Tata Motors worth NOTHING without Jaguar-Land Rover, says CLSA: We explain

In 2008, homegrown car manufacturer Tata Motors completed the acquisition of Jaguar Land Rover (JLR) from Ford Motor Company. Tata turned around a loss making Jaguar-Land Rover, which is now a highly profitable company for the brand. CLSA, a investment advise company has said this about Tata Motors:“we assign zero equity value to (Tata Motors’) India business”. The report also added that the luxury car unit of Tata Motors – JLR is the only driver of the company’s valuation. In other words, they’re saying that Tata Motors is worth nothing without JLR.  What does this mean? We explain.

Tata Motors worth NOTHING without Jaguar-Land Rover, says CLSA: We explain

  1. Car manufacturers in India have suffered massively due to the COVID-19 led disruptions and country-wide lock down, and this also includes Tata Motors, which manufactures both cars and commercial vehicles. The lock down has also forced the manufacturers to shut their factories including Tata causing zero production for weeks. While some automakers are limping back to business, opening showrooms and re-starting production on a smaller scale, sales numbers remain dismal.
  2.  Due to the closure of the dealerships, factories and transportation, the manufacturers recorded zero sales and it has affected the passenger car market and the commercial vehicle market similarly. Even before the lock down, the economic slowdown has affected the sales of the vehicles and Tata, which is one of the major players in the commercial vehicle segment has been affected too. This has impacted the automaker’s businesses in a big way, and loans have mounted. CLSA estimates that Tata Motors’ loans/borrowing has become higher than what CLSA values its domestic business. 

Things are already improving, courtesy JLR!

Tata Motors is yet to report its results for the March quarter of the last fiscal. However, JLR has contributed to 79% of Tata Motor’s consolidated turnover for the first three quarters of Financial Year 2020. It should be noted that JLR has a Chinese joint venture – Chery Jaguar Land Rover Automotive Company Ltd (CJLR) that has resumed 75% of its budgeted production.

The joint venture predicts to produce a similar number of vehicles like last year. In India, Tata Motors is the biggest player in the commercial vehicle segment and it reported 32% year-on-year loss which is higher than the 29% reported by the industry. In the passenger vehicle segment, the manufacturer reported a decline of 40% against the industry’s 18% loss last fiscal.

Tata Motors worth NOTHING without Jaguar-Land Rover, says CLSA: We explain

Can the value of Tata Motors be zero?

It is just a forecast by CLSA given the current situation, and could change as the situation changes. CLSA’s report is for investment guidance and it may turn out to be true or may go completely opposite in the future. Tata Motors has a diversified business with a lot of assets and a huge land bank that will allow the manufacturer to repay all its loans in the future.

Also, the situation due to the COVID-19 pandemic is temporary and the manufacturers are already swinging back to action. Tata Motors has started its production and in coming months, the situation is likely to improve. The festive season will be here in a few months and that’s when the manufacturers see the best most sales. Tata also plans to launch a slew of new cars in the Indian market including the Gravitas and the HBX, which will attract a lot of customers.

CLSA has made the statement, which is completely situational, and is dependent on the loans. Once Tata Motors repays the loans, the net worth will rise naturally and the value of the company will increase.