Tata Motors Q1 results update
Last updated: 01 Aug, 2020 | 12:46 pm
- Yet another quarterly loss: Tata Motors Q1 loss widened to near ₹9,000 crores on the back of falling vehicle sales in India as well as around the world. Net loss stood at ₹8,438 crore in the quarter ended March compared with a loss of of ₹3,680 loss a year ago. The automaker has now reported a loss in 7 out of the last 9 quarters.
- Sales plunge: The lockdown has severely impacted the company’s sales. “In Q1FY21 Tata Motor’s wholesales (including exports) decreased 81.5% to 25,294 units. The company’s JLR unit was also severely affected, with volumes dropping 42.4% on-year to 74,067 units.” Automakers had witnessed a complete washout in April. Sales slightly improved in May and June as restrictions eased.
- Negative free cash flows: Free cash flow (automotive) in the quarter, was negative ₹ 18.200 crore (as compared to negative ₹11,600 crore in Q1FY 20) reflecting the adverse working capital and wider disruptions caused by the plant and retailer shutdowns across both India business and Jaguar Land Rover. In a bid to improve its cash flows, Tata Motors had resorted to cutting jobs and investments. Last month, it slashed over a thousand more jobs at JLR and said it will reduce its capital expenditure by 65%. The company also deferred or cancelled lower margin and non-critical investment.
Tata Motors continues to struggle with negative cash flows. While the company expects to generate positive cash flow in FY21, the business has very high investment requirements and would need to sell significantly higher volumes to achieve this.
Even before the lockdown, Tata Motors was struggling with low volume growth and liquidity stress. The lockdown has further led to higher finance costs and debt levels for the company (₹68,000 cr debt). In a bid to conserve cash, Tata Motors has announced a reduction in capex spending by 65% to Rs 1,500 crore for FY21.
Our VGQM model continues to have a sell rating on the stock.