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With Tata Group’s talks with the British government on a financial rescue package failing, the conglomerate has to look for a strategic partner for Jaguar Land Rover (JLR) and sell its UK steel plant lock, stock, and barrel.
A former director of Tata Steel and Tata Motors said with the European operations of both companies bleeding the finances of their parent companies, the group would have to come up with a solution soon.
“I will not rule out a stake sale in JLR and selling the UK steel operations. Talks with ThyssenKrupp on the merger of Tata Steel’s European operations are taking a lot of time, which is bad news,” he said.
A Tata Motors spokesman said JLR was in regular discussion with the British government on many matters.
“At this stage, there is not a programme considered appropriate for JLR. We recently announced our results for the first quarter and have indicated we are maintaining solid liquidity despite the pandemic. Our business remains strong as we transition to electrified, autonomous, and connected technologies to support our Destination Zero ambition,” said the spokesman.
A Tata Steel spokesperson said Tata Steel remains in ongoing and constructive talks with the UK Government on areas of potential support. ”As these discussions have not reached a conclusion, it would be premature to comment on any options that may or may not be under consideration,” he said.
In July, Liberty House, a company promoted by Sanjeev Gupta, had evinced an interest on collaborating with Tata Steel for its Port Talbot (UK) plant.
The condition of JLR is alarming as the British subsidiary has lost £1 billion in the first six months of the calendar 2020. The pandemic has resulted in lower sales across the world. Tata Group had initiated talks on a possible stake sale even before the pandemic, but no decision was taken.
JLR employs 30,000 in the UK, while Tata Steel has 8,000 on its rolls. The group had sought a financial package from the British government as part of the latter’s efforts to help local companies. The talks, however, failed on the government’s stiff conditions, including asking JLR to produce more electric vehicles than diesel vehicles.
Just before the pandemic struck, global brokerage Bernstein had said that JLR could fetch a valuation of £9 billion.
This was after news reports surfaced in foreign media that BMW was interested in buying a stake in JLR.
Bernstein had said the problems at JLR looked daunting for the group because it did not appear to have the expertise, resources, or scale to turn around the company.
“It’s been an amazing 10 years, with many successes, but we believe the company needs to find a strategic solution for JLR. The proceeds of £9 billion would mean upside for Tata Motors share price, especially if Tata could articulate how the capital would then be redeployed,” the report had said.
It said BMW was overcapitalised, awash with cash, and the right fit for JLR.
“It has run into the limits of growth for its product range and brand. Returns on capital from further expansion look questionable. By contrast, JLR could be acquired at a discount to book value. With BMW’s help, it could be returned to profitability,” it said.
The Range Rover has huge gross margins but is being swamped by fixed cost and problems on other product lines. BMW could lower JLR’s investment cost and raise margins by leveraging its own platforms, powertrains, purchasing scale, and quality control. Value creation would be substantial and could boost BMW earnings by 20 per cent, the report said.
(With inputs from Ishita Ayan Dutt)
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