A long road to recovery for Tata Motors' home business

But pick up in commercial vehicle sales, new launches to provide a base for recovery

The net loss by Tata Motors at Rs 2,122 crore (standalone) in the recently concluded quarter was the highest ever by the company. The staggering figure, even though it included a one-time charge, was its ninth consecutive quarterly operational loss.

But Tata Motors' performance at home has been poor for more than two years. Saddled with high inventory, the Mumbai-based company's current passenger (PV) and commercial vehicle (CV) sales per month are still lower than 2010 levels. 

Capacity utilisation at its factories is lower than competition, which is counter productive due to higher fixed costs. As per the company's chief financial officer C Ramakrishnan, Tata Motors is operating its PV capacity at just 30% utilisation as market leader Maruti Suzuki's 85%.  

The dividends from its cash rich subsidiary Jaguar Land Rover and funds raised through sale of bonds are some of the means Tata Motors used for funding its own expenses. In fact last month, the company announced a Rs 7,500 crore right issue to refinance some of its debt and to meet its capital expenditure requirements. 

But its efforts to contain its market share slide at home in the face of a strong competition from global majors has not worked. From around 14% share in the PV space in December, 2011, Tata Motors' share dropped to 6% in December, 2014. 

Sources from the PV space say many of its projects either jumped their deadlines or were discarded due to unviability. The Safari Storme for instance was delayed by a staggering five years while the Nano, which had ambitions to reach European and US shores, is sold only in Nepal and Sri Lanka. 

Market share in the CV space though has not suffered as badly as the PV segment. By the end of December, its share stood at 48% compared at 59% recorded three years ago. This was despite the cyclical downturn in the industry and newer players like Mahindra & Mahindra and Daimler India Commercial Vehicles as well as traditional challengers like Volvo Eicher giving it a strong fight.  

The management is confident of an overall improvement in financial performance from next financial year onwards, backed by a strong product pipeline, some of which are yet to be launched. 

"I think significant overall financial performance, and bottom-line performance improvements, should start happening from next year on account of two, three reasons. We have seen some early signs of smart recovery and volume growth in the medium and heavy segment at this point of time. As the volumes ramp up and growth happens and more products follow on the new platform next year, we will see some signs of positive impact on the bottom line from next fiscal onwards or perhaps even just this March quarter", added Ramakrishnan. 

This optimism thrives on various counts. Volumes of medium and heavy trucks, which started to gain momentum from October, has sustained so far. As per estimates, the CV division contributes more than 70% of Tata Motors' standalone profits. 

New orders for buses under the JNNURM II program, new launches under Prima and Ultra brands, refreshes of small CVs, launch of Super Ace Mint and Ace Mega will provide a base for growth. Secondly, ramp up in production of newly launched PV products such as Zest and Bolt is expected to further drive up volumes. 

"The Tata Motors rights issue should reduce the risk of diverting JLR's own financial resources to its owner, which is positive given also its own expansion plans that will require higher capital expenditure. Furthermore, while its Indian sales are turning up -- with the medium and heavy commercial vehicle sector recovering rapidly - the new Zest sedan and Bolt hatchback have been well received but their combined sales have yet to fully ramp up", noted a Moody's report.