By Amit PandayNew Delhi: Heavy asset write-offs and restructuring costs originating from the British luxury carmaker Jaguar Land Rover’s (JLR) ‘Reimagine strategy’ has clawed back substantial gains made from sales recovery and internal cost savings during the March quarter, thus driving parent Tata Motors Ltd to report net loss of INR 7,605 crore for the period.
The Q4 FY21 loss is reported against a bigger net loss of INR 9,894 crore in the year-ago period.
Tata Motors’ consolidated March quarter financials show a profit of INR 5,703 crore, before accounting for the exceptional items and tax, as the company reported a 42% YoY growth in its total revenue from operations to INR 88,628 crore.
However, it took a one-time exceptional charge of INR 14,994 crore associated with JLR’s plan of converting its fleet into fully electric through this decade – a new but necessary direction taken in February that not only keeps JLR aligned with the tightening emission norms around the world but also relevant amid evolving competition.
According to Tata Motors, the exceptional charge includes asset write-off of INR 9,606 crore and restructuring costs of INR 5,388 crore, with both the heads involving costs related to cancellation of models under development such as electric Jaguar XJ sedan and other obligations on work performed so far.
“Under the Reimagine strategy, Jaguar will go fully electric by 2025 and Land Rover will have 6 pure electric models in the next 5 years. JLR will have all models as EVs by 2030. These are very radical shifts in our strategy to respond to the current market developments. Due to this we have decided we will not proceed with some of the investments that we have already made half way in terms of some of our IC engine (diesel, petrol) portfolio and platforms that are not going to be future-ready with respect to the new strategy,” PB Balaji, chief financial officer, Tata Motors Ltd said in a media call on Tuesday.
In addition to that, he said, an impairment of about INR 2,000 crore taken earlier in Tata Motors’ passenger vehicle (PV) business is reversed in Q4 as the company recorded strong performance during the period.
“We had impaired the PV business and had taken a onerous provision of about INR 2,000 crore because the volumes were low against a certain contract that we had last year. That is reversed in Q4 because the PV business is firing on all cylinders. So the net one- time exceptional charges amount to about INR 13,000 crore,” Balaji said, rationalising the timing of these expenses that added to the quarterly loss.
According to the senior company official, while the JLR write-offs were called out in February when all-new direction for the luxury carmaker was announced, the INR 2,000 crore impairment reversal in PV business comes as a pleasant surprise.
“Both these points are being done from a position of strength,” he said.
At INR 66,075 crore, JLR revenues were up 31% YoY and contributed almost 75% to Tata Motors’ total revenue from operations during the March quarter.
The deleverage plan that we had called out in the AGM is on track. The automotive debt is down by about INR 7,500 crore. We ended the year at INR 40,900 crore of net automotive debt.PB Balaji, chief financial officer, Tata Motors
JLR revenues for the quarter grew on a strong sales recovery in China and the US as the carmaker achieved an EBIT (earnings before interest and taxes) margin of 7.5% in Q4 against 2.6% for FY21.
The revenues from CV and PV segments in Q4 stood at INR 14,334 crore (up 81% YoY) and INR 6,475 crore (up 159% YoY) respectively.
For the full year, total consolidated revenues were down 4.32% YoY to INR 249,795 crore despite the COVID-led disruptions globally.
Annual revenue for JLR stood at INR 193,823 crore, down 7% YoY, last fiscal. The revenue from CV and PV segments were at INR 33,104 crore (down 9% YoY) and INR 16,606 crore (up 58% YoY) respectively during the period.
Strong recovery in sales
Tata Motors’ consolidated revenue from operations in Q4 grew on the back of strong sales recovery across JLR and the standalone businesses. While JLR retail sales grew 12.4% YoY to 123,483 units, the company’s domestic sales were up 94% YoY to 182,824 units for the three-month period.
JLR’s Q4 retail sales included 23,463 units of Jaguar cars, down 17% YoY, and 100,020 units of the Land Rover SUVs, up 23% YoY.
According to Balaji, the Land Rover Defender has sold close to 17,000 units in Q4 alone.
Meanwhile, the other Land Rover models such as the Discovery Sport, Range Rover Sport and Range Rover saw volumes growing at 29% YoY, 21% YoY and 16% YoY respectively during the March quarter. The company said XF, XE and F-Type Jaguar models saw improved sales during the period.
In the standalone business, the domestic Q4 volumes included total commercial vehicle sales of 107,484 units, up 56% YoY, thanks to a strong recovery seen across light, medium and heavy commercial vehicle segments.
In the PV segment, the company sold 83,857 cars as against 32,000 units sold in the year-ago period. The robust growth in PV volumes was driven by the demand for popular models such as Nexon compact SUV, Altroz premium hatchback and Harrier and Safari SUVs.
For the full fiscal, JLR sold 439,588 units, down 14% YoY. Meanwhile, Tata Motors sold 464,515 units, up 5% YoY, in FY21. While commercial vehicle sales were at 262,773 units, down 23% YoY for the last fiscal, car sales grew to 222,025 units from 131,196 units in the year-ago period.
Deleverage plan is on track
Balaji said that Tata Motors’ deleverage plan remains on track as the company continues to shed its non-core units, reduce debt, improve profitability and save costs across operations.
Last year in its annual general meeting, Tata Motors chairman N Chandrasekaran had said that the company plans to significantly reduce its automotive debt of about INR 48,000 crore and make the company debt-free in three years.
“The deleverage plan that we had called out in the AGM is on track. The automotive debt is down by about INR 7,500 crore. We ended the year at INR 40,900 crore of net automotive debt. We have delivered a free cash flow (FCF) of INR 10,200 crore in Q4 and INR 5,300 crore in FY21,” Balaji said.
Tata Motors cash and cost saving programme, charge plus, has delivered savings of GBP 2.5 billion in Q4 and cumulative savings of GBP 6 billion so far for JLR. Cash savings across TML’s CV and PV businesses in FY21 were at INR 9,300 crore. It was earlier pegged at INR 6,000 crore, Balaji said.
“We continue to improve profitability despite lower volumes. The cash flow break-even at JLR is now reduced to 400,000 units, which is a good 150,000 units lower than what it used to be earlier,” hei said.
While at JLR, the company plans to invest GBP 2.5 –GBP 3 billion per year over the next 5 years, at TML the Capex earmarked for the current fiscal is about INR 3000-INR 3500 crore.
“We will watch the demand closely and depending on that we will invest,” Balaji said.
Outlook for Q1 FY22
Tata Motors Group CFO expects that demand will recover as people are increasingly getting vaccinated across the world.
“The demand is beginning to improve as more and more people are getting vaccinated. We are seeing demand recovery in China, followed by the same in the US. The UK and Europe are also showing signs of recovery,” Balaji said, adding that JLR’s current order book is robust.
“The concern at JLR is not demand but supply. We do expect supply challenges in Q1, thanks to the semiconductor and other shortage disruptions,” he said.
Meanwhile, in India, he forecasts that the business will remain under pressure in Q1 on account of the second wave of COVID-19 cases.
“We do see challenges on the supply side as well, there are bottlenecks,COVID-19 disruptions and commodity inflation. Q1FY22 would be adversely impacted,” Balaji added.
