How Much Has JLR Cost Tata Motors?
Jaguar Land Rover Automotive Plc. invested more than three times the profit earned since its acquisition by Tata Motors Ltd., which reported the biggest loss in India’s corporate history as its British luxury brand struggles.
The Tata Group acquired JLR in June 2008 for nearly $2.3 billion. In 2007-08, the marque brand suffered a loss of £400 million. It turned profitable in financial year 2010-11 and maintained it till 2016-17.
Tata Motors announced a rights issue worth Rs 4,200 crore in 2008 to fund the acquisition of JLR, according to a prospectus filed by the company. After this, the automaker repaid nearly $2 billion worth of loans. In 2015, Tata Motors launched another rights issue worth Rs 7,500 crore to pare debt. Nearly Rs 2,000 crore was used to fund its capital expenditure and research and development expenses for both domestic and JLR operations.
The U.K.’s largest carmaker invested nearly £25 billion since FY10 compared with its reported profit of £ 7.9 billion during the same period, according to its filings. That’s three times the profit earned by the company since its acquisition. Still, JLR generated a free cash flow—the amount left over after a company pays for its operating expenses and capex—£1.35 billion since FY10.
But the luxury brand has been facing headwinds since financial year 2017-18. Its profitability declined after sales fell in highly profitable markets like China—JLR’s growth driver that’s engaged in a trade war with the U.S. A decline in demand for diesel vehicles—that accounts for 90 percent of JLR’s sales in Europe—and uncertainties over Brexit only added to its woes. It also announced a production cut in April this year and lowering of its planned spending by £500 million pounds over the current and the next financial years.
Fitch Ratings today added Tata Motors to its negative watch list, citing growing uncertainties around a hard Brexit. It placed Tata Motors’ long-term issuer default rating of ‘BB’ on “rating watch negative” to reflect the increasing risks of a disorderly Brexit for its fully owned subsidiary JLR.
“We aim to resolve the rating watch negative in the next few months, when we will have more clarity over the outcome of Brexit negotiations and its impact on Tata Motors,” the rating agency said in a report. “This could lead to a downgrade by at least one notch.”
Watch BloombergQuint’s interaction with Fitch Ratings here: