Tata Motors' domestic car business close to a breakeven on PV sales revival

Segment had an Ebidta loss of Rs 15 bln last year

Tata Motors, which is aiming to make a comeback in the passenger vehicle (cars, utility vehicles and vans) business with new launches, had a segment loss of Rs 15.15 billion at Ebidta level in FY18 even as volumes jumped 22 per cent. But for the PV business, the company may well have reported a standalone profit last year, when it had a loss of Rs 10.35 billion.

The home grown auto major last week announced the segment-wise profit and loss statement for the domestic commercial and passenger vehicle business for the first time. A comparable loss number for passenger vehicle’s FY17 performance is not available but the segment has started FY19 with a strong recovery, evident in an Ebidta loss of just Rs 250 million in April-June quarter compared to a high corresponding number of Rs 4.61 billion. Aggressive pricing seems to be the key reason behind losses in a year when the company undertook cost reduction initiatives.

The revenue contribution of passenger vehicle division was Rs 139 billion in FY18. In the first quarter of FY19, revenue surged 63.40 per cent to Rs 38.27 billion, primarily due to a 52 per cent growth in domestic volumes to 52,937 units. That makes the company fourth largest player in domestic PV segment, after Maruti Suzuki, Hyundai and M&M. Tata Motors, which is gaining volume due to products like Tiago and Nexon is aiming the third spot in the segment by overtaking M&M.

The FY18 revenue number also shows that the PV business accounted for less than one-fourth of the standalone revenue of Rs 584.57 billion last year. Its contribution to the consolidated revenue last year was small at sub five per cent.

The CV business, by comparison, is much robust and clocked an Ebidta of Rs 49.60 billion last year on revenue of Rs 455.44 billion. The first quarter revenue of CV division in FY19 grew 62.40 per cent to Rs 129.53 billion. Ebidta also rose to Rs 15.11 billion compared with Rs 4.36 billion last year. Tata Motors had a big focus on cost reduction beginning last year when it managed to save Rs 19 billion. The company is hopeful of a similar reduction in the current financial year.  

A company spokesperson, in response to queries, said last year’s loss in PV business was a result of low margins arising from lower pricing power and higher material cost, poor product mix and low operating leverage. The improvement in Q1 has come on account of better operating leverage, improved realisation and higher cost reduction compared to last year. The company said its average realisation per unit in PV segment has moved to up Rs 721,000 in the current year (first four months) against Rs 655,000 for the whole of last fiscal year.  “It is our intention to keep improving our performance in the coming days to ensure an early break even,” the spokesperson added.

“For the past many years JLR has been profitable while the domestic has not been. Attempts are on to make both the businesses profitable. We think we are on our way. Hopefully, we will do it this year,” Tata Motors chairman N Chandrasekaran told shareholders last week.

Amit Kaushik, managing director (India) at automobile consultancy firm Urban Science said Tata Motors’ domestic growth drivers appear well positioned in both CV and PV segment. “The expanding demand from infrastructure sector is aiding the CV segment while the PV segment is seeing increasing acceptability. The future product pipeline looks quite promising as well”.