Jaguar Land Rover’s weak performance impacts margin

Parvatha Vardhini C BL Research Bureau | Updated on January 12, 2018


Considering the 1.2 per cent overall wholesale volume growth at Jaguar Land Rover (JLR) and the 9 per cent contraction in domestic medium and heavy commercial vehicle (MHCV) sales volumes during the quarter ended December 2016 ( over the three months ended December 2015) , Tata Motors was expected to post muted numbers.

But the sharp 96 per cent fall in consolidated profit took the market by surprise, with the stock dropping almost 7 per cent immediately after the results announcement, before recovering later on.

Both JLR and the standalone business contributed to the steep drop.

Weak operational performance took the wind out of the sails for JLR. EBITDA margins pressures were expected to rise at JLR due to new model launch / variable marketing expenses.

But it came down by 510 basis points year-on-year to 9.3 per cent. A product mix in favour of Jaguar, rather than Land Rover models such as the Discovery which are more profitable impacted the margins.

Jaguar wholesale volumes saw a 79.4 per cent rise during the quarter, while Land Rover wholesale volumes contracted 15.9 per cent.

Unfavourable realised forex hedges brought down the margins to the extent of 80 basis points as well. Besides poor support at the operating level, JLR profits were impacted by higher depreciation and unfavourable unrealised forex and commodity hedge revaluation.

Even on the domestic front, although the passenger segment recorded a 31 per year-on-year growth in volumes aided by the success of the Tiago, CV sales were nothing to write home about.

This widened the standalone loss to ₹1,046 crore against a loss of ₹103 crore in the December 2016 quarter.

Upcoming launches such as the new Discovery in the fourth quarter of this fiscal may give JLR volumes a boost. Ramp up of recent launches such as Jaguar F-PACE and XF long-wheel base in China will aid better volume growth too.

The good run may continue on the domestic passenger car front, with the Hexa launched in January 2017 and others such as the Tigor and the Nexon (compact SUV) expected to hit the markets soon.

On the CV side, pre-buying ahead of the BS-IV fuel emission norms implementation in April is expected to rev up MHCV sales.

Published on February 14, 2017

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