Q2 Results: China Roadblocks Force Tata Motors To Launch Turnaround Plan For JLR

Tata Motors Ltd.’s loss for the July-September period was worse than analyst estimates as its luxury unit Jaguar Land Rover struggled in China.

Net loss stood at Rs 1,049 crore compared with a profit of Rs 2,482.8 crore in the corresponding quarter last year, according to its exchange filing. That’s more than the Rs 874 crore loss estimated by analysts tracked by Bloomberg.

The company reported a wider-than-expected loss in the July-September quarter due to lower sales at its key luxury unit Jaguar Land Rover. But the company now has a turnaround plan.

JLR Cuts Spending Plans

Jaguar Land Rover's loss narrowed to £101 million from £253 million, in line with the £100-million loss estimated. Revenue came in at £5,635 million compared with the £5,700-million estimate.

"In JLR, market conditions, particularly in China, have deteriorated further," said Group Chairman N Chandrasekaran in a press statement.

The luxury unit, which contributes almost 90 percent to Tata Motors' revenue, has been suffering due to uncertainty around Brexit and China demand.

As these uncertainties mount, JLR has cut down its planned spending by £500 million. It will now spend £4.03 billion over the current and next financial year, according to the statement.

Management now expects the company to break even by the end of the financial year, in terms of pre-tax profit, as performance improves in the third and fourth quarter.

Global demand for its cars is waning, particularly in Europe, U.K. and China.

China—which was driving growth for JLR till last fiscal—is now engaged in a trade war with the U.S. that's keeping consumers away from showrooms. Chinese car sales have been tumbling as slower economic growth, a weakening currency and stock market losses added to the trade war woes.

In Europe, sales were also affected by continuing weakness in diesel demand and the introduction of new rules on carbon dioxide emissions. Sales in U.K. were adversely impacted by diesel taxation and regulations, alongside continuing uncertainty related to Brexit.

Tata Motors’ Operations Improve

The carmaker’s revenue rose 3.2 percent to Rs 72,112.1 crore, lower than the Rs 72,980 crore estimate.

However, the operational performance was better than expected. Earnings before interest, tax, depreciation and amortisation rose 16.4 percent to Rs 6,757.6 crore, higher than the Rs 6,560 crore estimate. Ebitda margin contracted to 9.4 percent from 11.5 percent in the same quarter last year, but was higher than the 9 percent estimate.

Tata Motors’ Underperformance

Shares of the carmaker have dropped more than 60 percent so far this year, compared with a 26.6 percent fall in the NSE Nifty Auto Index. This makes Tata Motors the biggest loser on the index so far. The stock ended the day 0.4 percent higher at Rs 178 apiece ahead of its earnings announcement.

(Corrects the corresponding quarter’s profit figure.)