Tata Motors: JLR's cost side story

Aggressive cost cutting measures have been initiated at Jaguar and Land Rover (JLR), including lowering the headcount, imposing a wage freeze and sourcing components from markets that offer cheaper alternatives.These measures have left the business in better shape at the end of the June 2009 quarter than it was in the March 2009 quarter but despite this JLR has posted a loss of 64 million pounds, in the June 2009 quarter, on revenues of 1.12 billion pounds.

The losses in the March 2009 quarter, however, were more than twice this amount so there is some material improvement thanks to lower spends on marketing, overheads and raw material costs. With demand in the key US and European markets yet to pick up, vehicle volumes were lower during the quarter — dealer volumes saw a sharp drop of 52 per cent year-on-year while retail volumes were lower by 35 per cent year-on-year, as the company adjusted production with demand.

However, what’s encouraging is that, sequentially, wholesale volumes were up 10 per cent and retail volumes stayed flat. Moreover, inventories are not unusually high. The other bit of good news is that JLR has managed to access bank finance to the tune of 100 million pounds and should manage another 340 million pounds soon. With the rationalisation measures bringing in cost savings, analysts expect JLR to break even in 2010-11 and losses could be curtailed to around 200 million this year compared with a loss of 307 million pounds in 2008-09.

With a consolidated debt of just under Rs 21,000 crore, Tata Motors’ balance sheet remains highly leveraged but the company plans to sell stakes in subsidiaries and in group companies –in the last quarter for instance, sales of Tata Steel shares fetched it Rs 320 crore. With demand for commercial vehicles looking up in the home market, sales for Tata Motors in the current year are expected to come in close to Rs 71,000 crore. However, with the JLR business still weak, it may post marginal losses.