Tata Motors’ moves to cut debt, costs to provide a floor for stock

ET Intelligence Group: It is not often that an Indian company loses more than a billion dollars in a quarter. Tata Motors did report such a staggering loss Monday, and you needed an optimist to find too many positives. Yet, the company is still confident of being cash-positive by FY22 in its biggest business segment – JLR – and long-term investors would do well to see beyond the immediate.

The consolidated loss of Rs 9,864 crore, significantly higher than consensus estimates, might rattle traders, damaging the stock. But investors must look at JLR’s track record on shrinking debt to assess how low the stock price can go.

JLR’s cost control programme ‘Project Charge’ is now aiming to save £5 billion by end-FY21. So far, the cost control programme has resulted in savings worth £3.5 billion to date. This includes saving £1.9 billion in investment, £600 million in working capital and the remaining from the overheads, manufacturing and material costs.


JLR has been delivering on the cost control guidance at a time when volume fell 10 per cent in the previous fiscal. Capex on JLR reduced 40 per cent to £2.5 billion in the current year compared with the earlier guidance.

The Street has been pencilling in volume decline of 7-8 per cent for FY21, a contraction for the third year in a row. JLR has been witnessing sequential volume recovery in China, North America and Europe. These three markets together account for nearly two-thirds of its total volumes. In addition, the new Defender, Evoque and Discovery Sport could boost volumes, while lower costs and reduced capital expenditure will ease JLR’s liquidity burden. JLR has total liquidity of £5.5 billion at the end of March 2020.

Back home, the CV and passenger businesses will be cash positive in the next couple of quarters. In FY20, the passenger car business had revenue of Rs 10,772 crore, and it had operating loss of Rs 2,727 crore. Owing to the lower cash burn and capital expenditure in the domestic operations, the company is saving funds worth Rs 4,500 crore in FY21.

Company’s move to bring its debt to a sustainable level and the measures to lower cash burn could provide a floor to the stock price. Tata Motors has total net automotive debt of Rs 48,200 crore, including Rs 5,900 crore of leases. The company sees the current debt level as unsustainable but is yet to fix a specific target on debt reduction, a process the automaker believes is a continuous exercise in enhancing financial efficiency.