What Brexit means for Tata Motors; how it will impact automaker’s shares

Tata Motors which generates majority of its revenue from its British luxury car unit Jaguar Land Rover (JLR) could come under pressure if Britain decides to leave European Union after the June 23 referendum, also known as Brexit. According to Tata Motors website, Jaguar Land Rover contributed 83.2 per cent of the company’s total automotive revenue in 2014-15 compared to 82.2 per cent in 2013-14.

According to Prabhudas Lilladher, Brexit could be negative for JLR in the short term as it would raise issues of a fiscal deficit, lower UK growth and adequate manpower shortfall. However, there would be multiple indeterminable variables which can vary the level of impact on JLR.

Since the beginning of the ongoing calendar year, shares of Tata Motors rallied 20 per cent to Rs 481.65 on June 20 from Rs 401.65 on January 1. On the other hand, Sensex gained 2.70 per cent during the same period.

For the quarter ended March 31, 2016, Tata Motors reported a consolidated net profit of Rs 5,206.45 crore, up 197.95 per cent, against Rs 1,747.43 crore in the corresponding quarter a year ago. Net sales of the company jumped 18.76 per cent year-on-year to Rs 79,926.12 crore.

Sudip Bandyopadhyay, chairman of Inditrade Capital said, “Tata Motors will be among the companies to be most exposed in the event of Brexit. Britain exit from European Union will impact the profits and revenue of the auto major. If Brexit happens, then Tata Motors will take huge beatings and we can see up to 12 per cent fall in its shares.”

Prabhudas Lilladher in a research note said, “Near‐term concerns also arise from the possibility of Brexit and its possible adverse implications for JLR, although the exact quantum cannot be gauged by the company.”

On Tuesday, shares of Tata Motors were trading at Rs 478.85 in the late morning trade.

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