Jaguar Land Rover’s Strong Sales Reflect Strength In Tata Motors’s Underlying Business

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Tata Motors (NYSE:TTM) reported weaker quarterly profit in the second quarter of its fiscal 2017 (ending March 2017) due to the one-time impacts of revaluation of assets and liabilities, hedging losses, and adverse commodity derivatives impact. But what remained strong was the volume sales figure for the luxury division Jaguar Land Rover (JLR), which forms more than 90% of the company’s valuation as per our estimates.

Why JLR forms such a large chunk of Tata’s valuation is because of its high price points, broader margins, and strong expected future growth, as compared to the group’s standalone business comprising Tata and other brand vehicles. So far this year, JLR has reported record-breaking results, selling 480,350 vehicles between January and October, up 23% year-over-year.

Tata Motors Q&A 22

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According to our estimates, JLR will continue to witness high growth in volume sales over the next few years, especially considering the automaker has opened its Brazilian production plant, and is planning a new plant in Slovakia, which will augment its supply. Trefis estimates Jaguar’s unit sales to grow at a CAGR of 9% between fiscal 2017 (ending March 2017) and fiscal 2024, and Land Rover’s unit sales to grow at a CAGR of 10%.

Most of the foreign exchange impact on Tata Motors’ Q1 and Q2 was at JLR, dragging down the results for the overall company. As the company has hedged currency risks, it could realize losses for some time, however, a weaker pound is expected to benefit JLR over a longer period of time. More than 80% of the vehicles produced in the U.K. are sold abroad. In fact, 60% of the revenue is either linked to the U.S. dollar or depends on it, and 20-25% of the revenue is in euros. The depreciating pound should boost JLR’s top line. The other advantage could be that JLR’s competition, especially the German trio of BMW, Mercedes-Benz, and Audi, could become more expensive in the U.K., as a result of higher model prices in order to mitigate their foreign exchange losses. Either way, JLR’s financial woes due to the Brexit are not expected to be long term. The company is expected to benefit from the continuing high sales growth at JLR.

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Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Tata Motors

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