The impact of COVID-19 on Tata Group

The $100-billion salt-to-software group’s flagship firm Tata Motors is suffering from multiple headwinds in the domestic market while Jaguar Land Rover Automotive (JLR), the company’s UK subsidiary, is under pressure to surface from a fall down in car sales. Even as the company’s factories have resumed operations, the demand viewpoint for luxury vehicles in the middle of a global recession remains vague.

The group’s steel business in Europe too has been under pressure because of Covid-19. The UK arm of Tata Steel has reportedly sought an estimated Rs 4750 crore from the British government to endure the corona virus lockdown period, according to UK media reports.

Tata Motors reported one of its highest quarterly losses as the Covid-19 pandemic impacted its Indian and overseas businesses. The company had a consolidated net loss of Rs 9894 crore for the January-March 2020 period, against a consolidated net profit of Rs 1108 crore in the corresponding quarter last year. It is a complete setback of the gains that the company had reported in the second and third quarters. Total revenue from the operations fell 27.7%.

JLR, which contributes around 78% of the company’s whole revenue, had a bumpy run during the March quarter, washing out the profits made during the second and third quarters. It reported a pre-tax loss of 501 million pounds for the period after it took a hit of 800 million pounds because of novel corona virus. The company said it is seeing recovery in China with all its dealers being open now. In India, the demand which was already negatively impacted by the general economic slowdown, liquidity stress and stock corrections due to BSVI transition was further affected by the lockdown.

For the full year ended March 31, 2020, the Tata Motors company reported a consolidated net loss of Rs 12,000 crore, while the consolidated revenue from operations declined 14% to Rs 2,61,068 crore compared to previous year. The following remedial measures are taken by Tata group to even out the losses.

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First time pay cut in the history of Tata Group

Tata Group announced 20% pay cut for the top management. This is for the first time that the chairman of Tata Sons and CEOs of all the operating companies will take cut in compensation because of the COVID-19 pandemic.

Tata Consultancy Services (TCS), a global leader in IT services, consulting & business solutions was the first to declare pay cut for CEO Rajesh Gopinathan. His remuneration dropped by 16.5%. The remuneration of the top 15 Tata Group Companies CEO rose nearly 11% in FY19 as compared to FY18.

Sale of Three Ships

Singapore-based Trust Energy Resources Pte Ltd (TERPL), a fully-owned subsidiary of Tata Power, has entered into an agreement with German company, Oldendroff Carriers GmbH & Co. KG for the slae of three ships at an estimated cost of USD 212.76 million. However, this deal is subject to regulatory approvals.

MV Trust Agility, MV Trust Integrity and MV Trust Amity are currently owned by TERPL. The sale of three ships is anticipated to be concluded in the next three to four weeks.

The objective of the business deal is to have an asset-light model for the shipping requirements of the company and the sale proceeds will be used towards reducing the debt.

The sale includes existing long-term contracts associated with the ships with the Oldendroff Carriers GmbH & Co. KG Germany, which is one of the largest dry bulk shipping companies in the world.

Cost reduction Plan

The company has designed a cost reduction plan to take out almost Rs 1500 crore of cash and cost from the system and an additional capex and working savings of Rs 4500 crore.

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To terminate 1100 temporary jobs at Jaguar Land Rover

Tata Motors Ltd is planning to terminate about 1,100 temporary jobs at JLR. This move is expected to smoothen out the destruction caused by the COVID-19 pandemic.

Tata Motors expects to save 5 billion pounds in costs by March 2021 at its JLR unit, adding 3.5 billion pounds of the savings which have been achieved already.
It will also shrink capital experience at JLR to 2.5 billion pounds for the current fiscal year, from the more than 3 billion pounds it has spent annually in previous years.

Devising strategies to exit

Tata Motors is reviewing all its businesses and would consider exiting those that do not add strategic value, as part of a border effort to save 60 billion rupees in its Indian market for the fiscal year to 2021.

Tata Motors is expecting a significant weaker sale in the first quarter of the current financial year in both JLR and the Tata Motors domestic business, as a reflection of impact of lockdowns.

The Tata Group is currently focusing on navigating the challenges arising out of the pandemic and planning of strategies to attain profitable growth in the future.

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