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 NDTV Profit 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 NDTV Profit. (Watch)
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 10.45 a.m., Tata Motors shares were down 2 per cent at Rs 475.35, underperforming the broader Nifty that traded flat. Tata Motors DVR, or shares with differential voting rights, traded 2.5 per cent lower at Rs 316.60.