ANALYST NOTES
Tata Motors: Impact of Brexit on JLR
UK citizens voted in favor of 'Brexit' on 23 June 2016. GBP depreciated by ~8% to the USD after the event. As highlighted in our note, 'Brexit fallout – Not all is 'loss' for JLR' (link here to note), GBP depreciation vs major export currencies would be a net positive for JLR (81%/90% of consolidated revenues/EBITDA) as exports form 84% of revenues (partly offset by adverse currency impact on imports from EU and existing currency hedges). However, JLR would be negatively affected if the terms of trade between UK and EU become adverse post Brexit. However, relief on trade front includes: (i) two-year moratorium for negotiating withdrawal agreement between the UK and EU; (ii) Switzerland, which is not part of EU, has negotiated bilateral free trade agreements with several EU states; and (iii) potential shifting of production to Slovakia plant (capacity 1.8x current EU exports; FY19 commissioning) that can mitigate long-term impact of adverse tariffs. (Ashvin Shetty, CFA, +91 22 3043 3285)
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