Tata Motors PV posts Rs 5,531 crore Q2 net loss on JLR charges as revenue rises 34%

To put the margin in rupees, an EBIT margin of 1.1% on revenue of Rs 96,920 crore works out at roughly Rs 1,070 crore of operating profit after depreciation, a derived figure that the company did not state. On a quarter-on-quarter basis, margins fell. The company cited adverse product mix, continuing commodity cost pressures and movements in foreign exchange. The first quarter of the year had produced a profit of Rs 775 crore, so the swing to a loss in the second quarter is large and comes from the exceptional charges below the operating line. Several reports said the revenue also fell short of analysts' estimates.

What happened at JLR

Jaguar Land Rover's own figures explain the loss. Its revenue in the quarter was £5.9 billion, up 20.3% from the year before, and £11.9 billion for the first half, up 3.2%. Profit before tax and exceptional items was £6 million in the quarter and £115 million in the half, compared with losses of £485 million and £134 million a year earlier. The company then booked exceptional items of £530 million, which it said reflect restructuring, separation costs and write-downs of intangible and other assets.

Cash was the weak point. JLR's free cash outflow was £540 million in the quarter, and its closing cash was £1.8 billion. It also revised its guidance for the full year: it now expects an adjusted EBIT margin of 2-3% and a free cash outflow of about £1.25 billion. The guidance is a revision, which means the company expected a better outcome before, and the reduction is the item that analysts are likely to focus on.

Write-downs of intangible and other assets are normally non-cash charges, but they signal that the company has judged some of the value it carried for those assets to be lower than before. The company's filing sets out the split between restructuring, separation and impairment, which this summary does not.

What it means for the stock and the strategy

The market's reaction on Friday was a 3.31% fall in the shares, and the stock was among the top laggards on the Nifty on a day when the index fell 0.61%. Because the results came after the close, the full reaction will show on Monday. Investors will weigh three things: whether JLR's margin of 2-3% is a floor, how much cash the British business will consume over the next two quarters, and whether the Indian passenger vehicle and electric vehicle business can lift its share of profits.

The domestic business is the brighter part of the picture. Volumes were up 40%, and electric vehicle volumes nearly doubled, though the company did not give a market share or a separate profit figure for India in the statements seen. The revised guidance, with a cash outflow of about £1.25 billion expected for the full year, shows that the cash burn is not yet under control.

The loss figure should be read with care. Of the Rs 5,531 crore, a large part comes from exceptional items that do not recur each quarter, while the operating lines show an improvement from last year. A reader comparing the headline with the Rs 76,170 crore profit a year earlier should remember that the earlier number included a one-off demerger gain. The company's full results and the investor presentation, filed with the stock exchanges, carry the segment details that this summary does not.