Tata Motors reports Rs 307-crore loss in Q2

Tata Motors reported a net loss of Rs 307.26 crore for July-September 2020 compared to Rs 187.70 crore net loss in the September quarter last year as demand continued to be weak across key markets compared to pre-Covid period of last year. However, the loss was well below the Street’s estimated Rs 1,970 crore, as the company took stringent cost saving measures.

The company said signs of revival were visible, with September and October witnessing strong demand in both passenger and commercial vehicle segments in India, while China was back to growth which would be favourable for Jaguar Land Rover.

Revenues during the quarter were impacted by the fall in vehicle volumes. The company’s consolidated revenues declined 18.2% on a year-on-year to Rs 53,530 crore. However, the fall was arrested compared to Q1FY21, when the net sales had halved. P B Balaji, chief financial officer, Tata Motors said though the weakness persists compared to last year, but sequentially there was a definitive improvement. TaMo’s consolidated ebitda during the quarter fell a sharp 31% y-o-y to `5,620.65 crore, while margins declined 190 basis points y-o-y to 10.5%.

Back home, he said that the festive season demand was strong and it was not just pent up demand but there were signs that this would sustain.  “I would have understood pent up demand in the months of June, July, maybe August but it keeps cutting into September, into October and picking up further, it is not stopping, it is building up momentum. Most OEMs are struggling to supply at this point in time, so there has to be more than just pent up demand. If it was pent up it would have got completed by now, I do not see that happening,” Balaji said.

However, he maintained a cautious stance on how much of this would sustain beyond the festive season. “We will have to wait and see does this momentum continue post the festive season. But I do not see this demand suddenly disappearing because people are waiting to pick up the car of their choice, there are long waiting periods,” he said.
Commercial vehicle demand, which was weak till about two months ago, is also showing signs of improvement on the back of pick up in commercial activity. However, in buses segment, there is no movement at all as schools and offices remain shut and state transport companies lack financial muscle and are not ordering buses.

On a year-on-year basis, the vehicle sales remained subdued. Retail sales in Jaguar Land Rover were down 11.9% year-on-year to 113,569 units, but sequentially they were up 53.3%. At Tata Motors in India, CV volumes tanked on a y-o-y basis to 38,300 units while passenger vehicle volumes were up 73% y-o-y to 53,500 units.

JLR, which contributes 78% of the company’s overall revenues returned to profit with positive cashflows in the quarter as sales and revenue recovered from the impact of Covid-19, but remained below pre-Covid levels a year ago.

JLR reported a 28.5% y-o-y drop in revenues to £4.4 billion. Profit before tax of £65 million was up significantly from a loss of £413 million in the preceding quarter but lower than the pre-covid PBT of £156 million a year ago. JLR’s operating margins improved to 11.1% in Q2 from 3.5% in the June quarter. However, margins were 270 basis points lower compared to last year. The improvement in the year reflects the recovery in sales, £0.3 billion of Project Charge+ cost efficiencies and favourable foreign exchange impact.

“China is back to growth and we continue to see things improving on the ground there. Similarly, we are seeing in the rest of the world starting with UK where we have witnessed flat growth, US and Canada are also coming through and Europe is also starting to lift. However, Covid situation is in various stages in the rest of the world and continues to have an impact. We also need to watch out for second wave of Covid how it plays out. So far it is not showing on the demand pattern,” Balaji said.

The automaker’s standalone domestic business reported 3% y-o-y decline in revenues to Rs 9,700 crore and loss before tax stood at Rs 1,212 crore. Free cash flow for the quarter was Rs 2,300 crore, better than expected as the company drove the cost and cash savings agenda hard with Rs 1,455 crore delivered in Q2FY21. The investment spends were reduced significantly to Rs 669 crore for the quarter. The PV segment achieved ebitda breakeven, on the back of strong performance. CV margins though improved sequentially but continues to be impacted by lower volumes and adverse mix on a y-o-y basis.

Balaji said that there were concerns around pace of recovery in commercial vehicles two months ago but by September and October trends suggest that the commercial vehicle business was seeing an improvement. “All CV segments are back to growth again. Light commercial vehicle sales were strong in September and saw good momentum in October. MHCVs have also come back into demand growth. Within medium segment the tipper segment has done extremely well thanks to pick up in mining, national highways and port projects getting clearance. Cargo was late to come in but is slowly starting to stir as well,” he said.

The company reported liquidity of around £5 billion in JLR as on September 30 and over £3 billion of cash and £1.9 billion undrawn credit facility. At Tata Motors, the company’s liquidity position as at end of the quarter stood at Rs 5,600 crore. Finance costs increased by Rs 114 crore to Rs 1,950 crore during second quarter versus prior year due to higher gross borrowings as compared to Q2FY20.

The company in a statement said that it was committed to achieving near zero net automotive debt in the coming years by focusing on better front-end activations of our exciting product range and executing our cost and cash savings with rigour.