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What Has Revived Investors’ Sentiment In Tata Motors?
On Sunday, in the 1-hour Mahurat Trading, shares of Tata Motors jumped a massive 18 percent to close at Rs 149.50 apiece on NSE.
So what led to the renewal of faith in the stock among investors?
1. Capital boost
On Friday, Tata Motors in a stock exchange filing, informed that its board had approved and authorised the raising of additional fund of up to Rs 3,500 crore through "External Commercial Borrowing (fixed rate senior unsecured notes/syndicated loans), listed, unsecured, rated, non-convertible debentures or any other form of borrowing or in any combination thereof."
In a separate filing, the company said that its board had approved the issue and allotment of 20.16 crore ordinary shares of Rs 150 per share and 23.13 crore convertible warrants of Rs 150 per warrant on a preferential basis to Tata Sons Private Limited, the promoter of the Company, aggregating Rs 6,500 crore.
"An Extraordinary General Meeting of the shareholders will be held on November 22, 2019, to seek their approval For the preferential allotment," it said.
2. Smaller-than-expected quarterly loss
On 25 October, Tata Motors also announced its financial results for the September-ended quarter. It reported a 79 percent fall in its net loss to Rs 216.6 crore from Rs 1,048.80 crore loss seen in the same period a year ago. The loss was lowered than the estimated Rs 990 crore as per a CNBC-TV18 poll.
3. JLR's improved performance
Jaguar Land Rover makes for over 75 percent of Tata Motors' consolidated operating profit. The British luxury vehicles arm posted a pre-tax loss of 395 million pounds. Land Rover's performance improved in the September-ended quarter with a revenue increase of 8 percent to 6 billion pounds.
Jaguar's EBITDA (earnings before interest, tax, depreciation and amortization) margin was at 13.8 percent, which the company claims to be its highest in the last 16 quarters. EBIT margin was reported at 4.8 percent.
In its statement along with the quarterly results, the automobile company said, "Jaguar Land Rover improved its performance this quarter and delivered a well-rounded performance. In particular, the improvement in China on the back of better operational metrics is reassuring."
In the initial period, Tata Motors made profits after the acquisition from booming sales in Russia and China. However, uncertainty over Brexit, an economic slowdown in China and an overall slump in car sales in India as well as overseas brought losses.
As per the September quarter numbers, China accounted for 20.3 percent of the total retail sales in the second quarter of the current fiscal year, a 1.3 percentage points increase from the previous quarter.
Despite the improvement, challenges persist for the company. "The market remains challenging due to a multitude of factors and in this context, we are focused on leveraging our strong brands and exciting product portfolio to improve our revenue growth while rigorously executing our cost and cash improvement plans," it added in its statement.
Further, as the uncertainty of Brexit still looms, post its earnings conference, JLR ordered another shutdown in November to protect itself from supply disruption.
4. Visible results of cost-savings efforts
Tata Motors has been successful with its internal measures to control costs through the "Project Charge" which has already resulted in a savings of £2.2 billion out of its target of £2.5 billion.
"Project Charge is well ahead of plans and has delivered £2.2 B so far," the company's statement said.
The first phase of the cost-efficiency programme, where savings are being made from manufacturing, material and fixed marketing expenses, is set to be over by March 2020.
Negative cash flow also fell to £64 million in the second quarter of 2019-20 from £719 million seen in the previous quarter. Visible cost savings quite visible in its financials has analysts projecting double-digit operating margins (EBITDA) for JLR in the next financial year.
