Weak Post-Brexit Pound To Benefit Jaguar Land Rover In Long Run: Tata Motors

New Delhi: Tata Motors expects its British arm Jaguar Land Rover (JLR) to benefit from a weak post-Brexit pound in the long term despite taking a heavy hit in the first quarter of this fiscal year due to adverse foreign exchange rates.

The company, which witnessed a 57 per cent plunge in consolidated net income at Rs 2,236 crore in the first quarter, is bullish that with 80 per cent of its sales coming from overseas markets, it stands to benefit from a weaker pound.

“JLR’s revenue, more than 80 per cent comes (from) outside the UK from Europe, China, the US, and other markets. We do source about 40 per cent to 50 per cent of our components from the EU. Therefore, if you take a combination of these, JLR over a time would benefit from a continued weaker pound as a result of the Brexit,” Tata Motors Group CFO C Ramakrishnan told analysts.

Even though it is partially offset by the higher import costs on what is imported from Europe, overall with the manufacturing and revenue distribution being what it is with 80 per cent of revenue coming from overseas turnover, a weaker pound will definitely benefit JLR over a period of time, he reiterated.

On the implications of Brexit on JLR, Mr Ramakrishnan said it will have two or three major implications.

“One of course is the currency, the extent to which pound continues to remain weak. Second will be on the tariff front that might result following the exit from EU across the ocean and impact, if any, on the overall economic growth and consumer confidence both in the UK as well as the EU,” he said.

As far as tariffs are concerned, he said, “UK vehicles exports into the EU roughly about 24 per cent of our total could become subject to tariffs depending on the trade agreements. Similarly vehicles manufactured in the EU, which get sold in the UK in our competition products, could become costlier in the UK.”

Mr Ramakrishnan further said that the component sourced from the EU could also become subject to tariff.

“However, this would be recoverable because we export substantial part of the production in the UK since we re-export, the component import duties if any are there will be somewhat muted because of the large exports JLR has,” he added.

In the first quarter this fiscal year, as the pound took a beating – sinking to a 31-year-low following the Brexit vote on June 24 – Tata Motors’ cash cow JLR took a 14 per cent forex hit at Rs 2,296 crore, offsetting the higher income arising from better volumes.

As a result, net income of Jaguar Land Rover (JLR) fell 38.21 per cent to 304 million pounds in the first quarter ended June, from 492 million pounds, while its revenue rose to 5,461 million pounds from 5,002 million pounds a year ago.

On the investments for this fiscal year, Mr Ramakrishnan said the capex and product development will be in the region of about 3.75 billion pounds for JLR.

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