuring cost of `5,388.19 crore. However, an improved performance of the passenger vehicle (PV) business in the domestic market saw the company reverse an impairment of `1,182 crore taken at the end of the FY20 fiscal, which limited the overall consolidated loss during Q4.

The net loss was also limited by reversal of about `700 crore in the PV business in the domestic market undertaken by the company in FY20 as part of onerous contract provision.

The company reported a sharp 42% year-on-year increase in revenue from operations at `88,628 crore, much above analyst expectations of `87,518 crore, as sales of vehicles soared. The operating income (earnings before interest, tax, depreciation and amortisation) increased nearly threefold to `12,762 crore. Consequently, Tatat Motor’s Ebitda margins came in higher by a good 870 basis points to 14.4% during the quarter.

PB Balaji, group chief financial officer, Tata Motors, said, “It is a strong, resilient, all-round performance for us despite the pandemic and fourth quarter ended on a strong note.” However, the first quarter of FY22 will be adversely impacted by lockdowns, semi-conductor shortage and steel inflation, he added.

“We expect that the demand situation, particularly on the global side, will keep improving seeing strong performance in the US and China, and with vaccination drives expanding we are seeing the UK and Europe start to improve. In India, we expect some immediate pressure in Q1 on demand side due to lockdowns. As the situation stabilises we should see demand improving. However, there are challenges on the supply side with bottlenecks, disruptions and commodity inflation as a key concern,” Balaji said.

JLR, which contributes around 78% of the company’s overall revenues, witnessed a strong recovery of retail sales in China and North America. The business achieved 7.5% Ebit (earnings before interest and tax) margin and strong positive free cash flows of ￡0.7 billion reflecting the recovery in sales, favourable mix and Charge+ delivery. Charge+ delivered ￡0.3 billion of savings in the quarter and ￡6 billion since the start of the programme to date. Retail sales in the fourth quarter stood at 1,23,483 vehicles, up 12.4% y-o-y. This was supported by a strong recovery in China, where sales grew 127% over Q4 last year, when the impact of Covid-19 peaked in that market.

However, the company management called out some challenges on the production of JLR in the first quarter due to the ongoing semi-conductor shortage. The supply chain issues, in particular for semi-conductors, have become more difficult to mitigate and are now impacting production plans for Q1. “The company is working closely with affected suppliers to resolve the issues and minimise the effect on customers,” Balaji said.

In India, demand remained strong with all segments of the domestic business registering growth. In Q4FY21, wholesales increased 90.2% to 1,95,859 units. M&HCV grew 81.9%, ILCV over 104%, SCV & Pick Ups at 75.9% plus and PV volumes were up 162.1%. Only CV passenger sales remained subdued and declined 57.6%. However, the company said the business scenario in the country was fluid due to second wave of the pandemic hitting the country resulting in multiple lockdowns. The company expects the first half of the year to be relatively weak, with temporary adverse impact on the demand and supply situation.

Balaji said while demand for PVs will continue after some stress in the first quarter, the CV segment is likely to face challenges. “We expect stress in commercial vehicles from financing perspective as far as Q1 is concerned as collections and infrastructure have got impacted due to Covid. Growth, market demand and freight rates are all a challenge and, therefore, we do expect stress in CV and inventory challenges too after last two strong quarters. So, we are rationalising our production too,” he said.

Revenue for the quarter in Tata Motors standalone business doubled to `20,000 crore and pre-tax profit before exceptional was `145 crore versus loss of `2,200 crore in Q4FY20. PBT improvement was mainly due to better volumes, improved product mix, lower VME and cost savings offset partially by commodity inflation. EBIT margin was 3% in the quarter.

Tata Motor’s finance costs increased by `854 crore to `8,097 crore in FY21 due to higher gross borrowings.

Balaji said the deleverage plans of the company announced last year are well on track with net automotive debt down by about `7,300 crore versus last year at `40,900 crore as on March 31, 2021.

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