'We'll grow exports significantly'

SMART TALK/ Praveen Kadle, executive director, Tata Motors

Tata Motors declared handsome numbers for FY04 wherein net sales grew 45.4 per cent and profit before exceptionals and taxes jumped 160 per cent from the last fiscal. The company also reported a 170-basis-point jump in operating margin. Praveen Kadle, executive director (corporate affairs and finance) speaks about the company's financial performance and plans going forward.

The company seems to have had another great year, posting numbers that were beyond analysts' expectations. What were the main reasons for the performance?

Sustained economic growth and buoyant market conditions enabled us to record higher revenues and profits for the year.

However, a lot of the growth had to do with the introduction of new products and more market coverage. We have also tried to grow the business in international markets.

With raw material costs rising, overall margins have been affected in the auto sector. How did you manage to grow your operating margins by 170 basis points this year?

We managed the margin growth mainly on account of our cost-reduction efforts. A better product mix also helped us. Besides, we improved productivity and controlled overhead costs.

Cost-reduction efforts cover areas like advanced cost-reduction programme, value engineering and looking at design and efficacy possibilities like seeing to what extent we could bring down the vehicle's weight. We are also looking at supply partnering. Besides, we are doing e-commerce buying or procuring aggressively.

The company's international business volumes have more than doubled during the fiscal. Do you expect this growth to continue going forward?

The global focus would continue. We plan to grow exports to 20 per cent of our total revenue by 2006. In 2004 our exports were around 8-8.5 per cent of total sales and if you include the Daewoo numbers, they were about 14.5 per cent. We expect our domestic turnover, too, to increase.

Can you explain the dynamics between the company and international dealer tie-ups, especially MG Rover, for selling Indica?

When Rover would be using its distribution or dealer network, the vehicle would be sold with its badge - City Rover. We also have our own distribution network in Europe except UK.

When we sell the car using our network, it would be called Indica. The products would look slightly different in terms of appearance as well.

If one looks at the geographical spread, how are revenues across countries panning out? What are the target areas? Which areas are the most lucrative?

We would like to consolidate our position in traditional markets like Sri Lanka, Bangladesh, Africa and the Middle East. In addition, we are also looking at the new markets like Russia or the Eastern European block along with the South East Asian markets.

Apart from our deal in UK with Rover, it is the rest of Europe or Continental Europe where we would like to strengthen our position. As far as lucrativeness is concerned, our profitability varies from country to country and region to region. European markets are more competitive while the traditional South Asian markets are more lucrative.

Currently you have waiting lists of would-be buyers for both Indica and Indigo. What plans do you have to take care of the situation?

We plan to increase our capacity 25 per cent to 225,000 vehicles this year from 150,000. We are looking for ways to increase our production capability in many internal areas like paint shop and weld or assembly line.

How are raw material costs expected to impact your margins going forward?

Raw material prices have increased significantly, especially in the steel front. We need to see if the small decline in steel prices that we have seen recently would continue or not.

Apart from that, increase in input costs has seen tremendous pressure on gross margins. We need to look at cost reductions and price increases to maintain growth.

Why did you find it necessary to raise prices this year?
Cost pressure was the reason. We would have managed a small margin expansion without price cuts. But we wanted to maintain our profitability.

Does the company have any capex plans? What would the funds be deployed for?

We would be spending around Rs 1,200 crore per year for the next five years.

Although a major part of the capex would be used for expanding our capacity, areas like product development and launching of new products would also get its due.

We need to spend money on market development and brand building. We also need to modernise our plant. These are the areas that the capex would be used for.

How much of a threat is rupee appreciation for the company?

We do not view rupee appreciation as a threat unless the currency appreciates significantly from current levels going forward.