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Subdued demand for automobile dragged Tata Motors consolidated net loss to ₹9,863.75 crore for the fourth quarter ended March 31, 2020. It had posted a consolidated net profit of ₹1,108.66 crore during the same quarter last year. The loss during the fourth quarter is also because the company made a provision for impairment in its passenger vehicles business, onerous contracts and subsidiaries, amounting to around ₹2,500 crore.
Total revenue from operations during the fourth quarter of FY20 stood at ₹62,492.96 crore, a 27.68 per cent fall from the year-ago period’s ₹86,422.33 crore.
“The auto industry faced strong headwinds in FY20 amidst a slowing economy due to multiple factors - liquidity crisis, high fuel prices, changes in axle load norms and BS-VI transition, all leading to weak consumer sentiments and subdued demand across segments,” said Guenter Butschek, CEO and MD, Tata Motors. “Disruption in the supply chain induced by the pandemic and the nationwide lockdown in mid-March 2020 added to the problems. Disappointingly, even with our relentless focus on retail acceleration, ‘Mission Zero’ on BS-IV inventory and stringent cost reduction initiatives, we have not been able to mitigate the impact on our financials,” he said.
“Currently, we are operational at all our plants and at most of the dealerships with a strict adherence to safety and health norms,” Butschek added.
In India, demand which was already adversely impacted, was further affected by the coronavirus-induced lockdown, Tata Motors said. Steep volume decline, particularly in medium and heavy commercial vehicles (MHCV), and resulting negative operating leverage impacted profitability and cash flows, it said.
The company’s subsidiary, Jaguar Land Rover (JLR), suffered a loss of £501 million in Q4 and £422 million for the full year on revenues of £5.4 billion and £23 billion, respectively. Following its return to profit in the second and third quarters, Covid-19 significantly impacted the fourth quarter, the company said. JLR’s retail unit sales fell 30.9 per cent in Q4 and 12.1 per cent in fiscal 2019/20.
When it comes to JLR, the company said that it is now seeing encouraging recovery in China with all its dealers now open and with sales of 6,828 vehicles in April, down only 3.1 pet cent year on year and 8,068 in May, up 4.2 per cent year on year. In this fluid situation, the company will focus on conserving cash by rigorously managing cost and investment spends to protect liquidity, it said. While the outlook remains uncertain the company expects a gradual recovery of sales and improving cash flows for the remainder of the year.
“In China, we are beginning to see recovery in vehicle sales and customers are returning to our showrooms. Our operational fitness gives me confidence that we can weather this storm,” said Ralf Speth, JLR Chief Executive Officer, JLR.
Focus on conserving cash
With limited sales in the quarter so far, the company expects sales to start recovering from June onwards and is gearing up its supply chain accordingly. The company will focus on conserving cash by rigorously managing cost and investment spends to protect liquidity, it said.
Tata Motors has called out a cost savings programme of ₹1,500 crore and a cash improvement programme of ₹6,000 crore. As part of this, the company has deferred or cancelled lower margin and non-critical investment. It is targeting capex spending of ₹1,500 crore in FY21, substantially lower than ₹5,300 crore in FY20 and FY19.
With peak lockdowns in the first quarter, Tata Motors expects significantly lower sales in the quarter and negative free cash flow of about ₹5,000 crore in Q1FY21. While the outlook remains uncertain, the company expects a gradual recovery of sales and improving cash flows for the remainder of the year and expects to end the FY21 with positive free cash flows.
It said that FY21 is expected to be significantly weaker in both JLR and TML with the full impact of lockdowns being reflected in the results. “Actions are underway to significantly deleverage the Tata Motors Group with JLR to become sustainably cash positive from FY22 while becoming future ready,” it said.
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