Tata Motors Ltd gave an uninspiring outlook for its luxury brand Jaguar Land Rover and forecast weak demand in the Indian automaker's home market, sending its shares 6 per cent lower on Tuesday.
Mumbai-based Tata Motors, which reported quarterly earnings results after markets closed on Monday, has been struggling with its JLR arm for months due to a slump in China sales, while also dealing with a weak industry.
Three months ago, Tata Motors announced plans to revamp JLR, after reporting the biggest loss of about $4 billion in Indian corporate history due to an impairment at JLR.
"It would be tough for JLR to come out of the negative free cash flow trajectory so easily in the near term, despite cutting planned capex," analysts at Ambit Insights said in a report. They said the company's forecast of negative free cash flow seemed to show "lack of conviction in terms of volume growth."
Tata Motors said it expects JLR to eventually return to profitability after a loss in April-June, helped by cost cuts and a recovery in Chinese demand but cash flow for JLR would be negative till fiscal year 2021.
Finance chief PB Balaji told reporters he expected Chinese sales of its sleek Jaguar saloons and Land Rover sport-utility vehicles (SUVs) to return to growth "a quarter from now" but many analysts were not convinced of a quick turnaround.
"Our recent channel checks with dealers in China indicated that progress on (the) ground has been slow with dealers still incurring losses on JLR sales and relatively low traction in retails despite a recovery in the overall market," Jefferies analyst Arya Sen said in a report.
Tata Motors, the country's biggest automaker by revenue, earned Rs 1,117 crore in net profit in January-March, beating the Rs 338 crore average estimate of 10 analysts, according to data from Refinitiv IBES. The reported profit nearly halved from a year earlier.
Revenue at JLR, which brings in most of Tata Motor's revenue, fell 5 per cent to Rs 65,146 crore ($9.34 billion).
Tata Motor's shares shed 6 per cent on the Mumbai exchange, underperforming in a flat Mumbai market. The company gave a subdued near-term outlook.
"In India we expect to see next 3-6 months of tepid demand ... the near term performance is likely to be definitely impacted due to continued slowdown in the market," Mr Balaji said.
Sales of private cars have been hit by growing use of app-based cab services such as those from Ola and Uber Technologies Inc, tighter credit and a slowing economy.
Last month, Tata Motor's rival Maruti Suzuki India Ltd reported a 5 per cent decline in quarterly net profit and forecast weak growth.
($1 = Rs 69.73)
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