Jaguar Land Rover will incur capital expenditure of £ 2 billion (Rs 18,000 crore) a year over the medium term. This will be mainly on product development, according to the ratings agency CRISIL.

In a recent conference call with analysts on November 7, the company said that it had spent £ 2 billion last year on product development. Now, according to CRISIL, the company will continue to incur this level of expenditure each year, over the next few years.

“JLR will continue to incur capex about £ 2 billion per annum over the medium term to enhance and diversify its product range, meet stringent emission norms, improve engine manufacturing capabilities, and expand manufacturing footprint in the developing world,” CRISIL said.

The success of this capex programme is critical for JLR to achieve diversified growth, strengthen its business risk profile and maintain its competitive position, the rating agency noted.

JLR’s capex as a percentage of sales is expected to be higher than that of JLR’s larger peer brands such as BMW, Audi and Benz over the medium term increasing the balance sheet risks. However, CRISIL notes that JLR’s capex is modular in nature and in case of volume slowdown due to weak macroeconomic scenario in its key markets, JLR “would prudently defer part of its capex.”

JLR, the company that manufactures the two British iconic brands, Jaguar and Land Rover, was acquired by the Tata group in 2008.

In the second quarter of the current year, JLR sold 86,000 units, 37 per cent higher than in the same period last year. China accounted for the bulk (21 per cent) of the sales.

JLR’s sales for the quarter rose to £ 3.6 billion compared with £ 2.7 billion in the same quarter last year. Net profit also increased 16 per cent to £ 232 million.

In a rating exercise done in July, the ratings agency Standard & Poor commented that JLR’s had “significantly outperformed our base-case expectations.”

It said that while JLR’s investments would “impair profitability”, these investments were needed to support future growth of the Land Rover brand, allow the repositioning of the Jaguar brand and help JLR’s progress towards complying with CO2 regulations.

ramesh.m@thehindu.co.in

(This article was published on November 21, 2012)
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