Shares of Jaguar Land Rover parent Tata Motors plunge most in 26 years after record loss

[MUMBAI] Tata Motors shares had their biggest drop in 26 years in Mumbai trading on Friday after the company posted a record loss in Indian corporate history because of a writedown its luxury Jaguar Land Rover Automotive Plc unit.

The stock drop of as much as 30 per cent was the biggest since February 1993 on intraday basis and sent Tata Motors shares to their lowest level in almost a decade.

Plummeting sales in China are compounding Jaguar Land Rover's challenges that include the industry's shift away from vehicles powered by gasoline and diesel - a stronghold for the company. Its heavy production presence in the UK exposes it to a disorderly Brexit, the likelihood of which has risen over the past few weeks, Fitch Ratings said this week. The rating company has placed Tata Motors on negative credit watch.

"Jaguar Land Rover is facing headwinds in multiple fronts, including geopolitical uncertainty and technological disruption apart from sluggish demand scenario in a strong market like China," said Debjit Maji, an analyst at Stewart & Mackertich Wealth Management in Kolkata, India. "For Jaguar Land Rover, it will be catastrophic if Britain go for no-deal Brexit."

Tata Motors shares were down 17 per cent at 151 rupees as of 11:10am in Mumbai. They had already slumped more than 50 per cent in the past 12 months through Thursday on concerns about Jaguar Land Rover's waning sales, profitability, high capital-expenditure need and the impact of Brexit.

Carmakers around the planet are getting hurt by the slump in China, whose car market shrank for the first time in more than two decades last year. Daimler AG and BMW AG reduced profit forecasts last year amid pressures from the US-China trade war that's hit auto demand, while Hyundai Motor Co said last month it's letting workers go as it reviews production plans in the world's biggest market.

The "overall performance continued to be impacted by challenging market conditions in China," Ralf Speth, head of Jaguar Land Rover, said in a statement on Thursday. "We continue to work closely with Chinese retailers to respond to current market conditions."

The company said it's overhauling its China operation, cutting back on deliveries to reduce stock. It's also streamlined its commercial policies to help compensate for retailers' losses, and launching extensive on-site training programs to improve the customer experience as well as operations.

Tata Motors wrote down its investment in Jaguar Land Rover by US$3.9 billion (S$5.29 billion) due to market challenges, especially in China, technology disruptions and rising debt costs. The parent's net loss was 270 billion rupees (S$5.14 billion) in the three months through December, exceeding the deficit reported by Indian Oil Corp in 2012.

"Tata Motors has bitten the bullet," Ajay Bodke, the Mumbai-based head of investment strategy at Prabhudas Lilladher Pvt Ltd said by phone. "They are reinforcing that they are serious about achieving a turnaround, saving costs and taking measures that might be tough."

As part of Jaguar Land Rover's plans to achieve £2.5 billion (S$4.39 billion) of investment, working capital and profit improvements by March 2020, the company in January said it would slash its global workforce by 4,500. This is expected to result in a one-time exceptional redundancy cost of around £200 million for the luxury unit of Tata Motors. The cost of the voluntary scheme will be recognized in the quarter ending March 31, the company said.

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