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Tata Motors loses half of market value amid mountains of debt

The spiralling debt of Tata Motors in the wake of subdued sales in India, China and Europe affected its share price adversely, which tanked almost 50 per cent to Rs 114.35 as on Thursday in just over four months

Tata Motors loses half of market value amid mountains of debt

Tata Motors witnessed a strong jump in the debt of its automotive division that includes Jaguar Land Rover (JLR) and passenger and commercial vehicles business in India. The debt level increased from Rs 28,394 crore in March 2019 to Rs 46,515 crore during the first three months of 2019/20, a spike of a whopping 63.8 per cent. It was largely because of the negative free cash flow of Rs 11,639 crore and lease liability of Rs 5,965 crore. The new lease accounting standard, IFRS 16 requires lease costs to be considered as debt. Meanwhile, the JLR's poor performance in China and Europe (excluding the UK) caused negative free cash flow. An investment of Rs 7,285 crore and working capital loan of Rs 5,295 crore also contributed to negative free cash flow.

The spiralling debt of Tata Motors in the wake of subdued sales in India, China and Europe affected its share price adversely, which tanked almost 50 per cent to Rs 114.35 as on Thursday in just over four months. The carmaker lost around Rs 34,000 crore of market value during this period. Its current market value stands at Rs 33,016 crore.

JLR's net debt jumped to Rs 13,679 crore in June 2019 from Rs 6,633 crore in March 2019 and the gross debt-to-EBITDA went to 2.7 times from 2.3 (with IFRS 16 impact). The debt of Tata Motors' India operations jumped to Rs 21,718 crore in June 2019 from Rs 15,658 crore in March 2019, while the gross debt-to-EBITDA jumped to 4.7 times from 3.3. The gross consolidated debt of the company (which includes the liabilities of its auto finance division) increased to Rs 1,14,318 crore in June 2019 from Rs 1,06,175 crore in March 2019.

JLR has reported a 5 per cent rise in total sales in July due to strong sales in the UK and the US. JLR Chief Commercial Officer Felix Brautigam said that the results in China were significantly better than those in the previous year thanks to company's proactive work with the retailer network. "Whilst the market is still unstable, we look forward to building long-term sales momentum in this important region," he said.

In addition to the auto slowdown, Brexit, the new emission norms in Europe and US-China trade war hit JLR sales for many quarters. As a result, the company reported losses due to lower realisation. JLR posted a loss of 402 million pounds in the June quarter compared to a loss of 210 million pounds in the same period last year. "Lower volumes were due to weaker market conditions, runout of prior model Discovery Sport and China Evoque and WLTP delays," the company had said in its quarterly report. China's retail sales volumes in the June quarter dropped 29.2 per cent year-on-year.

Tata Motors, recently, deferred $1.5 billion fundraising plan after lukewarm response from potential lenders. The company wanted to raise the funds to refinance the loans of its India operations and JLR. According to reports, the carmaker has decided to pursue fund-raise options with domestic lenders.

Shares of Tata Motors had surged on Tuesday after reports from China said that the country would ease restrictions on car purchases to support auto sales. Similarly, Indian government has also taken steps to revive the domestic car market as part of tackling the economic slowdown.

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