JLR Disappoints, Will Domestic Brand Continue Positive Momentum in Q4?

Tata Motors (NYSE: TTM) released its third quarter results (ended December 2018) for Fiscal Year 2019 recently. The company has seen a mixed 9 months as sales in JLR have slowed because of the market volatility, though the sales of its domestic brand Tata Motors Limited have picked up. The EBIT margins are lower due to challenging market conditions across the globe. The company posted INR 770 billion ($10.87 billion) in Quarter 3 revenues while the EBIT remained flat. The weak EBIT is attributed to weak China sales in JLR while the domestic business continued to deliver a robust profit for the third quarter.

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The company is facing challenging market conditions across the global. China faces trade wars and macroeconomic headwinds. India has a muted demand environment, Europe is facing Diesel uncertainty and impending Brexit, while North America faces high incentives and market cyclicality. The company is coming up with newer models continuously to help boost revenues. Tata Harrier was recently launched while new models under JLR of Evoque and Defender are upcoming. The company is planning a work force reduction scheme with the announced target of 4500.

JLR continues to suffer in China because of weak economic conditions and trade wars. JLR discounts throughout the fiscal year 2018 were higher than the competition, but during the second half of the year a significant drop was introduced by the competitors which the company didn’t match in favor of sustainable growth. The company, though, remains optimistic about China which is already the largest premium segment with 2.8 million units sold in 2018.

In the third quarter the company saw an increase in volumes (year on year) in the US, UK, and Europe. The other overseas markets had a small decrease while China having a substantial 47% decrease offset the positive movements of the quarter. This trend is expected to continue in the fourth quarter and the the first half of the next fiscal year.

In conclusion, Tata Motors is expected to have a revenue increase on the back of the domestic revenues, but EBIT is expected to be flat at the year end because of China’s weaker economy and uncertainty.

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