Tata Motors slumps over5%

Tata Motors is currently the top loser on the BSE. It opened a bit into the positive at Rs.101.25 but from there slipped down over 5% to Rs.95.40. It has recovered a bit and is now trading at Rs.96 levels.

The company posted a massive Rs.9864 crore consolidated net loss of Q2FY20. The company made a provision of Rs.2549 crore for impairment in its passenger vehicle business, onerous contracts and subsidiaries. What also did not help was the 28% (YoY) drop in net revenue at Rs.62,493 crore. JLR sales dropped 24% while that of its Indian operations fell 48%.

Looking ahead, the company said that Q1 FY21 is expected to be significantly weaker in both JLR and TML with the full impact of lockdowns being reflected in the results. A gradual improvement in performance is anticipated in the coming quarters while driving a robust cost and cash savings agenda. Actions are underway to significantly deleverage the Tata Motors Group with JLR to become sustainably cash positive from FY22 while becoming future ready.

The company is now seeing encouraging recovery in China with all its dealers now open and with sales of 6,828 vehicles in April, down only 3.1% year on year and 8,068 in May, up 4.2% year on year.

Accordingly, the company is gradually resuming production at the Solihull and Halewood vehicle manufacturing plants and engine plant in the UK, the Slovakia plant, and contract assembly line in Austria.

In this fluid situation, the company will focus on conserving cash by rigorously managing cost and investment spends to protect liquidity. The company has now increased the Charge target for March 2021 to £5.0 billion, implying £1.5 billion of cost and cash savings in FY21.

As part of this, company has deferred or cancelled lower margin and non-critical investment and is targeting investment spending of circa £2.5 billion in FY21, substantially lower than £3.3 billion in FY20 and £3.8 billion in FY19. As a result of the impact of worldwide lock downs on sales and plant shutdowns, free cash flow was negative c. £1.5b in April and May, including one-time working capital outflows of c.£1.2b; free cash flow for the full quarter ending 30 June is expected to be less than £2 billion negative.

While the outlook remains uncertain the company expects a gradual recovery of sales and improving cash flows for the remainder of the year.