Automobile major charts out plan to cut costs, conserve cash; lowers capital expenditure target
Tata Motors Ltd. has revealed aggressive cost reduction and deleveraging plans after it reported a consolidated net loss of ₹9,894.25 crore for the fourth quarter ended March 31, compared with a profit of ₹1,117 crore a year earlier. Lower vehicle sales and the impact of COVID-19 on its domestic and the Jaguar Land Rover (JLR) luxury car unit hurt the business.
JLR recorded a loss of £501 million while the domestic business of Tata Motors witnessed a loss of ₹4,871 crore.
The losses include an exceptional item of ₹2,500 crore related to asset writedowns in the domestic business. Revenue during the quarter declined 28% to ₹62,493 crore.
For the year ended March 31, the company reported a consolidated net loss of ₹12,071 crore compared with a loss of ₹28,826 crore in the previous year.
The domestic business reported a loss of ₹7,290 crore for the year, compared with a net profit of ₹2,021 crore. The company’s consolidated revenue for the financial year declined 14% to ₹2,61,068 crore.
During the year, JLR vehicle sales fell 12% while Tata Motor’s commercial and passenger vehicle sales declined 22% and 25%, respectively.
P.B. Balaji, Group CFO, said JLR’s fourth quarter results were significantly impacted by the pandemic. Despite this, the business improved its earnings before interest and tax by 60 basis points over the previous year, he said.
“Project Charge has delivered cumulative savings of £3.5 billion. [The target] has been increased to £5 billion for March 2021. We see improvement in JLR’s performance because of recovery in China, the U.S. and Europe,” Mr. Balaji said.
“Steep volume decline, particularly MHCV, and resulting negative operating leverage impacted profitability and cash flows” at the domestic business, he said.
The CFO said the first quarter of this fiscal too was expected to be significantly weaker for both JLR and the parent firm.
He also said that the company was taking steps to significantly deleverage the Tata Motors Group, with JLR set to become ‘sustainably’ cash positive from fiscal 2022.
He asserted that the company would focus on conserving cash. “The company has called out a cost savings program of ₹1,500 crore and a cash improvement program of ₹6,000 crore. As part of this, company has deferred or cancelled lower margin and non-critical investment and is targeting capex spending of ₹1,500 crore in FY21, substantially lower than the ₹5,300 crore in FY20 and FY19,” he said.
With peak lockdowns in the first quarter, the company expects significantly lower sales in the quarter and negative free cash flow of about ₹5,000 crore n the first quarter, about ₹3,500 crore of which is related to one time working capital outflows, the company said.
With inputs from The Hindu