Tata Motors (TTM) Q1 2016 Results

C Ramakrishnan – Group CFO

A positive outlook ahead

“Looking ahead, in our India business, our commercial vehicles, we did see some market headwinds in June, particularly the medium and heavy commercial vehicles. However, we continue to expect growth momentum for the full year in medium and heavy. It may be somewhat uneven but we expect the growth to be there for the full year…Similarly, we also expect positive growth in the buses and the light commercial vehicle segments in this year.”

Brexit effect being monitored closely

“We will continue to closely monitor and assess market conditions in the UK and EU post Brexit, as well as China as the target GDP growth rate in China comes under some challenge.”

They expect Brexit to affect them via tariff changes and currency impact

“As far as JLR {Jaguar Land Rover} is concerned, Brexit will have two or three major implications for us. One of course is the currency, the extent to which pound continues to remain weak. Second will be on the tariff rate that might result following the exit from EU across the portion and impact, if any, on the overall economic growth, both end-consumer confidence, both in UK as with the EU.”

On currency effects, a weaker pound is beneficial to their cost structure for some time

“JLRs revenue more than 80% comes outside the UK from Europe, China, US and other markets. We do source about 40%-50% of our components from EU. Therefore, if we take a combination of these, JLR overtime would benefit from a continued weaker pound as a result of the Brexit…However, this will be a repeat for a period of time in lieu of the hedging bond that we have so the hedges unwind, we will see them dislocating stronger with the current exchange scenario. ”

On tariffs, competitor´s products become more expensive

“As far as tariffs are concerned, UK vehicles exports into the EU roughly about 24% of our total could become subject to tariffs depending upon the trade agreements. So the vehicles getting manufactured in the EU which gets sold in UK, our competition products could become costlier in UK. Components sourced from EU could also become subject to tariff, however these would be recoverable because we export substantial part of the production in UK since we re-export. The component import duties, if any on there, will be somewhat muted because of the large exports JLR has.”

They expect to grow faster than the economy in China

“In terms of market demand, as I said earlier, China continues to be an important market. Whether …we put a percentage in terms of overall GDP growth 5%, 6% or 7% on a large economy, it is still an impressive growth. We may see some bumps on the way but I think overall I think the trend line will be one of growth. And with the attraction of the strong demand pull for our products we expect our growth will be faster than the overall industry growth.”