Tata Motors share price corrected sharply on Tuesday, hitting nearly 7-year low on consistently weak performance from its luxury car brand Jaguar Land Rover.
The stock fell below Rs 200 levels at Rs 170.65, the lowest level since December 19, 2011, falling 19.78 percent intraday.
It closed at Rs 184.25, down Rs 28.50, or 13.40 percent amid high volumes on the BSE and lost Rs 8,228 crore in market capitalisation in a single day.
The stock plunged nearly 60 percent in last one year due to continued weak financial performance at JLR and new emission rules in Europe which hit diesel cars sales.
JLR on Monday reported total retail sales of 57,114 vehicles in September 2018, down 12.3 percent year-on-year, hit by lower demand in China, the company said.
The company’s sales in China declined by 46.2 percent during September as compared to the same month last year as ongoing market uncertainty resulting from import duty changes and continued trade tensions held back consumer demand.
Sales of Jaguar brand of vehicles in September were at 19,146 units, an increase of 4.4 percent over September 2017, but Land Rover posted sales of 37,968 units in the month, down 18.8 percent, the company said.
“As a business we are continuing to experience challenging conditions in some of our key markets,” JLR Chief Commercial Officer Felix Brautigam said.
Customer demand in China has struggled to recover following changes in import tariffs in July and intensifying competition on price, while ongoing global negotiations on potential trade agreements have dampened purchase considerations, he added.
In North America, Jaguar Land Rover sales were 6.9 percent lower. “It was largely reflecting lower industry sales (down 5.5 percent) and reduced incentives on Jaguar sedans, although Land Rover had a record September with sales up 7.3 percent,” the company said.
JLR sales fell 0.8 percent in the UK and 4.7 percent in Europe, which saw large industry declines of 20.5 percent in the UK and 31 percent in Germany primarily relating to the timing of new WLTP homologation rules as well as reduced diesel demand, it added.
However, JLR said strong sales of new models including the electric Jaguar I-PACE, the Jaguar E-PACE compact SUV, and the Range Rover Velar helped offset slower sales of older models, such as the Range Rover Evoque and the Land Rover Discovery Sport.
Following weak September sales, JLR announced two-week shutdown at Solihull plant to align supply to reflect fluctuating demand globally. This is further to three day week from Oct-18 to Dec-18 at Castle Bromwich plant.
While Solihull manufactures RR, RR Sport, Velar, Discovery and F-Pace, Castle Bromwich makes Jaguar XE, XF, XJ and F-Type.
JLR attributed slower production plans to weakening global demand, especially in China, and weakness in diesel sales.
While maintaining Buy call on Tata Motors with a target of Rs 335, Motilal Oswal said it sees rising risk to its JLR FY19 estimated volume decline of around 4 percent, which implies residual growth of around 4 percent in second half of FY19.
The research house had recently cut its EPS estimates for Tata Motors by 35/13 percent driven by cut in JLR’s volumes by 6/4.5 percent and JLR’s EBITDA by 11/6 percent, respectively.
While retaining Hold rating on the stock, ICICI Securities said JLR is investing aggressively in technologies amid an uncertain business outlook, thereby generating negative free cash flows & stressing its balance sheet.
This is likely to result in muted return ratios with return on capital employed less than 10 percent, it feels.
Going forward while revising estimates, on consolidated basis, over FY18-20E, ICICI expects company’s sales to grow at a CAGR of 5.9 percent. “On the margins front, we expect around 140 bps contraction in EBITDA margins with a consequent drop in PAT over FY18-20E.
The only saviour for Tata Motors is the up trending domestic segment wherein the company is witnessing robust prospects both in the M&HCV space as well as PV segment, it feels.