"Expect JLR margins to climb to about 16 per cent over FY18-19, assuming currencies remain stable. This will be driven by non-recurrence of the mark-to-market FX (forex) loss on payables, receding FX loss on realised hedges as the hedges gradually expire, benefits from the post Brexit vote pound depreciation on unhedged FX exposure and platform consolidation benefits," stated a CLSA report.
An adverse forex impact of Rs 2,296 crore and an adverse commodity derivatives impact of Rs 167 crore hurt JLR's financials during the quarter ended June. This led to a net profit of Rs 2,260 crore, below the estimate of a poll of nearly two dozen analysts done by Bloomberg.
“JLR’s Ebitda (operating earnings) would likely get a ·350-400m boost from currency benefits for the rest of FY17. A weak first quarter was an aberration, due to the timing of the sharp currency moves. Underlying business momentum remains strong, with volume and pricing tracking well. We forecast JLR’s Ebitda to grow 18.3 per cent (annually) in FY16-19. The combination of strengthening franchise and benign currency keeps us positive,” said a Jefferies report.
The Ebitda (earnings before interest, taxes, depreciation and amortisation) margin declined to 12.3 per cent during the recently concluded quarter, from 16.4 per cent in the same quarter last year. Apart from the forex loss, the inclusion of Jaguar XE, a sedan priced lower than other models under the same brand, led to a poorer product mix. "JLR's adjusted Ebitda margin of 13.8 per cent came despite a weaker geographical mix. Expect JLR to register strong volume growth over FY16-18, led by new models. Our FY17-18 EPS (earnings per share) estimate is about 15 per cent higher than the Bloomberg consensus," stated a report from Macquarie, recommending a 'Buy' on the stock.
About 80 per cent of the JLR operations are exported out of Britain. About 60 per cent of its revenues are either dollar-dependent or dollar-linked. The euro forms about 25 per cent of JLR's revenue and half its cost. JLR retail volumes during the quarter were up 16 per cent to 132,743 units, with China recording the single biggest jump, of 19 per cent.
“Our hedge policy and our hedge book stretches across four to five years. However, if you take 12 months from now, the average hedge position would be of the order of 65-70 per cent, within which the first quarter and the next three months could be higher and in a declining percentage. Second year, the hedge position would be lower, and so forth. By the time you reach the fourth year, it will be not more than 10-15 per cent. So it's a declining percentage in terms of net exposure that we have in the hedging policy. As these hedges unwind, you will definitely start seeing the business. If the pound is where it is, you will start seeing the business much stronger and stronger over a period of time,” said C Ramakrishnan, group chief financial officer.
At the India business level, the company is preparing to launch a new compact sedan on the Tiago platform and Hexa, a premium sports utility vehicle, over the next three months. It has also raised production of the Tiago, whose sales have risen to around 5,000 units a month.