Tata Motors is worth nothing without Jaguar Land Rover: analysts

With the coronavirus pandemic crippling demand for automobiles worldwide, Tata Motors Ltd. is worth nothing without its luxury unit Jaguar Land Rover, according to CLSA Ltd.

The $3.7 billion Indian auto company faces a significant increase in debt due to the crisis, and its plan to deleverage may be delayed by four to six quarters, CLSA said. It has already received a lifeline from parent Tata Sons Pvt Ltd. in the form of a preferential equity allotment, and the brokerage thinks further aid could be required.

“JLR is the only driver of its valuation," analyst Amyn Pirani wrote in a report, downgrading Tata Motors to underperform from buy. “We believe future equity infusions are also likely to be utilized for loss funding and hence we do not attribute any equity value to its India business."

Indian demand for passenger vehicles was slumping even before the virus outbreak. With the pandemic forcing a strict lockdown, the nation’s top carmakers couldn’t ship a single vehicle to dealers in April. Tata Motors has been the worst performer on the S&P BSE Auto Index this year with a decline of over 53%.

The virus has also been a setback for Jaguar Land Rover, which was beginning to show signs of a turnaround late last year from the combined negative impact of a slowdown in China, Brexit and European emissions rules. Tata Sons had been looking for a strategic partner for the business but pledged it wouldn’t sell JLR.

CLSA says the global luxury unit and Indian commercial vehicle business should both recover next fiscal year. While a sale of the India passenger vehicle business and its financing arm could increase Tata Motors’ equity value by 92 billion rupees ($1.2 billion), they are “low probability events" in the current environment, Pirani said.