Chip shortage impact: Tata Motors posts Rs 1,451-crore consolidated net loss

Tata Motors reported a consolidated net loss of Rs 1,451 crore for the October-December quarter, which was much higher than what the Street was anticipating at Rs 989 crore. The performance was primarily impacted by the ongoing semiconductor shortage issue, which led to lower sales for Jaguar Land Rover (JLR), while commodity inflation bit into margins. The company had reported a net profit of Rs 2,941 crore in the corresponding quarter last year.

The company’s consolidated revenue declined 4.5% on a year-on-year basis to Rs 72,229 crore, which was a tad below Bloomberg consensus estimates of Rs 72,680 crore, impacted by the weakness in JLR business. JLR reported a 21.2% y-o-y decline in third quarter revenue which came in at £4.7 billion.

PB Balaji, chief financial officer, Tata Motors, said in an earnings conference that demand continues to remain strong despite near term concerns from Omicron spread, and while the semiconductor supply situation is improving gradually, inflation worries persist. However, he said, “Business is getting intrinsically resilient and therefore we could start turning strong performance once volumes start coming through. With concerted actions in place to address the near-term supply and cost challenges, we expect performance to improve further in Q4 FY22 and beyond.”

JLR, which contributes nearly 80% to the overall revenue of the company, witnessed a steep 38% y-o-y decline in retail sales, with 80,126 units sold due to chip shortage constraints. However, the company said that the chip supply situation is gradually improving, with production volumes of 72,184 units up 41% sequentially and wholesales of 69,182 units up 8% versus July-September quarter.

However, Indian operations continued their upward trajectory. The revenue for the quarter was up a sharp 43.3% y-o-y to Rs 21,000 crore at Tata Motors standalone business. The passenger vehicle (PV) retail sales increased 41% y-o-y to 1.09 lakh units, while the market share strengthened further to 13% in the third quarter. The PV sales were the company’s highest ever in a calendar year since the inception of the business. Retail sales in the commercial vehicles (CV) business went up by 24% y-o-y to over 93,100 units sold, while the market share stood at 45.4%. All segments in CV gained market share in the current financial year.

High commodity inflation impacted Tata Motor’s consolidated Ebitda (earnings before interest, tax, depreciation and amortisation) during the quarter, which declined 34% y-o-y to Rs 7,395 crore, while the margins dropped a sharp 460 basis points y-o-y to 10.2%. The margins were primarily impacted by sharp rise in commodity inflation in the standalone business which cost the company 430 basis points this quarter and subsidiarisation-related one-off cost related to the PV business was about 80 basis points.

Balaji said that the company has not been able to price the extent of commodity inflation in the standalone business. However, he expressed optimism that with steel prices stabilising profitability would improve in Tata Motors business in January-March quarter both for the PV and CV segments.

“We see commodity prices stabilising and therefore the prices will start landing unlike earlier when we were playing catch up. And now that the savings programme is firing all cylinders means that we expect to see improved margins in the domestic business in Q4 and beyond,” he said.

The company had taken a 1.4% price hike in January in the PV business, while CV business price hikes have been 2.5%. However, Balaji said that the price increase in CV is not enough, despite an overall increase of 26% since March last year due to the transition to BS-6. “We are losing 430 basis points, though less than 540 basis points in Q2 but still not good enough. In the fourth quarter we hope to catch up on some of those pricing because steel prices are stabilising, though I do not see them come down in a hurry”.

As for JLR, Balaji said that the company expects to improve production, wholesale and retail from current quarter onwards. “The good part is that volumes and mix for JLR has been strong, which is the reason that even though wholesales of 69,000 units the Ebit has been positive and sequentially margins improved substantially from a negative 0.4% in the second quarter to 1.4% as breakevens in business are low and with volumes pick up, numbers are coming through,” he said.

Meanwhile, the ‘Refocus’ transformation programme at JLR has delivered £1 billion of value in the first three quarters of FY22 through digital initiatives, market performance, cost efficiency and investment. The programme is now expected to achieve £1.4 billion of value in FY22, beating the original £1 billion target. JLR coming back gradually but strongly.

Free cash flow (automotive) in the quarter, was positive at `4,000 crore, though lower compared to Rs 7,900 crore in the same quarter a year ago. Finance costs increased by Rs 275 crore to Rs 2,401 crore on a y-o-y basis. The consolidated gross debt stood at Rs 1,52,991 crore as on December 31, 2021, higher compared to Rs 1,48,872 crore at the end of September 2021. The net automotive debt at Rs 60,391 crore as on December end was lower compared to Rs 64,371 crore as on September 30, 2021.