What ails Tata Motors share price? Rs 1 lakh investment reduced to Rs 21,000 in three years

What ails this Tata Group firm share price? Rs 1 lakh investment reduced to Rs 21,000 in three years

Tata Motors investors have suffered substantial losses in the last three years. Tata Motors share price, which closed at Rs 524.7 on August 29, 2016 ended at Rs 114 level on BSE on Thursday. An investment of Rs 1 lakh in Tata Motors shares on August 29, 2016, would have decreased to Rs 21,726 on Friday. The company’s share price closed 2.10% higher at Rs 116.75 in trade on Friday.

A series of credit rating downgrades, fall in domestic demand and weakness in global sales of its UK arm Jaguar Land Rover (JLR) led to an erosion in market capitalisation during the last three years.

Tata Motors’ investors have lost Rs 1.13 lakh crore in last three years with the stock closing at a market capitalisation of Rs 33,016.83 crore on Thursday. On August 29, 2016, the market capitalisation of the company’s stock stood at Rs 1.46 lakh crore. Tata Motors share hit a fresh 52-week low of Rs 106.20 on August 22, 2018. Tata Motors share price has lost 55.40% during the last one year and has fallen 32.88% since the beginning of this year.

Of late, a series of downgrades by credit rating agencies due to floundering performance of its British subsidiary Jaguar Land Rover (JLR) has hit Tata Motors’ share price.

Credit rating downgrades hit stock  

On August 16 this year, Tata Motors’ share price fell up to 2.85% to Rs 117 after Crisil lowered its long-term rating for the India-based firm amid weakening risk profile of its UK arm Jaguar land Rover. Crisil said it has downgraded the rating on the long-term bank facilities of Tata Motors (TML) to ‘AA-/Negative’ from ‘AA/Negative’, but reaffirmed rating on short term bank facility, commercial paper and short-term debt at ‘A1+’.

Moody’s Investors Service on June 20 this year said it will take longer than previously expected for JLR to improve its free cash flows to the positive territory. It also downgraded the corporate family rating (CFR) of JLR to “B1” from “Ba3”, with a negative outlook. On July 24, Tata Motors share price declined as much as 3.71 per cent to touch an intra-day low of Rs 150.40  after global rating agency Fitch downgraded the auto major’s rating to BB- from BB with a negative outlook.

Fitch said uncertainty around an orderly outcome of Brexit negotiations and the evolving global tariffs situation pose risks, in particular to Tata Motors’ JLR business, which faces a significant level of production-sales mismatch due to the concentration of its production base in the UK.

Poor earnings

On July 25 this year, Tata Motors reported a consolidated net loss of Rs 3,679.66 crore for the first quarter ended June 30, 2019, dented by muted volume growth in domestic business as well as in its British arm Jaguar Land Rover (JLR). The company had posted a consolidated net loss of Rs 1,862.57 crore in the June quarter of 2018. The Profit was impacted by demand slowdown, higher axle loads, liquidity stress, low freight availability for cargo operators.

On May 20, 2019, Tata Motors reported a 49 per cent fall in its consolidated net profit to Rs 1,108.66 crore for the fourth quarter ended March 31. The company had posted a consolidated net profit of Rs 2,175.16 crore in the same period previous fiscal.

Total income during the period under review stood at Rs 87,285.64 crore as against Rs 91,643.44 crore in the year-ago period. For fiscal 2018-19, the company posted a consolidated net loss of Rs 28,724.20 crore, compared to a net profit of Rs 9,091.36 crore in 2017-18. Total income stood at Rs 3.04 lakh crore in the last fiscal as against Rs 2.96 lakh crore in 2017-18, the filing said.

The financial position of the firm has deteriorated during the last three years. The Tata Group firm, which reported Rs 11,100.72 crore net profit for the fiscal ended March 2016, saw its profit dropping to Rs 6,063.56 crore for next fiscal ended March 2017.

However, net profit marginally rose to Rs 6,813.10 crore for next fiscal ended March 2018 but the firm posted a surprise loss of Rs 28,933.70 crore for last fiscal ended March 2019. Its earnings per share fell to Rs -85 in the last fiscal compared to Rs 22 for fiscal ended March 2018.

Weakness in JLR sales

For the financial year 2016-17, JLR sold 583,313 vehicles, up 20% on the prior year. Its sales growth slowed down next financial year with JLR reporting a 1.7% rise in its retail sales at 614,309 units for financial year ended March 31, 2018.

In April 2018, the firm forecasted a grim outlook for the year ahead when it announced its sales for the fiscal ended 2018. “Weaker market conditions in the UK and Europe, driven by lack of consumer confidence and lower demand for diesel, are impacting our growth.”

Tata Motors’ UK arm further logged a 6% fall in its global sales in the last financial year. JLR sold 578,915 vehicles between April 2018 and March 2019, a fall of 5.8% compared to the same period in 2017-18.  China saw the biggest decline of 34.1% while in Europe sales fell by 4.5%.


Author: Roky