The US investment banking firm said that because of high global exposure especially to the US and UK, and high operating/ financial leverage, the company is disproportionately vulnerable to COVID-19 disruption. JPMorgan said that fall in the equity value of the company’s UK-subsidiary Jaguar Land Rover due to prolonged negative free cash flow in the business was the biggest worry.
“We forecast a sizeable cash burn of GBP 1.5-2 bln (pound sterling) in 2020-21 and almost GBP 1 bln in 2021-22,” said JPMorgan, adding that the company’s turnaround plan that it announced before the coronavirus outbreak might not be enough to mitigate the drag on cash flow. The company might not be able to report neutral free cash flow before 2022-23, it stated. The investment bank expects the company to announce a cut in capital expenditure and operational expenditure or enter into a strategic alliance to tide through uncertain times.
“Decisive action from the company in terms of unprecedented capex/ opex cuts near term and a strategic alliance over the next 12-18 months will be critical to navigate this uncertainty. Clarity on this front will be key to changing our cautious view on the stock,” JPMorgan said. Beyond the lockdown, JPMorgan noted that the downside risks such as slow normalisation in the global supply chain, Brexit trade negotiations, and emission regulations in Europe that might disrupt sales still persist for Tata Motors. However, liquidity is not an issue for Tata Motors currently, given the cash on the balance sheet and strong parentage, JPMorgan said. JPMorgan has recommended selling the stock and has cut its target price to 70 rupees from 180 rupees. At 1133 IST, shares of Tata Motors were up 2.4% at 76.05 rupees on the National Stock Exchange.