No equity value is expected of Tata Motors’ India business, and its luxury car unit, Jaguar Land Rover (JLR), is the only driver of its valuation, according to a report by CLSA, a brokerage firm, on Tuesday.

This is at a time when the Indian automobile industry is faced with the worst downturn, its prospects aggravated by the Covid-19 pandemic. The industry posted posted zero sales in April for the first time.

“We assign zero equity value to its Indian business,” it said. “We believe future equity infusions are also likely to be utilised for loss of funding and hence we do not attribute any equity value to its India business,” it said. CLSA downgraded Tata Motors to underperform from buy.

It forecasts consolidated net debt to increase 4.6 times in FY21 from 1.1 times in FY19 despite an equity infusion by Tata Sons, it added. JLR’s cashflow should recover in FY22, but its India business will remain FCF negative, it said.

CLSA’s believes the Covid-19 related demand disruptions will delay Tata Motors’ much-needed deleveraging cycle by four to six quarters. Tata Motors’ overall India business, which includes both passenger vehicles and commercial vehicles, has underperformed peers such as Mahindra and Ashok Leyland, it said.

JLR’s model cycle had begun to recover, driven by refreshes of the Evoque and Discovery Sport. CLSA said its recovery has been pushed forward by two-three quarters.

“We expect Tata Motors to try and accelerate strategic sales in the India PV business (company has announced its decision to demerge) and its captive financing arm (Tata Motors Finance). We calculate that such deals could potentially increase equity value by ₹92 billion resulting in an upside of about 30 per cent. However, we view these as low probability events in the current scenario,” it said.

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