Tata Motors' Q1 loss widens to Rs 5,007 cr amid chip woes, China lockdown

Tata Motors’ consolidated losses for the first quarter (Q1) that ended June deepened as semiconductor woes, coupled with a lockdown in China and volatile foreign exchange, dented earnings at Jaguar Land Rover (JLR) Automotive — its UK subsidiary. 

Led by strong operational performance of the commercial vehicle/passenger vehicle business and India operations, its India business was able to trim losses to Rs 181.03 crore, from Rs 1,320.74 crore.

Losses at the consolidated entity widened to Rs 5,007 crore, compared with Rs 4,451 crore. Losses at the UK subsidiary widened to £482 million, from £286 million, as JLR retail sales fell 37 per cent to 78,825 units from the year-ago quarter. It remained flat, compared to the preceding quarter. 

Analysts had expected the automotive major to report a consolidated net loss of Rs 1,263 crore during the June quarter. The earnings before interest and tax (Ebit) margin decreased to 4.4 per cent, reflecting lower wholesales and a weaker product mix.

On Wednesday, the company’s scrip on the BSE closed 0.66 per cent higher at Rs 443.95.
 

“It was a disappointing quarter,” said P B Balaji, group chief financial officer, adding, “The volumes were constrained by the semiconductor supplies and slower-than-expected ramp of the Range Rover and Range Rover Sport, as well as Covid-induced lockdown in China,” at a post-earnings call, alluding to the company’s inability to cash in a strong order book of 200,000 units that JLR has.

He, however, guided for a strong September quarter — likely to be the best in five quarters — as the availability of chips improves, which, in turn, is likely to aid ramp-up, even as the impact of China lockdown reduces.

“A cool-off in commodity prices after a sharp rise will also aid margins,” he said.

On the impact of geopolitical issues triggered by the Russia-Ukraine stand-off and the prospects of a looming recession in several of its key markets, Balaji said that the luxury car segment is “less prone to recession” and relatively resilient to the macroeconomic headwinds, and the demand outlook for the segment remains strong.

The JLR volumes in China during the quarter were dented by a lockdown dragging it down to 18,500 units, from 27,000 units in the year-ago quarter, the company said in its presentation.  

Sales in most of its other markets fell quarter-on-quarter (QoQ) and year-on-year (YoY) due to semiconductor issues. Europe and the UK were the only markets that showed an increase QoQ. Inventories at JLR’s sales channels are at historically low levels as supply remains constrained.

Meanwhile, the commercial vehicle business in the domestic market witnessed strong volume growth, compared to Q1 of 2021-22 (a Covid-impacted quarter).

Growth in Q1 of 2022-23 has been broad-based across regions and segments, the company said in a statement. The margin improvement was aided by higher volumes, realisations, and stable commodity prices.

Tata Motors’ passenger vehicle business continued its strong momentum with despatches to dealers rising to 130,351 vehicles — up 101.7 per cent YoY.

Sport utility vehicles contributed 68 per cent in quarterly volumes. A richer mix and high volumes bumped up margins.

Notwithstanding the headwinds in business, Tata Motors aims to deliver a significant positive Ebit margin of 5 per cent and a positive free cash flow (£1 billion) in the full year, said the company in an investor presentation.

In a research note, Mansi Lall, analyst at Prabhudas Lilladher, wrote that the brokerage has a “positive stance on Tata Motors” owing to the likelihood of the passenger vehicle business gaining further market share and commercial vehicles likely benefiting from cyclical upturn, improving fleet utilisation, and freight rates.
 

New refreshes in Land Rover and a strong order book are likely to benefit JLR and drive free cash-flow generation, noted Lall.