Tata motors gets Brexit relief!
Last updated: 29 Dec, 2020 | 06:49 am
The Brexit trade deal signed between the UK and the European Union has brought a big sigh of relief for Tata Motors. Following are the key highlights :
- Free trade of goods: The agreement allows free trade of goods which will allow Jaguar Land Rover (JLR) to continue to export and import between the UK and the EU without any restrictions and costs. JLR is the luxury car unit of Tata Motors and accounts for around 80% of Tata Motors’ total revenue.
- Cost reduction: JLR has seen been ramping up cost reduction efforts and results have been promising, the company recorded an EBITDA margin of 11.8% in the last quarter. This cost reduction plan is further strengthened by the recent Brexit deal.
- Volume recovery: Fall in exports to China, one of the fastest-growing market for JLR was a key factor in the downturn, however, the China volumes are improving. In Q2, China sales were up 14.6% sequentially and 3.7% yearly. Total retail sales of 113,569 units were up 53.3% sequentially post the lockdown.
- CLSA update: Global brokerage firm CLSA maintained a buy call on the stock with a target price of Rs 220 per share. CLSA expects sequential volume recovery for JLR, this alongside cost reduction will generate strong free cash flows and will help to deleverage the company.
While the spread of new COVID strain in the UK poses fresh challenges for the company, green shoots of recovery are being witnessed. The Brexit deal puts an end to a major uncertainty that the stock was pricing in. Last week the management updated that their guidance of improved growth, profitability and cash flows in the second half of the year continues to hold.