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A Bumpy Road Ahead?

31 July 2018 by lberuti

The reporting season is drawing to an end, but it is still keeping investors busy at the moment. Today TTMTIN (Jaguar Land Rover Automotive Plc) released their numbers for the first quarter of the 2018-19 fiscal year, and they did not reassure the market. Since late 2015, TTMTN has benefitted from a growing average selling price for its cars which was able to offset volume declines. But this growth has stalled, evidencing the fact that fierce competition within the SUV segment is feeding through to TTMTIN’s competitive position. The increased pricing pressure is coming at a time when commodity inflation is rising, which will further limit profitability. Furthermore, the company is spending to expand its vehicle portfolio, including the electric Jaguar I-Pace which is designed to compete with Tesla’s Model X, which will come at the expense of weaker credit metrics in the near term. Finally, TTMTIN’s recent decision to increase its dividend towards a 25% pay-out to parent Tata Motors, about a 50% increase from past practises, is adding another headwind to its credit profile. These factors, combined with the potential impact of Brexit, led investors to reassess TTMTN’s 5-year risk premium, and they sent it 26bps wider at 336bps.