Tata Motors hits over 5-year low; stock falls 41% in 2018 on JLR concerns

The stock dipped 5% to Rs 253 in intra-day trade after the CEO of JLR reportedly warned that a hard Brexit would cost 1.2 billion pounds.

Shares of Tata Motors hit an over five-year low of Rs 253 per share, down 5% in intra-day trade, after the CEO of company owned Jaguar Land Rover (JLR), Britain’s biggest carmaker, reportedly warned that a hard Brexit would cost 1.2 billion pounds a year. The stock was trading at its lowest level since April 8, 2013 on the BSE.

“Extra costs and delays in parts deliveries coming from outside the U.K. would cut profit by 1.2 billion pounds a year, Ralf Speth, chief executive officer of the manufacturer owned by Tata Motors Ltd., said late Wednesday in an emailed statement,” the Bloomberg report suggested. 

Thus far in the calendar year 2018, Tata Motors underperformed the market by falling 41%, has seen market capitalisation erosion of Rs 547 billion at Rs 822 billion. On comparison, the S&P BSE Sensex was up 4.7% during the period.

Analysts at Prabhudas Lilladher expect volumes for JLR to be subdued over the next few quarters due to global headwinds and uncertainty over diesel engines, however the brokerage firm believe the management’s aggressive cost reduction efforts would enable JLR to achieve its stated near term EBIT margins of 4-7% over FY19-21.

Overall it seems capex will remain elevated for the next 3 years and hence free cash flow at JLR will remain weak hence constraining valuations. Tata Motor’s more immediate investment case then rests on a faster than- expected turnaround in India business on the back of growth and market share gains in CV business and net debt reduction, according to analysts at JP Morgan.

JLR faces challenging operating conditions given negative sentiment on Diesel in the UK/EU, higher incentives and elevated investment spending partly offset by higher growth in China. The India business (50% of SOTP) is clearly showing signs of improvement but reflation here may not be enough to offset the profitability drag from JLR. While absolute downside on the stock may be limited, a case for reflation may not be there until JLR starts closing the margin gap with luxury OEs. JLR’s model cycle remains exciting, in our view, and higher-than-expected volume could be a positive surprise, it added.

At 10:36 am; Tata Motors was trading 3% lower at Rs 259 on the BSE, as compared to 0.14% decline in the S&P BSE Sensex. A combined 9.48 million equity shares changed hands on the counter on the BSE and NSE so far.

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Nano, which was unveiled in January 2008 at the Auto Expo with much expectations of being the people’s car, could not live up to the billing

 

Tata Motors’ small car Nano is inching closer towards the end of its journey with just one unit produced in June, although the company maintained that no decision has been taken yet on stopping its production.

The entry level car, brainchild of Ratan Tata who envisaged giving a safer and affordable alternative to families riding on two-wheelers, sold just three units last month in the domestic market.

In a regulatory filing, Tata Motors said there was no export of Nano in June this year. It had shipped 25 units in the same month last year.

In terms of production, only one unit was produced last month as against 275 units in June 2017.

Domestic sales were at three units in June as against 167 units in the year-ago month.

When contacted for comments on whether the company has taken a decision to stop Nano production, a Tata Motors spokesperson said, “We are well aware that the Nano in its present form cannot continue beyond 2019 and may need fresh investments to survive. No decision has been made yet in this regard.”

The spokesperson further said, “Meanwhile, we continue to produce Nano catering to customer demand in key markets.”

Nano, which was unveiled in January 2008 at the Auto Expo with much expectations of being the people’s car, could not live up to the billing.

The car was launched in the market in March 2009 with an initial price of close to Rs 100,000 for the basic model despite cost escalations, with Ratan Tata insisting that “a promise is a promise”.

However, from the beginning, Nano courted trouble. It was originally planned to be rolled out from Tata Motors‘ proposed plant at Singur in West Bengal, where it faced intense political and farmer protests against land acquisition.

The company had to shift its production to a new plant at Sanand in Gujarat.

Instances of the car catching fire initially after it was launched didn’t help its cause either.

Ratan Tata had admitted that the company made the mistake of promoting the Nano as ‘the cheapest car’.

It become a loss-making model for Tata Motors with ex-Tata Sons chairman Mistry, who was abruptly removed from the post, even went on to claim that the Nano “consistently lost value, peaking at Rs 10 billion”.

Mistry also termed the Nano as one of the “legacy hotspots” and there was “no line of sight to profitability for the Nano, any turnaround strategy”.

He had also claimed that Tata Motors did not stop producing the car due to “emotional reasons”.

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