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PB Balaji, CFO, Tata Motors
May 25, 2018 | Source: ET NOW
JLR has been really affected by the demand environment, particularly in the UK and Europe and that has caused performance challenge as far as volume growth is concerned.
The UK market collapsed because of Brexit and challenges on diesel taxes front. The volume growth that was delivered because of that, has resulted in their operating leverage going off and that is what you see as an EBIT number. Rest assured, their contribution margins are healthy. There is no problem as far as the brand and the contribution margin is concerned.
As far as where they have lost out on this, this is not a story of this quarter alone. Over the last two, three years, it has been happening and JLR is one area where we are keen to step up the operating leverage part.
In an environment when you have been growing at about 28-30%, you build a kind of muscle and when growth is challenged, then there are other ways to create value of which the biggest one is operating leverage.
The contrast with Tata Motors standalone is quite stark and significant. Operating leverage has been geared up here. Given the size of the business, it is not out of the realm of possibility. It is a 25-billion-pound business generating 1.5 billion pounds of profits. In a business of that size, if you just hold your cost at a sensible level, operating leverage comes in automatically.
It is a question of what do you pitch for in terms of demand and then what do you deliver against it. They are mentally looking through all these aspects to ensure that they are realistic in our demand estimation and they can create value in all conditions.
Their portfolio is starting to fill up with plug in hybrids and electrics. That means that all the products which are there with electric options are starting to sell exceedingly well. Last year, they had five new models being introduced.
It also means it is going to take a bit of time for these models to settle down. This year, those models get juiced out completely. The I-PACE launch is probably the most exciting launch they have done in a long-long while. It is the first premium battery electric SUV and it is comparable with the leaders in the electric segment. It is just in a different league and therefore that is the next one that comes through here.
Range Rover, Range Rover Sport get their full model year impact as well this year. They are quite excited and that is why in the outlook slide, they have explicitly called out that they expect to see both demand and profitability improve in FY19 compared to last year.
What JLR dropped in terms of its EBIT, the domestic business more than picked up, Therefore, it is a very meaningful presence in the overall scheme of things
As far as the domestic market is concerned, it is all systems go when it comes to CVs. After many years, thye have won back a share and that should say something. The fact is they have improved profitability, cash, shares and growth. That is how a turnaround typically gets classified.
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