Tata’s Profit to Fall as JLR Cash Boom Begins to Drop image

Jaguar Land Rover is expected to dramatically fall due to the rising capital costs and the falling margins.

As JLR is increasing investment into its cash pile, the possibility of fresh borrowing is going up too. Unfortunately, the falling profitability will most likely lead parent Tata Motors towards its first profit drop in more than five quarters. The increasing dependence in the lower-margin models, such as the Freelander and the Land Rover Evoque, are expected to have caused a drop in the October-December results, to be reported later today.

“Over the next couple of years, they are unlikely to generate much cash. That’s a worry,” said Joseph George, analyst at IIFL Institutional Equities in Mumbai, one of seven with a negative rating on the stock, according to Thomson Reuters Starmine. “That’s going to be a problem for Tata.”

At the end of September, JLR had a net cash of 437 million pounds ($684 million), but as the company invests money in a new plant in China and an engine facility in Britain, it will no longer be able to be the cash-generating driver for Tata. In January, 18 analysts have reduced their forecasts for Tata’s annual earnings by about 7.9%.