Tata Motors' earnings: Forex losses at JLR unit likely to continue

Tata Motors' Q4 profit falls 54 percent in FY2017

After studying law I vectored towards journalism by accident and it's the only job I've done since. It's a job that has taken me on a private jet to Jaisalmer - where I wrote India's first feature on fractional ownership of business jets - to the badlands of west UP where India's sugar economy is inextricably now tied to politics. I'm a big fan of new business models and crafty entrepreneurs. Fortunately for me, there are plenty of those in Asia at the moment.

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Image: Vivek Prakash / Reuters
 
Lower sales of heavy trucks in India coupled with decreased margins for its Jaguar Land Rover (JLR) cars resulted in Tata Motors reporting a subdued set of results for the financial year ended March 31, 2017.
 
The numbers close out a difficult year for the company where profits were stung by large losses due to foreign exchange hedges that misfired. The forex losses were due to the pound depreciating after Britain’s vote to exit the European Union (EU).

This had resulted in a 96 percent year-on-year fall in net profit to Rs 111 crore for Tata Motors in the third quarter of FY2017. http://www.forbesindia.com/article/leaderboard/tata-motors-currency-bets-misfire/46151/1 
 
According to the company, margins at JLR are expected to remain subdued in the current fiscal as new model introductions result in higher marketing spends. Retail sales for the division rose 15.7 percent to 6,04,009 units mainly across Europe, USA and China. JLR is also on track to invest £4 billion in a new factory in Slovakia.
 
The foreign exchange losses as a result of currency hedges are likely to continue for JLR, which hedges its currency requirements in a descending order up to five years out.

As a result of these hedges Tata Motors recorded a loss of Rs 1,246 crore in the year ended March 2017. The hedging losses are expected to reduce in FY18 starting from the fourth quarter, the company said in its results presentation.

For FY2017, Tata Motors reported a 1.2 percent year-on-year decline in sales to Rs 2,69,850 crore. Profits in the fiscal year fell 54 percent to Rs 7,557 crore. However, the company pointed out that results in Q4FY17 were significantly better than the previous three quarters with sales at Rs 77,272 crore and net profit at Rs 4,336 crore. The corresponding profit figure a year earlier was Rs 5,211 crore. 

Truck demand remained subdued as a result of weak replacement-led demand, subdued freight demand and lower-than-expected pre-buying in anticipation of the BS IV emission norms. As a result, heavy commercial vehicle sales fell 7.7 percent. This is significant as commercial vehicles are the second largest contributor to the company’s profit after its Jaguar Land Rover (JLR) division.
 
Tata Motors' stock, which has gained 17 percent in the last year was up 0.38 percent at Rs 450.10 on Tuesday on the BSE.
 
 

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