News & Analysis

A massive $1 billion loss and no effect on stock. Go figure!

Andrew Saks, Thursday, 20 May 2021

The announcement of corporate results is ordinarily an anodyne experience. The monotone trotting out of figures which have often been very similar to previous figures has been a tone to which the investing world has become accustomed, and in many cases, large corporations had until recently been bastions of straight-line stability.

Not anymore.

At the beginning of this month, many Tier 1 banks announced their revenues for the first quarter of 2021, many of which astonished the recipients of such information by reporting enormous profits, something that had perhaps been unexpected due to their exposure to liabilities from businesses that had been closed down for over a year by the government during the lockdowns, and the various lending vehicles that had been put in place by the government and issued via banks to entities that have very little hope of paying it back.

In some cases, profits were over 80% higher than this time last year.

Now, the big corporates are continuing to announce results, and in some cases it does not appear at all rosy.

TATA Group is a vast company. It is in fact one of the largest corporations in the world and has divisions in almost every area from management consultancy to steel production and from electronics to IT project outsourcing. It is a giant among giants of large firms.

TATA's automotive engineering and manufacturing division, TATA Motors, is listed on the New York Stock Exchange as well as the Bombay Stock Exchange and is a genuine multinational. It owns, among many other long-established brands, Jaguar Land Rover.

Despite the increase in new vehicle sales in Europe, and the tremendous buying spree that the British public has been on since the beginning of the year - April's new car registration figure was an almost unbelievable 453% higher than that of March - Jaguar Land Rover has been costing TATA Motors dearly.

The company reported yesterday evening that it made a $1 billion loss in the first quarter of this year, a total contrast to the vast profits that the financial institutions made during the same period.

TATA Motors said that restructuring costs related to its British luxury car brand Jaguar Land Rover was a major contributor toward the loss. Anyone old enough to remember the long and chequered history of Jaguar Cars would certainly recall several times since the departure of founder and visionary Sir William Lyons that the company has almost collapsed. It has been through various financial tight spots as an independent company, and during the dark, trade union-led days of British Leyland.

Jaguar's finest hour came in 1988 when Ford Motor Company purchased it and maintained Jaguar's heritage, style and key tenets whilst running it efficiently in a way that Ford Motor Company is respected for. Going independent after Ford divested was a tough one for Jaguar which was mopped up by TATA Motors in June 2008 along with its former British Leyland stablemate Land Rover.

TATA Motors has also cited global supply-related challenges, where lockdowns are still prevalent in many markets.

"Supply chain issues, in particular for semi-conductors, have become more difficult to mitigate and are now impacting production plans for Q1. The company is working closely with affected suppliers to resolve the issues and minimise the effect on customers," TATA Motors said in a stock exchange filing.

The loss is something of a surprise, even though Jaguar Land Rover being at the cause of any loss is perhaps not. Jaguar and Land Rover have a long history of costing their owners a fortune resulting in subsequent divestment.

TATA Motors was expected to make a net profit of $512 million for the period between January and March 2021, but the cash write downs due to Jaguar Land Rover restructuring cost the company dearly.

Whichever way it is viewed, a $1 billion loss is a far cry from a $512 million profit.

On the New York Stock Exchange today, TATA Motors' share price remains absolutely steady, which is remarkable considering the huge losses reported when a profit was expected.

TATA Motors stock on the Bombay Stock Exchange, however, tells a different story. In the company's home market, stock has tanked by 5.25 points today from 314 INR to 309 INR.

It is interesting that its performance on the New York Stock Exchange is so steady. Let's see what happens when the market opens in North America later today.

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