Brexit impact: India Inc braces for huge losses

Mumbai, 24 June – It was a somber mood at the boardrooms of Indian companies, which have huge exposure in Britain and in the European Union. Companies like Tata Motors (JLR), Tata Steel Europe and Motherson Sumi are expected to face falling sales, increased costs of operations and immigration barriers for its employees.

Though the actual exit of Britain will take a couple of years, companies like JLR and Tata Steel will have to make alternate arrangements to sell their products in the European Union.

Just before the vote, both Tata Steel Europe and JLR had told its staff the relationship between the UK and the EU is very relevant for the company. “The EU is by far our largest export market, with over a third of our UK steel heading there… (and) access to that market is fundamental to our business,” Tim Morris, head of public affairs at Tata Steel Europe said. If Britain were to exit the EU, Tata Steel would no longer be able to influence some of the major regulations such as environmental controls and anti-dumping measures which impact its UK operations.

“It is likely we would still need to adhere to EU rules to enter that market. The difference: we would no longer have a say in how they are set up or applied.” Tata Steel UK is in the process of selling its UK business and is negotiating with the British government to retain part of its operations. The voting today would expedite the sale process, analysts said. On the other hand, JLR sells 25 percent of its products made in UK to rest of Europe and it is in the process of setting up another plant in Slovakia to cater to the demand.

Motherson Sumi Chairman V C Sehgal said that Brexit will not impact much as the company has two plants in UK which caters only to British customers. “We are planning to set up third plant in the UK – Brexit or no Brexit,” he said. Pharmaceutical companies like Lupin and Cipla would also be negatively impacted as it would earn less when exports.

“I think that we have seen a knee jerk reaction and there is huge job ahead to go out of Europe… There are many aspects which must be done and it will be almost two to three years, as about 10 years ago, there was clause inserted that if a country is set to leave then the Government, (it) has to extract itself on conditions, which have to be agreed and as well other things. So as far as I am concerned, it will be business as usual and as well I do not see any changes as England is still a part of the EU and does not cease to be because of a referendum,” said Sehgal.

The good news

While it may be bad news for Indian companies, which have exposure in the region, local companies which have taken loans in British currency will get a bonanza as Pound fell by almost 10 percent today. ”This immediately shaves off 10 percent from the cost of funds as companies will now have to pay less when they are repaying loans,” said Prabal Banerjee, CFO of Bajaj Group. The investments from UK to India will also be expensive as it would get 10 percent less in Indian currency.