Jaguar Land Rover (JLR) owned by Tata Motorsdecides to invest Rs 1.2 lakh crore in coming three years. This is the biggest in its history, as through this decision they intend to stay ahead of Mercedes-Benz, BMW and Audiin the race of electric vehicles. This will enabled them to narrow the gap with the entrenched German rivals in the traditional luxury car market.
These funds are meant to be used for an unprecedented, 99-product programme including annual updates, vehicles on the electric power-train, new-generation cars as well as four new brands.
The spokesperson from JLR has recently quoted to the UK investor fraternity that they plan toannually invest £4.5 billioni.e. Rs 40,519 crorein the next three years. JLR being a comparatively small player has been investing in products and capacity for the futuredisproportionatelyas compared to the German rivals.
This funding will be met through internal accruals and debt. By the end of the Financial Year 2018, JLR had £4.7 billion i.e. Rs 42,320 crorein its book as cash.
JLR’s capital expenditure to sales ratio stood at 16.2% in FY18, in comparison to the 11% and 12.1% in 2017 of BMW and Daimler, respectively. On the basis of analysts’estimates of JLR investments, the capital expenditure to sales ratio is likely to be at 16.2%, 14.8% and 13.6%, respectively in the next 3 years.
This shift is said to be a welcome move by JLR as the company expects diesel and petrol vehicle contributions to the total sales to reduce to 30% and 50%, respectively.
JLR is facing the pressure of investment at a time when it is already going through a weak demand period, especially in the UK where it has a much greater presence that hugely impactsits cash flows. Therefore, with the investment of £4.5 billion i.e. Rs 40,519 crore, its free cash flow is likely to remain negative in the near term. JLR had negative cash flow of £1.04 billion i.e Rs 9,364 crore in FY18.