Weighed down by the massive loss at home, Tata Motors has decided to abort projects midway which it thinks could become a drag due to the disruption caused by COVID-19.
The Mumbai-based company is looking at savings of Rs 6,000 crore in the standalone entity which looks after the truck, bus, car and SUV business, along with some international businesses.
The manufacturer of Tiago and Nexon reported net loss of Rs 5,183 crore during the March quarter in the standalone entity. This included an impairment charge of Rs 1,419 crore taken in the passenger vehicle business.
A charge of similar nature of Rs 27,838 crore was taken at Jaguar Land Rover in the December quarter of 2018 by the company. On June 13, Tata Motors pulled the plug on one of its joint venture companies that specialised in manufacturing performance versions of existing Tata Motors cars.
"Regulatory compliant gets priority. Whichever vehicles or platform that are in advanced stages of landing will get priority and clearly some of the low yielding projects as well as some of the projects that we believe have to be pushed out given the current demand scenario and therefore there may not be customer demand for it those are being pushed out. We are not hesitating in taking those calls because the demand environment is fundamentally altered," said PB Balaji, CFO, Tata Motors.
The company is in the midst of hiving off the passenger vehicle business along with the electric vehicle business and place it as a subsidiary. The idea behind this is to bring in a strategic partner for which Tata Motors is talking to 'several OEMs', said Balaji. Presently, the car and truck business are part of the same entity which prevents Tata Motors from unlock value only in a specific division. This process is expected to be complete before the end of FY21.
"The business is taking significant interventions to reduce the cash burn and is undertaking strong capex rationalisation and reduction in structural cost of the business. Conserving cash and prioritizing capex and targeting the investment spending in the right areas is our focus for the year," said Balaji.
As a result, Tata Motors is dropping capital expenditure (capex) spends by almost 56 percent to Rs 1,500 crore for the current year.
"We have also planned for an aggressive cost reduction involving an additional capex and working capital saving of about Rs 4,500 crore. Thereby cumulatively about Rs 6000 crore of cash reduction plan is being planned," added Balaji.
Last year, Tata Motors made investments to the tune of Rs 5,344 crore in products and technologies and finished the year with negative free cash flows of Rs 6,000 crore.
"With peak lockdowns in the first quarter, Tata Motors expects significantly lower sales in Q1FY21 and negative free cash flow of about Rs 5,000 crore, around Rs 3,500 of which is related to one time working capital outflows, the company said.
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