Tata Motors warns of lower JLR profit due to coronavirus

Tata Motors has warned of a reductionin China sales of its luxury car brand Jaguar Land Rover (JLR) due to the coronavirus impact and estimated a decrease in JLR’s full-year EBIT margin by about 1 per cent.

Tata Motors share prices ended down 9.07 per cent at ₹114.25 on the BSE, which closed down 2.32 per cent on Friday.

However, the free cash flow in fourth-quarter is still expected to be modestly positive and JLR has 5.8 billion pound of total liquidity as of December 2019 (£3.9b of cash and a £1.9b undrawn revolving credit facility), it said in regulatory filing.

The coronavirus has significantly impacted China sales with February retails down around 85 per cent versus the previous year. In the first half of the month, about 20 per cent of the dealers were open, which has since improved to now over 80 per cent. However most are still operating with reduced staffing and facilities.

JLR expects this to improve over the course of March. Hhowever, retail sales are expected to recover more gradually. The spread of the virus to other markets such as South Korea, Japan, and Italy will also impact sales in those markets, it said.

JLR sales in China grew on average of about 25 per cent year-on-year for the six months from July through December 2019 and posted “strong growth” for the first three weeks of January.

JLR’s supply chain is primarily based in Europe and the UK, with a relatively small percentage of direct parts from China. Over 95 per cent of its Tier 1 and Tier 2 suppliers in China are now open but at reduced capacity and JLR is engaged with its suppliers on the status of their sub-tier suppliers in China.

JLR has visibility of availability of most parts out two weeks for or more and has managed to avoid potential parts shortages by working closely with its suppliers and with some increased use of air freight.

In the event of specific parts shortages, JLR would ordinarily be able to build cars still and retrofit missing parts when available.

“However, we cannot rule out the risk that a shortage of a critical component could impact production at some point. The spread of the virus to South Korea, Japan, and Northern Italy are creating similar issues which we are managing in the same way,” it added.

On its domestic business, fourth-quarter performance was earlier expected to be “significantly impacted” due to the switchover from BS-IV to BS-VI. The shortage of parts is likely to have some additional impact on specific BS-VI models, which is expected to be secured in the coming months, it added.

Tata Motors expects to end the quarter with positive free cash flow.

Tata Motors Group is continuously monitoring the evolving coronavirus situation closely and responding appropriately in accordance with relevant government requirements and advice in China and other jurisdictions it operates, it said.

Shanghai-based JLR China and Chery Jaguar Land Rover staff have been working from home since the end of the lunar holiday, and the offices and JV plant reopened in the week of February 24. Production will be ramped up as the number of employees returning to work and demand increases, it added.