Tata Motors set for profit fall as JLR cash boom shifts into reverse
MUMBAI (Reuters) – Hit by falling margins and rising capital expenditure, roaring Jaguar Land Rover (JLR) may be heading for a speed trap.
Rising investment is eating into the luxury carmaker’s cash pile and raising the prospect of fresh borrowing, while falling profitability is set to tip parent Tata Motors into a first drop in profits in five quarters.
Increasing reliance on lower-margin models such as the Land Rover Evoque and Freelander and adverse currency movements will dent October-December results due later on Thursday, as JLR’s free cash flow (FCF) turned negative just months after it paid its weaker parent a maiden dividend.
Negative cash flow will continue in the next financial year, JLR says, as the carmaker that has propped up its Indian owner for the past 18 months starts a 2.75 billion pound ($4.3 billion) a year splurge on its plants and product pipeline.
“Over the next couple of years, they are unlikely to generate much cash. That’s a worry,” said Joseph George, analyst at IIFL
Institutional Equities in Mumbai, one of seven with a negative rating on the stock, according to Thomson Reuters Starmine. “That’s going to be a problem for Tata.”
JLR had net cash of 437 million pounds ($684 million) at end-September, but as it ploughs money into a new engine plant in Britain and a factory in China, it will no longer be the cash-generating driver for its struggling owner, Asia’s 7th-biggest carmaker by market value.