Tata Motors posted India’s biggest quarterly corporate loss after its luxury unit Jaguar Land Rover Automotive Plc took a $3.9 billion impairment charge primarily because of weakening demand in China.
Net loss was 270 billion rupees ($3.8 billion) in the three months through December, overtaking the hit reported by Indian Oil Corp. in 2012. Tata Motors’ loss compared with a profit of 12 billion rupees a year earlier, and the 7.73 billion rupee profit that analysts on average expected to see from the company.
Jaguar Land Rover faces risks to its cash flows as volumes in China and Europe weaken with the industry shifting away from gasoline-powered vehicles. Its heavy production presence in the UK also exposes it to a disorderly Brexit, the likelihood of which has risen over the past few weeks, Fitch Ratings said in a note Wednesday. The rating company has placed Tata Motors on negative credit watch.
“Jaguar Land Rover reported strong third quarter sales in the UK and North America, but our overall performance continued to be impacted by challenging market conditions in China,” Ralf Speth, the unit’s chief executive said in a statement on Thursday. “We continue to work closely with Chinese retailers to respond to current market conditions.”
The asset impairment of 278.4 billion rupees at Jaguar Land Rover was due to market challenges, especially in China, technology disruptions and rising debt costs, according to the statement.
Net revenue for Tata Motors came in at 770 billion rupees, missing the 787.5 billion rupees average estimate.
“Tata Motors has bitten the bullet,” Ajay Bodke, the Mumbai-based head of investment strategy at Prabhudas Lilladher Pvt said by phone. “They are reinforcing that they are serious about achieving a turnaround, saving costs and taking measures that might be tough.”
Shares of Tata Motors have climbed 5.9 percent this year. They slumped 60 percent in 2018 on concerns about Jaguar Land Rover’s waning sales, profitability, high capital-expenditure need and the impact of Brexit.
As part of Jaguar Land Rover’s plans to achieve £2.5bn ($3.2bn) of investment, working capital and profit improvements by March 2020, the company in January said it would slash its global workforce by 4,500. This is expected to result in a one-time exceptional redundancy cost of around £200 million for the luxury unit of Tata Motors.
The cost of the voluntary scheme will be recognized in the quarter ending March 31, according to the company.
Challenges in the Chinese market continued, Tata Sons Chairman N Chandrasekaran said in a statement. “The company has taken decisive steps to step up competitiveness, reduce the costs and improve the cash flows while continuing to invest in exciting products and leading edge technologies.”
