News Analysis

JLR continues to drag Tata Motors

Parvatha Vardhini C | Updated on July 25, 2019 Published on July 25, 2019

Tata Motors posted a consolidated loss of ₹3,680 crore in the quarter ended June 2019. With this, the company has recorded losses in four out of the last five quarters. While poor offtakes across key markets such as China and Europe impacted JLR, the slowdown in domestic auto sales did no good to the standalone business. Thus, both the Jaguar Land Rover (JLR) business and the domestic standalone business contributed to the loss.

Headwinds at JLR

JLR revenues dropped 2.8 per cent to £5,074 million (₹43,600 crore approx.as of today ) in the April–June 2019 quarter over the same period last year. While it recorded a loss (before taxes and exceptional items ) of £383 million (₹3,300 crore approx. as of today) in this period, it had clocked a loss of £264 million a year ago, in the quarter ended June 2018.

Poor volumes and regulatory headwinds has been pulling down JLR for at least a year now. During the quarter, JLR’s retail volumes dropped by 11.6 per cent, with volumes in China and Europe falling sharply. Weak demand coupled with run out of older models such as the Discovery Sport contributed to the fall.

Higher warranty and marketing costs impacted profitability. China has been seeing higher discounts in the premium segment in the last few quarters.

Thanks to lower operating leverage and higher expenses, JLR’s operating margins came in at 4.2 per cent, the lowest in the last five quarters.

The domestic business too faced tough market conditions due to a slowdown in vehicle demand, liquidity crunch as well as low freight availability. Domestic volumes for the company dropped 22.7 per cent during the quarter.

Outlook

While JLR numbers have been dismal in the last few quarters, the company expects it to improve from now on. For one, the Chinese market which was bogged down due to the US China trade war is already showing signs of improvement with sales volumes picking up in June 2019.

In China, the company has also undertaken changes such as resetting inventory levels, redrawing its engagement with retailers and simplifying its incentive programmes to provide greater benefits.

Secondly, global volumes are expected to recover from launches such as the refreshed Discovery Sport and Jaguar XE as well as the new Range Rover Evoque and the Jaguar I –Pace . Three, the ongoing ‘Project Charge’, directed at achieving cost savings of £2.5 billion by 2019-20 may also improve profitability. It aims to reduce engineering expenses, rationalise inventory and bring down employee and selling expenses. Since 2018-19, JLR has so far achieved £1.7 billion of savings under this project.

Thanks to these efforts, JLR targets EBIT (Earnings before interest and taxes) margins to be in the range of 3-4 per cent this fiscal. It was 2.5 per cent in June 2019 quarter.

Published on July 25, 2019
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