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Automobiles

Tata Motors profit beats estimates on Jaguar Land Rover cost cuts

Company warns coronavirus outbreak in China could dampen luxury vehicle demand

Tata Motors, which derives the bulk of its revenue from the British brands, is barely recovering from the throes of a slowdown in China,

MUMBAI (NewsRise) -- Tata Motors reported a better-than-expected third-quarter profit, aided by unit Jaguar Land Rover, but warned that the coronavirus outbreak in China may damp the financial performance of the British luxury automaker in the current quarter.

Mumbai-based Tata Motors, which derives the bulk of its revenue from the marquee brand, is barely recovering from the throes of a prolonged slowdown in China, where a slowing economy and a trade dispute with the U.S. had wreaked havoc on vehicle demand. Jaguar Land Rover, which Tata acquired in 2008 from Ford Motor, last year announced a plan to cut about 10% of its workforce in a bid to pare costs and boost cash flows.

JLR continues to expect improved profitability and cash flow for the financial year ending March 31 with an operating margin of around 3%, Tata Motors said in a statement. "However, the developing situation with the coronavirus could have some impact on this," it added.

The number of confirmed deaths due to coronavirus in China has risen to 170 at the end of Wednesday, while the number of infected patients rose by more than 1,700, Reuters reported Thursday, raising concerns that the epidemic will have a deeper impact on Asia's largest economy.

In the quarter ended in December, Tata Motors' consolidated net profit stood at 17.4 billion rupees ($243 million), compared with a loss of 269.9 billion rupees a year earlier, the company said in the statement. Analysts were expecting a profit of 10.19 billion rupees, according to Refinitiv data. Total revenue from operations fell 6.8% to 716.8 billion rupees.

Jaguar Land Rover reported a pretax profit of 318 million pounds ($413 million), aided by higher China sales volume, stronger product mix, lower operating costs, and favorable foreign exchange, the company said. Still, overall retail sales fell 2.3% in the quarter.

"The conditions in the automotive industry remain challenging, but we are encouraged by the recovery in our China business and the success of the new Range Rover Evoque," said Ralf Speth, the chief executive of JLR. Speth is set to retire from his current role at the end of his contract term in September, Tata Motors said earlier today.

Speth will continue as the nonexecutive vice chairman of JLR and on the board of Tata Sons.

The improving financial performance of JLR and the cash flow achievements from the cost-cutting initiatives will support the next phase of new vehicles and technologies at JLR, Speth said.

The company saw total cost and cash flow improvements of 2.9 billion pounds, exceeding the 2.5 billion-pound target, three months ahead of schedule, Tata Motors said, adding that it is now aiming for savings of 4.1 billion pounds by March 2021.

In recent years, Tata Motors has been riding on the success of the unit that accounts for more than half of the company's revenue and nearly 90% of its operating profit. The company's investment during the quarter fell 14% to 892 million pounds, helping to improve free cash flow to a negative 144 million pounds.

Meanwhile, Tata Motors' India business, which makes a range of passenger and commercial vehicles, saw a 33% slump in revenue. In the quarter ended in December, the stand-alone business reported a loss of 10.40 billion rupees.

Automotive demand in Asia's third-biggest economy has been cooling for more than a year amid a credit crunch and weakening consumer sentiment. The slowdown in sales prompted many companies including Maruti Suzuki India, the nation's biggest carmaker, to slash production.

Earlier on Thursday, Bajaj Auto, one of India's top two-wheeler makers, reported a better-than-expected 15% rise in profit, helped by declining raw material costs.

Shares of Tata Motors fell 1% in Mumbai trading ahead of the earnings, while the benchmark S&P BSE Sensex closed 0.7% lower. Bajaj Auto rose 1.7%.

--Dhanya Ann Thoppil

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