Tata Motors, which is now doing reasonably well in the domestic market, has been facing challenges related to the JLR business.
The Tata Motors stock is up more than 7.5 percent in today's trade on the back of guidance from Jaguar & Land Rover (JLR) management that it expects improvement in its financial performance in the last quarter of current fiscal as compared to the disappointing performance in the first nine months.
In fact, the management indicated that the company would be able to generate significant cash flow in the last quarter. They believe that the restructuring plan - Project Charge and Project Accelerate - is expected to lead in cost savings of £2.5 billion by FY2020 and improve financial health of the company.
Another trigger for the stock price movement could be the China's PMI (purchasing managers' index), which came at 50.5 in March 2019, highest in five months.
Tata Motors, which is now doing reasonably well in the domestic market, has been facing challenges related to the JLR business on the back of multiple challenges, led by slowdown in China and trade escalations of China with US, concerns over restrictions on diesel vehicles in UK and Europe, where JLR's portfolio is predominantly diesel.
In Q3 FY19, JLR volume witnessed year-on-year (YoY) decline of 11 percent. Earnings before interest, tax, depreciation and amortisation (EBITDA) margin for JLR witnessed a YoY contraction of 350 bps.
Although the reaffirmation comes as a positive for the company, we continue to maintain negative view on the company due to slowdown not only in Europe and UK markets but also in the Indian market. Additionally, major technology changeovers, portfolio rejig and move towards electric vehicle would require huge investments in the long-term which would continue to put lots of pressure to its cash flows.
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