Home biz of Tata Motors on a long road to recovery

Capacity utilisation at its vast factories operating at much lower levels than competition

The Rs 2,122-crore stand-alone net loss by Tata Motors in the recently concluded quarter was the highest reported by the company. The figure, though including a one-time charge linked to the disputed Singur land, was its ninth quarterly operational loss.

The poor performance at home extends beyond two years. Capacity utilisation at its factories is lower than the competition’s. The company's monthly passenger and commercial vehicle sales are lower than in 2010.

According to the chief financial officer, C Ramakrishnan, Tata Motors is using 30 per cent of its passenger vehicle capacity. Car market leader Maruti Suzuki uses over 85 per cent of its capacity. Its commercial vehicle capacity is operating at 50-55 per cent.

Sources say many of Tata’s projects jumped deadlines or were discarded. The Safari Storme was delayed by five years, while the Nano, which had ambitions to reach Europe and the US, is sold only in Nepal and Sri Lanka.

With the company's overdependence on Jaguar Land Rover, its efforts to contain the slide in market share at home has had little effect. From 14 per cent in December 2011, Tata Motors’ share of the passenger vehicles segment has dropped to six per cent in December.

Its share in the commercial vehicle segment has not suffered as badly. By the end of December, it was 48 per cent compared to 59 per cent three years ago. This was despite a cyclical downturn in the sector and competition.

Ramakrishnan said, "I think significant overall financial performance and bottom line performance improvements should start happening from next year. We have seen some early signs of recovery and volume growth in the medium and heavy segment. As volumes ramp up and more products follow on the new platform next year, we will see the impact on the bottom line from next financial year or perhaps even in this March quarter."

Volumes of medium and heavy trucks, which started to gain momentum from October, have so far sustained that effect. Sales of medium and heavy trucks grew 38 per cent in January from a year ago. The company will pump in Rs 1,200 crore for over 100 commercial vehicle launches, including 10-15 platforms, in three years.

Orders for buses under the Jawaharlal Nehru National Urban Renewal Mission 2 programme, launches and refreshes would provide a base for growth, the company said. According to estimates, the commercial vehicle  division contributes more than 70 per cent to Tata Motors’ stand-alone profits.

Second, increased production of new passenger vehicles Zest and Bolt is expected to drive sales. In addition to new variants of the Nano, a hatchback between the Nano and Bolt is expected to be launched next year. The company has committed itself to launch two vehicles every year.

"The Rs 7,500 crore Tata Motors rights issue should reduce the risk of diverting JLR's 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.