Tata Motors' currency bets misfire

Image: Eddie Keogh / Reuters

 
In a conference call with analysts, Tata Motors Chief Financial Officer C Ramakrishnan maintained that hedging its currency receivables was the right strategy as theirs is a “business for which a substantial amount of production and costs are in pounds sterling and almost 80 percent of the revenue is in other currencies”.

In the three months following the Brexit vote, the British currency fell from $1.45 to a pound to $1.25. In the last quarter, JLR lost £400 million (about Rs 3,300 crore) in incremental foreign exchange losses, according to Kenneth Gregor, chief financial officer at JLR.

Tata Motors says it maintains a large hedge book and that the hedges run into the next 4-5 years. For now, it is hard to estimate how long the negative impact of the hedges will remain. According to Gregor, “I would, over the next four quarters, expect them to run at a similar level and then start to reduce thereafter,” he said.
 
Unless there is a dramatic recovery in the value of the pound over the next quarter, one can expect a similar level of foreign exchange loss at Tata Motors. The company  has hedged 80 percent of its foreign exchange in the next quarter.

On February 15, the day the results were announced, Tata Motors’ stock fell 10.2 percent to Rs 448 on BSE. Clearly, the market has adopted a wait-and-watch attitude and is unlikely to re-rate the stock till the full extent of the foreign exchange losses are known.

Analysts who track Tata Motors say they are disappointed the company had not provided any advance guidance on their hedged foreign exchange positions. “No one is upset about what happened. It is just that timely disclosures would have helped,” said an analyst.