India’s Tata Motors unveiled a large and unexpected fall in fourth-quarter earnings as the owner of Jaguar Land Rover suffered from the effects of a slowdown in the crucial Chinese market.
The Mumbai-based group on Tuesday said there would be no full-year dividend for the first time since 2002 as the domestic cars and trucks unit, which has long been propped up by the more successful British stable, swung to a net loss.
“The results are quite bad — a lot worse than we thought they’d print,” said Robin Zhu, an analyst at Bernstein Research.
Once dominant in India, Tata Motors has suffered sharp falls in market share. Amid criticism of out-of-date cars and a prolonged slowdown in the domestic commercial vehicle market, it has been reliant on the highly profitable JLR, which it bought from Ford in 2008 for £1.3bn.
But JLR is starting to suffer the effects of a slowdown in China, the world’s biggest passenger car market and the driving force behind global carmakers’ profitability since 2010.
Premium and luxury carmakers are being affected by an official crackdown on ostentation. Industry insiders also say some Chinese consumers are putting off purchases because they think prices will come down following scrutiny of carmakers by China’s National Development and Reform Commission.
But more immediately, prices are falling in China as global manufacturers react to a shift in consumer tastes towards cheap and cheerful sport utility vehicles made by domestic brands.
That has come at a difficult time for JLR, which has just opened its first overseas factory under a joint venture with domestic carmaker Chery.
“It’s a totally new experience for us to be in China,” said Ralf Speth, JLR chief executive, adding that the business had yet to alter pricing in China. “Nevertheless, we are cautiously optimistic that together with our joint venture partner, we will grow our business and market share in China.”
Fall in Tata Motors’ net profit in the fourth quarter
Tata Motors said net profit fell 56 per cent in the fourth quarter to Rs17.2bn ($269m), despite revenues increasing 3.5 per cent to Rs676bn in the three months to the end of March. Jaguar Land Rover sales also increased about 9 per cent to £5.8bn in the period, but net income fell by a third to £302m.
This was partly because of some costs associated with its Chinese plant in Changshu. Analysts also said favourable sterling exchange rates helped offset some of the pain in China.
Tata Motors’ full-year net income was flat at about Rs140bn, while the JLR unit’s full-year post-tax profit rose about 8 per cent to £2bn. The net loss at Tata Motors’ domestic business was Rs47.4bn versus Rs3.3bn in profit in the previous year.
Mr Zhu said the decision not to pay a dividend was a pragmatic move. “They are worried about cash generation, trading conditions and margin,” he said.
Tata Motors’ shares closed down almost 2 per cent in Mumbai, ahead of the release of the results.
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