Why is the Stock of Tata Motors Falling?

Tata Motors’ dismal performance in Q3 hits a 52-week low share price Rs.129 (on February 8, 2019)

After reporting Rs 26,960.8 crore quarterly loss-biggest in the Indian corporate history, the Tata Motors share price came under intense selling pressure in trade today.
Tata Motors Limited is an Indian multinational automobile manufacturing company. It is headquartered in Mumbai. It’s a subsidiary of Tata Group, an Indian conglomerate. The diverse product portfolio of Tata Motors Ltd. include passenger cars, trucks, vans, coaches, buses, sports cars, construction equipment and military vehicles.
Jaguar Land Rover (JLR) Automotive PLC is the holding company of Jaguar Land Rover Limited, a British multinational automotive company. It’s headquarter is in United Kingdom, and is a subsidiary of the Indian multinational automobile manufacturing company Tata Motors Limited.

The Q3FY18-19 results of Tata Motors Limited were released/declared on 8^th February 2019.

The company reported a record Rs 26,961-crore loss in December Q3 quarter, largely on account of a massive $3.1 billion pound impairment of Jaguar Land Rover (JLR) assets. The fall was seen as analysts cut earnings target for the company by up to 25 per cent.

The Huge Loss Explained
JLR had made some investments in China amounting to more than 3.1 billion pound, which is investment of more than Rs. 30,000 crores. So, this asset impairment is more of an accounting entry rather than actual losses or any other negative thing.
Asset Impairment is the revaluation of an asset on the balance sheet of the company. An impairment loss takes place when the company revalues its assets, as the book value of the assets is more than the actual realizable value of the assets when sold in the market.
For example, when Microsoft had acquired Nokia that time they too had booked an asset impairment loss as that acquisition didn’t work quite well for Microsoft. So, there they too had used an accounting entry of asset impairment.
Similarly, Tata Motors has taken all the investments of JLR done in China as exceptional items and booked an asset impairment loss.
That is why we can see a consolidated Total Loss of Rs. 26,961 crores in the Q3FY18-19 results of Tata Motors Limited.

The biggest reason behind this is JLR as explained above. The sales of JLR in China are down by almost 50-60%. And this sales drop has happened because of the negative sentiments created in the China market as a result of the US-China trade war. The trade war has an automatic impact on the consumption and this reduced consumption decreased the JLR sales.

The silver lining here for JLR is that the sales numbers from Europe and USA are good.

Now Tata Motors has taken a one time hit. For future Tata Motors has started making investments to cope with the technological improvements, vehicle advancements, increasing demand of electric vehicles.

Standalone Numbers
These are the numbers of the domestic business of Tata Motors Ltd.

• Revenue :
  The revenue was reported as Rs. 16,208 crores, up by 1.5% YoY. This is a very good number because the company registered these numbers even in a negative cyclic trend.
  As mentioned in our earlier article: Why Ashok Leland’s share price is falling? The Auto industry is going through a negative cycle. Typically, the Auto industry has a cycle of good 4 years and this time it got extended to a 5th year. That is why the next 1 or 2 years may be a little sluggish.

• Commercial Vehicles Segment :
  The major contributor in the numbers of Tata Motors is the segment of Commercial Vehicles. 0.5% of market share of the commercial vehicles segment has been additionally gained by Tata Motors. Now they have a market share of almost 51%-52% in commercial vehicles segment.

• Passenger Vehicles Segment :
  In passenger vehicles segment too, similar 0.5% of market share has been additionally gained by Tata Motors. This happened because of the product pipeline combining of new and old cars received positive response in the market.

• Profit After Tax (PAT) :
  The standalone PAT was reported at Rs. 618 crores in Q3 FY2018-19. Last year in same quarter (Q3FY17-18), the PAT stood at Rs. 212 crores. A growth of almost 200% in the profitability.

Share Price Movement :

The Tata Motors share price crashed to a fresh 52-week low of 129.0 on NSE, down 29.54% or 53 points compared to the previous close of 182.85 on NSE. 
The current (8^th February) share price of Tata Motor is around Rs. 150.70
On 7^th February 2019 the share price of Tata Motors closed at Rs. 182.85.The result was declared after the market timings. On 8^th February 2019, when the market opened the stock received a strong negative reaction and is down by almost 32.15, 17.58% fall.

Market Capitalisation :
The market cap of Tata Motors went almost up to Rs. 180000 crores when you look at the last 2-3 years.
Now, according to the current price, the market cap has come down to almost Rs. 47,079 crores.
This is the result of factor-ins done by the market. This reduced market cap tells is how the market already factor-ins certain expected things. Market had already started discounting owing to the poor numbers of JLR.

Turnaround 2.0
This is a campaign launched by Tata Motors. Under this campaign, they have revamped the whole domestic business of the company. JLR has helped in this a lot.
For example, looking at the latest offering by Tata Motors, the Tata Harrier gives an idea of the new Tata Motors and it does not look like any of the old ones.

Summary :

• There is no problem in the domestic business of Tata Motors Limited.
• The market has given a negative reaction to Tata Motors Q3 results.
• The Total Loss is a result of an accounting entry rather than having incurred actual losses.
• Tata Motors has made notable investments in the technology side.
• No more negative surprises will be there from China investments of JLR.

Notes :

• Q3FY18-19 = Quarter of Oct-Dec of 2018
• Q3FY17-18 = Quarter of Oct-Dec of 2017
• The numbers that are used are approximate and have been rounded for presentation purposes.
• No suggestions are been made as to whether this is a good or bad company/stock.
• No suggestions are also being made to go and immediately buy the stocks of this company or go invest in the stock market.