6/22/2016
Tata Motors, Tata Steel among firms that may take Brexit hit: analysts ­ Print View ­ Livemint
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Wed, Jun 22 2016. 05 07 AM IST
Tata Motors, Tata Steel among firms that may take Brexit hit:
analysts
Companies with either significant revenues dependent on the UK or the EU, or presence in the country could be affected if Brexit
becomes a reality
Mumbai: Indian companies with significant exposure to the UK and
the European Union (EU) risk taking a hit if Britons vote in favour of a
“Brexit” in this week’s referendum, analysts warn.
The EU (including the UK) is India’s largest trading partner,
accounting for $48 billion in merchandise exports and $65 billion in
merchandise imports, according to the securities house CLSA.
In a 16 June report, CLSA said India’s trade with the UK alone is
worth $9 billion, or 8% of that with the EU. Engineering goods and
textiles are India’s largest exports to both the EU and the UK and the
main imports are machinery and autos.
In a note on 16 June, CLSA pointed that the Indian
companies with specific exposures to the EU/UK that could
be affected include Tata Motors Ltd, Tata Steel Ltd,
Motherson Sumi Systems Ltd and Bharat Forge Ltd. Photo:
Bloomberg
Also, 25% of India’s $82 billion software exports in FY15 were
destined for the EU, with the UK accounting for $10 billion, the CLSA
report said.
Britons will vote on Thursday to determine if the UK should stay in the
EU or exit the Union. Brexit is a combination of Britain and exit.
“If Brexit happens, market will go into risk­off mode for some time.
Money will move out of riskier assets to safer ones. Our equity market
may fall by 2­3%, and the rupee will be hurt too, though it is difficult to estimate the quantum right now,” said Sanjeev Prasad, senior
executive director and co­head of Kotak Institutional Equities, an arm of Kotak Securities Ltd.
“We saw the Raghuram Rajan impact on the rupee. There will be more outflows if Brexit happens, further pressurising the rupee,” said Ravi
Sundar Muthukrishnan, co­head of research at ICICI Securities Ltd.
Rajan said on Saturday that he would not seek a second term as governor or the Reserve Bank of India when his tenure ends on 4
September and will return to academia.
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6/22/2016
Tata Motors, Tata Steel among firms that may take Brexit hit: analysts ­ Print View ­ Livemint
In a note on 16 June, CLSA said Indian companies with specific exposures to the EU/UK that risk being hit by Brexit include Tata Motors Ltd,
Tata Steel Ltd, Motherson Sumi Systems Ltd and Bharat Forge Ltd.
Britain’s exit from the EU may impact the operations of Jaguar Land Rover Automotive Plc., the UK subsidiary of Tata Motors, Mint reported
on Monday, pointing that the subsidiary accounts for 90% profit at Tata Motors.
“Jaguar Land Rover supports continued UK membership of a reformed EU. Access to our customers and suppliers is important to us—any
changes could impact our sales, our costs and the skills base,” a JLR spokesperson said.
For companies such as Tata Steel, which have operations in the UK, the impact of Brexit could be manifold. Tata Steel has put its UK assets
on sale.
“Indian companies in Britain will be impacted and hence have to be watched. Several companies have set up shop in Britain for leveraging
not just the local market but also the European markets for which Britain was a base camp. This will mean reworking business plans,” Care
Ratings Ltd said in a note on Monday.
Twelve per cent of the steel produced in the UK by Tata Steel, which acquired Corus Group Plc. in 2007, is exported to other members of the
EU. Those exports may face higher import tariffs with Brexit, and demand would also be hit, CLSA analysts Mahesh Nandurkar, Abhinav
Sinha and Alok Srivastava said in a note, adding that higher costs may be partly alleviated by depreciation of the British pound.
CLSA said auto components maker Bharat Forge could also be hit as it draws 30% of consolidated revenues from the EU. Motherson Sumi,
another components maker, which derives around 60% of consolidated revenues from the EU, could also face the brunt of Brexit.
Aluminium producer Hindalco Industries Ltd, which earns 9% of consolidated revenue from the EU, is also at risk from Brexit, according to
CLSA.
According to Muthukrishnan of ICICI Securities, in the pharmaceutical space, IPCA Laboratories Ltd also has sizeable exposure to the UK in
terms of revenue, which could see near­term impact.
India’s largest software services exporter Tata Consultancy Services Ltd (TCS) had 26.8% revenue exposure to Europe and 15.8% to the UK
in fiscal year 2015­16, while peer Infosys Ltd had exposure of 23% to the continent.
HCL Technologies Ltd, Tech Mahindra Ltd and Mindtree Ltd garnered around 31.2%, 29% and 24.5% of revenue, respectively, from Europe.
“For IT companies, the current business flow from UK and Europe may continue even if Brexit happens. But new business orders may be
delayed, and subsequently the order growth from the region may be impacted. One impact of Brexit will be the pound which will likely
weaken, and will be negative for IT companies having exposure to Britain,” said Prasad.
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