Tata Motors’ arm JLR sees hit to FY22 guidance if chip supply issues continue

MUMBAI: The global shortage in chip supply could not only affect the second quarter performance of ’ arm Jaguar Land Rover but may threaten its revenue, margin and free cash flow guidance for the current financial year.

On Tuesday, JLR warned investors that its volumes in the September quarter could fall short by as much as 50 per cent of the company’s expectations due to an acute shortage of chips that have upended global supply chains over the past few months.

“If we get a very, very sharp return to normality in Q3, which I am not expecting, then guidance on revenue will be lower but EBIT margin and free cash will be close,” Adrian Mardell, chief financial officer at JLR told investors in a conference call.

“But I don’t expect such a quick recovery in Q3,” Mardell said as he deterred from provide a new guidance to investors. JLR said that it had penciled in production of 235,000-odd units in April-Sept but may only manage up to 150,000 units due to the shortage of chips.

The luxury carmaker had previously guided for an earnings before interest and tax margin of 4 per cent and a volume growth of 20 per cent. That guidance at the end of the March quarter earnings had enthused analysts given that the global chip shortage issue was bothering automakers.

JLR has warned that because of the substantial drop in wholesale volumes during the first and second quarter, the company will face cash outflows of 2 billion pound sterling in the first half of the current financial year.

Yet, Mardell insisted that investors should keep in mind that in the previous financial year the company managed to turnaround the situation in the second half despite facing similar cash outflows in the first half of the year.

“Production will be higher in the second half as issues at Japanese and Texas chip suppliers are getting resolved. There will be a dramatic rebound once we starting building back as demand is strong,” Mardell said.

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