The capex plans laid out for FY21 (GBP2.5b for JLR and INR15b for the India business) would not see any material change in the foreseeable future, said the recent Motilal Oswal Institutional equities report. The guiding principle for capex moves from ‘willingness to invest’ to ‘ability to invest’, i.e., capex would be supported by operating performance and would not be invested independent of operating performance. As the monetization of non-core assets begins with the Tata Technologies and Hitachi JV (construction equipment), it would look at other assets as well. However, currently it has no plans to monetize its stake in Tata Sons.The partnership between the PV segment and JLR is not the key part of its deleveraging strategy, the report said.
The demand recovery for JLR is visible across markets in the US, UK, EU, and China. JLR is seeing an additional boost from strong demand for the recently launched Evoque and Defender. This, coupled with a strong product pipeline, makes management positive on demand, the report said. The company is adopting a holistic approach to cutting both variable as well as fixed cost. For RM, cost reduction would be driven by reducing complexity, increasing commonality, and commercial negotiations. This, coupled with an improving mix and a higher share of new products. This would lead to further lowering of the breakeven point by improving gross margins as well as reducing fixed costs, said the report.
Capex for FY21 would be restricted to GBP2.5b and would remain at similar levels beyond FY21. Capex control would be driven by avoiding investing in non-core areas (such as testing, which could be outsourced), forging more partnerships (such as BMW), and prioritizing capex for new platforms/products and EVs. Hence, Tata Motors is confident of turning cash positive from 2QFY21 , driven by volume improvement, gross margin improvement, cost-cutting, and tight capex control. Meanwhile the key focus for JLR’s new CEO, Thierry Bolloré, would be on devising a strategy to sustainably make the Jaguar brand profitable and growing the China business sustainably. JLR recently lost market share in China due to supply-side issues as SUVs 4 and 5 are imported from the Solihull facility, which was closed for two months due to lockdown. A no-deal Brexit could also impact the supply chain as it imports 35-40% of raw material from the EU, it said
There is a good acceptance of Plug-in Hybrid EVs (PHEVs) in the EU. From a customer standpoint, there is a clear preference for PHEVs (rather than Battery EVs or BEVs) for heavy SUVs. This would help the Land Rover / Range Rover brand protect its future portfolio and comply with future emission norms. The ‘flex’ MLA architecture is fully capable of taking everything from Internal Combustion Engines (ICEs) to BEVs, the report added.