Tata Motors to suffer if Brexit happens ?

Even as the probability of Brexit increases as the final date for voting approaches where the UK citizens will vote on June 23 on whether to remain in EU, there is a fear amongst the market participants that Tata Motors may suffer if Brexit happens. 

UK based JLR may suffer and hurt Tata Motors as import tariffs may apply on both legs  post-Bexit.  JLR derives 24 per cent of its volumes from EU and sources 35-40 per cent of its components from Europe , according to CLSA report. With import tariff on both legs the business will be impacted in a big way for JLR. 

Tata Motors have been aided by the JLR acquisition over years with JLR contributing major chunk of profits to the India based automobile maker. 

UK, post Brexit may join the single European market or may sign a free trade agreement pact like Canada. Canada has signed a free trade agreement "The Comprehensive Economic and Trade Agreement (CETA)"  with the European Union. The negotiations with CETA were concluded in August 2014 and the agreement is yet to be approved by the Council of the European Union and the European Parliament. This highlights the time it can take for a free trade agreement to be implemented in Euro Zone. For sure BREXIT will bring in lot of volatility for market players in the Euro Zone and UK. 

The only positive for JLR could be a weaker GBP post-Brexit. According to CLSA report the overall impact would be negative for Tata Motors. As of now with free movement of goods within European Union JLR enjoys access to the EU market. With tariffs in place the costs will go higher with import duties and CLSA thinks that the prices of JLR will be higher than the German Luxury cars in Europe thus negatively affecting the volumes and margins for Tata Motors. 

However with weakening GBP and 80 per cent of volumes being derived from exports by JLR, the company may gain, aided by another possibility of making German Luxury cars expensive in UK which will allow JLR gain market share in the local market. 

Over 1 year Tata Motors have delivered 5.7 per cent returns. Tata Motors is trading at Rs. 450 per share down by Rs. 1.80 per share or 0.40 per cent on Thursday on an intra-day basis even as broader market is trading weak with Sensex down by almost 290 points at 26436 levels.