Tata Motors’ standalone business in red despite rising volumes GETTING ITS ACT TOGETHER

The 2016-17 financial year happened to be an exceptionally good one for most domestic automobile makers. Maruti Suzuki, Hero Moto Corp, Eicher and Ashok Leyland had record profits, mostly a function of rising domestic volumes and benign raw material prices.

However, one company did not ride the wave. Tata Motors’ standalone business (excluding its cash cow, Jaguar Land Rover) reported a loss of ~2,480 crore in FY17. The loss grew manifold from only ~62 crore in the year ended March 31, 2016. In the past five financial years, the standalone business has generated a total profit of ~870 crore and loss of ~7,219 crore.

The standalone business primarily consists of commercial vehicles (CVs) and passenger vehicles (PVs). The country’s largest truck maker saw its share in the domestic medium and heavy CV market slip to 49.2 per cent in FY17, from 52 per cent the previous year, according to industry data. The share in light CVs declined marginally to 38 per cent.

Domestic sale of medium and heavy CVs declined about five per cent to 148,901 units last year. LCV volumes grew a little over six per cent, to 156,719 units. The company’s declining share in CVs was one of the issues highlighted during the conflict between the Mistry and Tata camps last year. Ravindra Pisharody, executive director (CVs) at Tata Motors resigned from his position on Monday, citing ‘personal’ reasons after a 10-year stint.

The lion’s share of standalone revenue comes from the CV business. And, while there have been challenges like demonetisation and the emissions issue (Supreme Court banning sale of BS-III vehicles from April 2017) in the segment, Ashok Leyland, a CV maker, clocked a record profit of ~1,223 crore in FY17.

Volume-wise, the PV business of Tata had a strong run in FY17 and domestic sales grew 22 per cent to 153,151 units. This was owing to the success of Tiago, its entry-level hatchback, launched a little over a year before. The growing volume, however, does not reflect in the bottom line.

The company says things are changing in the PV business. “Needless to mention that we have had a bad four-five years. It takes time. The first thing is to build volumes. Then, cost comes down and you gain pricing power. We had a double jeopardy -- costs were high and no pricing power. Now, both are falling in place. We are able to realise better prices,” Mayank Pareek, president (passenger vehicle business unit) at the company said in an interaction in March.

“Tata Motors’ loss in standalone business is a reflection of discounts in the CV business and aggressive pricing in the PV business,” said Jinesh Gandhi, senior vice-president (research) at brokerage Motilal Oswal. Competition is on the rise in the CV space, with rising aggression from Eicher, Volvo, Daimler, Scania and Leyland.

The company is trying to get its act together. A spokesperson said there would be focus on new product launches, sales conversion and market share growth. Key levers will be in the form of agile cost management, margin improvement through cost reduction and a leaner management structure.

The company is focusing on improving of efficiencies through a smaller component supplier base and reduction of vehicle platforms.

Experts, however, say profitability in the standalone business might take a while.