Tata Motors Suffers Huge Losses Due to COVID-19 Pandemic

Automobile major company Tata Motors declared a consolidated net loss of Rs 9,894 crore for the fourth quarter of January-March 2020. Though last year, in the corresponding quarter the company reported a profit of Rs.1,117 crores. The company’s total revenue from operations came down to 27 percent to 62,493 crores during the quarter.

The major cause of these losses is attributed to the decline in sales owing to the COVID-19 pandemic. Due to weak demand and COVID-19 induced lockdowns across the world, Tata Motors suffered huge losses. Jaguar Land Rover, which contributes the most to Tata Motors earnings, incurred a loss of 501 million pounds at Profits Before Tax level for this quarter. Some of the key markets of the company like Europe and China went into lockdown while also disrupting supply chains everywhere. At the standalone level (business in India) the company declared losses of Rs.4871 crores for this quarter while last year in the corresponding quarter, it reported a profit of Rs.106 crores.

The company said that in India demands were already affected by an economic slowdown, transition to BSVI engines, liquidity stress, and reforms in axle load norms during the last one year, was further aggravated by the COVID-19 lockdown. Further, a steep volume decline was observed particularly for MHCV and the resulting negative operating leverage affected the company’s profitability and cash flows. Tata Motors has come down to one of the worst quarterly losses since the December quarter of 2018-19. To get through the turmoil caused by COVID-19 obstructions in its Indian as well as UK subsidiary Jaguar Land Rover Automotive, the company said it would have to review and revamp its business to save Rs 15,000 crore for the consolidated entity in FY20-21.

The company is now in the process of making a new company for its domestic passenger vehicle business venturing into a wholly-owned subsidiary and is looking for potential partners for the same. Tata Motors has already taken a write-down of Rs.2500 for the passenger vehicle business.

Industry experts believe that the overall performance will be weak in the current quarter (Q1FY21) as well. Prolonged lockdowns in India and Europe have adversely impacted sales in April and May. However on a positive note, in India the company expects the sales to start recovering from June onwards and is gearing up its supply chain operations accordingly.

In a webcast with analysts, Tata Motors management acknowledged that current debt is at unsustainable levels and has emphasized its focus on debt reduction. The focus is two-folded. One is the reduction of cost and cash conversion and second is the reduction of investments. Investments by the company in India’s business are being halted. It further plans to invest ₹1,500 crore in current fiscal, significantly lower than in FY20. Also, it’s subsidiary JLR is expected to invest 2.5 billion pounds in current fiscal, which is 24% lower than in FY20. Furthermore, JLR plans to generate around 1.5 billion pounds of cash and cost savings in the current fiscal year.

In its immediate plans to conserve cash, the company is cutting down its capital expenditure (CAPEX) at JLR by at least 40 percent to £2.5 billion in FY21. It has further increased the JLR cost reduction plan by £1.5 billion to £5 billion by the quarter 4 of FY21. The company is further focusing on a cash improvement plan of Rs 6,000 crore, which further includes cost savings of Rs 1,500 crore for FY21. The net debt of Tata Motors at the consolidated level stood at Rs 42,000 crore excluding all the lease liabilities. Further, the company’s consolidated operating profit was at Rs 2,875 crore in the quarter.

As specifically for JLR, the Tata Motors said that after the British arm’s fruitful return to profit in second and third quarters, which significantly reflected improvements achieved, fourth-quarter results were hugely impacted by the COVID-19 pandemic.MD and CEO of Tata Motors, Guenter Butschek said the auto industry faced a strong setback in 2019-20 amid a slowing economy due to multiple factors. All those factors led to weak consumer sentiments and decreased demand across all vehicular segments.

Tata Motors standalone declared a 48 percent y-o-y decline in its revenue from operations at Rs 9,733 crore in the March quarter, whereas the Ebitda margin declined to 1,250 basis points to 5.5 percent. Let down by the current losses Tata Motors has decided to abort its ongoing projects midway which it thinks could not succeed due to the disruption caused by COVID-19.

The Mumbai-based auto giant is looking at savings of Rs 6,000 crore in the standalone segment which looks after the bus, truck, car, and SUV business, along with some international businesses as well. The manufacturer of cars like Nexon and Tiago reported a net loss of Rs 5,183 crore during the March quarter in its standalone entity. This also included an impairment charge of Rs 1,419 crore which was taken in the passenger vehicle business.