Tata Motors may report loss for yet another quarter led by weak JLR sales, commercial vehicles’ pain

Tata Motors may report loss for yet another quarter led by weak JLR sales, commercial vehicles’ pain
Tata motors BCCL BCCL
  • Weak JLR sales, subdued demand for commercial vehicles, is expected to weigh on Tata Motors’ earnings in the second quarter.
  • The luxury carmaker JLR’s sales declined 27.2% year-on-year in the quarter ended September 30.
  • According to brokerages, Tata Motors is likely to report a loss of ₹2,328 crore.
The auto sector in India may be witnessing the green shoots of recovery over the last quarter. However, India’s third-largest carmaker in terms of passenger vehicles (PV), Tata Motors, may report losses for a consecutive quarter.

The demand for commercial vehicles (CV) and the high-margin Jaguar Land Rover (JLR) cars — which make up for a majority of Tata’s products — was already very weak before the pandemic. And compared to the other segments, the situation has not improved over the past quarter. According to an IIFL report, Tata Motors’ is likely to see its loss widen at the consolidated level, with both JLR and standalone business reporting loss. However, slight margin improvement is expected, given the strong growth in PVs.

Tata Motors may report loss for yet another quarter led by weak JLR sales, commercial vehicles’ pain

JLR’s weak Q2 sales to weigh heavy
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While the company’s domestic sales recovered sharply in August and September, registering a growth of 21% and 37% — JLR continued to struggle, which will weigh on Tata Motors’ performance. The luxury car segment JLR’s sales declined 27.2% year-on-year in the quarter ended September 30.

Tata Motors may report loss for yet another quarter led by weak JLR sales, commercial vehicles’ pain

In fact, in late July itself, Tata Motors had warned that JLR was witnessing a subdued performance, and it may post another quarterly loss as the coronavirus crisis saps demand.

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Secondary pain point — Weak demand for its commercial vehicle segment

Compared to other segments in the auto sector, outlook for the commercial vehicle segment remains pretty bleak. And, this was evident in its September sales. Despite 37% growth in overall sales in September, the CV segment declined 29% year-on-year. With such a significant year-on-year volume decline in JLR and CVs, analysts expect Tata Motors’ earnings to remain under pressure. According to brokerages, the automaker is likely to report a loss of ₹2,328 crore.

Q2FY21 Earnings Estimates

Brokerages on Tata MotorsQ2 loss estimates (YoY)
Emkay₹3,212 crore
ICICI Securities₹2,892 crore
Prabhudas Liladher₹2,091 crore
HDFC₹ 1,120 crore

The festive season is fuelling hopes

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With the arrival of the festive season, Tata Motors is also betting on a sharp rise in sales figures. The company is offering hefty discounts up to ₹65,000 to woo customers on nearly all its cars from Tata Tiago to Nexon, and Harrier to Tigor. “The initial market trends do suggest a bigger uptick during the festive season with people’s sentiment improving and the need for personal mobility becoming even more evident in Covid times,” said the Axis Securities report.

All eyes will be on management commentary on demand outlook, capex plans, business turnaround strategy and discounting trends across JLR’s key markets.

Tata Motors’ shares have raked in a decent rally in the second quarter, surging over 36% since the start of July.

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Tata Motors may report loss for yet another quarter led by weak JLR sales, commercial vehicles’ pain

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