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Tata Motors Shares Under Pressure Ahead Of Brexit Vote

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Tata Motors, monthly sales

Mumbai: Tata Motors was the top Nifty loser on Wednesday, ahead of the key Brexit referendum in the UK on Thursday. A vote in favour of Brexit will hit profitability of Tata Motors' UK subsidiary Jaguar Land Rover, analysts said.

According to sources in Jaguar Land Rover, a vote in favour of Brexit could cut down the company's annual profit by 1 billion pounds ($1.47 billion) by 2020.

Currently, goods exported from the UK to countries that are part of the European Union, are not taxed as EU is a single market, allowing the free movement of goods, services, capital and persons.

But if Britain exits the European Union, Jaguar Land Rover will have to pay a 10 per cent export duty and 4 per cent import duty on components, which will hit the luxury carmaker's bottom line, analysts say.

Europe is the largest market for Jaguar Land Rover. The company sold almost a quarter of its over 520,000 cars in Europe last year.

Ashwin Patil, equity analyst at LKP Securities, told that the sharp depreciation in pound expected post a potential Brexit is another factor that will hit Jaguar Land Rover.

"The depreciation of pound will have a negative impact on the revenue, profitability and balance sheet of Tata Motors," Mr Patil told.

Mr Patil further said that JLR has a debt liability of 1.54 billion pounds, which is in US dollar, and if pound depreciates by 10 per cent, then it will result in a mark-to-market loss of approximately 200 million pounds. This mark-to mark loss could reduce the book value of Tata Motors by 2-3 per cent, he added.

Jaguar Land Rover, Britain's largest carmaker, contributes around 90 per cent to Tata Motors' profitability. Jaguar Land Rover made a 2015-16 pre-tax profit of 1.6 billion pounds.

As of 09.45 a.m., Tata Motors shares were down 1.5 per cent at Rs. 477.80, underperforming the broader Nifty that traded 0.13 per cent higher. Tata Motors DVR, or shares with differential voting rights, traded over 2 per cent down at Rs. 317.40.

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