 "Mayank Pareek")
Ghaziabad resident Rajat Gaur was hunting for an affordable automatic car for his wife who finds engaging gears in heavy traffic a tiresome exercise. The Jaypee group employee contemplated buying the automatic version of Maruti Suzuki's new Alto K10, but ultimately settled for Tata Motors' Nano GenX.
"Maruti has a good image but why should I pay Rs 1.5 lakh more when I can get additional features in the Nano?" rationalises Gaur. "Besides, I own a (Maruti) Dzire and parking it in tight spots is lot tougher than the Nano."
While the new-generation Nano is beginning to find its footing in the market, its bigger siblings, the Zest and Bolt, are challenging the established players . Zest, the compact sedan that is competing with the Dzire, has sold an average of 4,000 units per month since its launch in August. This is not too distant from Honda's Amaze (5,500 units) and Hyundai's Xcent (5,200 units).
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The Bolt, a premium hatchback countering the market attraction for Maruti's Swift and Hyundai's Grand i10, has, however, faced stiffer resistance. Average monthly sales of the Bolt settled just under 2,000 units following the launch in January.
The success of the Nano and the Zest and a rebound in commercial vehicle demand in the second half of last year catapulted Tata Motors' EBIDTA (earnings before income depreciation taxation and amortisation) margin into positive territory last quarter after five consecutive quarters in the red. While its standalone net loss widened to Rs 1,164 crore for the quarter ended March 31 from Rs 817 crore reported for the same quarter in 2013-14, its EBIDTA margin turned positive at 1.5 per cent in the same quarter against - 4.2 per cent earlier.
Brokerages tracking the company have given it a thumbs-up with 12 out of 13 of them recommending a "buy" or "hold" on the stock. "Standalone margin turned EBITDA positive due to lower raw material costs and better M&HCV (medium and heavy commercial vehicle) mix. The management is confident of the domestic passenger vehicle segment doing well, with two new launches every year, following the success of the Zest and Bolt," said a report by Antique Stock Broking.
In its report, Kotak Institutional Equities said, "The standalone business of Tata Motors reported EBITDA of Rs 1,600 crore, which was higher than our estimate due to sharp increase in gross margin. We believe gross margins can further improve if recovery in M&HCV volumes continues at current pace".
Small car, big success
Since its launch last month, the new Nano has attracted potential buyers in big numbers, say dealers and Tata Motors officials. Within two weeks of its commercial debut, Tata Motors showrooms witnessed 35,000-40,000 walk-ins and enquiries. Typical industry standards show that around 15 per cent of the enquiries turn into sales.
The interest in the Nano has been so high that some dealers have reportedly requested the company to postpone the advertising campaigns. "Dealers say they have more than enough customers to deal with. This is very comical because it does not happen (like this)," says Delna Avari, head (marketing communication & services) passenger vehicles business unit, Tata Motors. "Normally, dealers ask me for more print ads because they want to see their name on them."
Besides normal buyers, more than 11,000 existing owners of the Nano (260,000-odd units of the small car have sold till date) have decided to try out the new model under Tata Motors' promotional campaign called "Power of 1+1".
The transformation of the Nano from a no-frills vehicle to a feature-rich city car has been undertaken keeping the new generation customer in mind. With add-ons such as Bluetooth connectivity, music system and even a sunroof, Tata Motors has attempted to completely alter the perception of the Nano in the customer's mind.
Hoping to entice more buyers, Mayank Pareek, president (passenger vehicle business unit), Tata Motors, says, "There are many urban households in India where you have one big car in which you travel to office and another commuter car for short distances. In smaller towns, a smaller car is convenient to drive around."
The company is expanding its distribution network on a war footing. Come July and Tata Motors would be adding one new dealership every day for the rest of the year. "The initial response to the Nano has been very good and meets our estimates," says Pareek. "Young professionals in urban areas are showing interest. But what we need to do to keep the momentum going is expand our dealer network. We need to be closer to our customers. Last year, we added just 39 outlets, but this year we will add 200 dealers. At present, we have 400-odd dealerships, which is not enough."
Tata Motors would require the additional reach to be able to match expectations from the two launches slated before March 2016. One is an all-new hatchback, while the other is a sedan based on the hatchback. The company will launch a compact sports utility vehicle to rival the Ford EcoSport next year.
The recent launches have already started to show results for Tata Motors. From an average of around 7,000 units a month, sales of passenger vehicles has climbed to 11,500 a month. "I could be aiming for a higher figure than even 20,000 units a month," says an optimistic Pareek. "Every month you will see sales better than in the preceding month."
While Tata Motors is beginning to get its footing right in the passenger vehicle segment, it will have to continue to depend on its cash cow, the commercial vehicle division, for robust figures. Fortunately, it has shown a strong pick-up in demand since October after being in hibernation for three straight years.
The M&HCV business of Tata Motors posted growth of 35 per cent in the October-March period as large fleet buyers returned to showrooms confident of a turnaround in demand boosted by a stable central government. Fleet owners, who were sweating their assets much longer than usual, have begun cashing in on the heavy discounts doled out by manufacturers.
"Growth in M&HCV is expected to be more comprehensive and sustainable in FY 16," a Tata Motors report noted, attributing the growth to "improved freight availability, improved profit ability of operators, and fleet replacement demand, mainly in the high tonnage segments". Up to 70 per cent of Tata Motors' standalone revenue is generated by M&HCVs, where the company's market share is around 55 per cent. In the overall commercial vehicles business, Tata Motors is ahead with a share of 47 per cent. To maintain its stranglehold in this segment, Tata Motors has lined up 100 launches till 2018. That is way more than any of its rivals and should help the company keep competition at bay.
