Aggressive efforts for a turnaround

Tata group chairman N Chandrasekaran recently said the cost of Tata Motors’ passenger car division was “out of whack” and he was working closely with Tata Motors’ CEO and MD Guenter Butschek to chalk out a plan to turn around the loss-making domestic business of the auto giant.

Apart from the passenger car division, Chandra has turned his attention to commercial vehicles (CV), which account for two-thirds of the company's standalone revenue. The CV business is losing market share to Ashok Leyland and Mahindra & Mahindra. Tata Motors ended FY17 with a 43 per cent share in CVs, as compared to 58 per cent six years ago.

While new car models Tiago and Tigor have been doing well, the double digit decline in CV sales dragged standalone revenue for Q1 FY18 by 11 per cent. CVs will play a critical role in making the standalone business profitable. The passenger vehicle business, on the other hand, is also getting attention though recent product launches are unlikely to be making money.

Butschek is reputed to be a turnaround specialist with impressive former stints at Daimler AG and Airbus. At Tata Motors, he is charting a turnaround strategy on a war footing. Insiders say business decisions, which include sales, product launches, vendor management, and cost rationalisation are being reviewed every month.

The company recently said that in FY18 it would invest ~2,500 crore in passenger car business and ~1,500 crore in CVs. Ten new CV products have been lined up over the next three years. As for passenger cars, it will work on an advanced modular platform and a sports utility vehicle platform, adopted from Jaguar Land Rover (JLR) and customised for Indian market.

While advancing product launches is Chandra’s key focus, cost rationalisation is another pillar of his turnaround strategy. In fact, Tata Motors is working to make its products more modular with higher degree of commonality in the back-end, thus enabling it to bring down the number of vendors from a current 1,200 to about 350-400 in the next few years.

The company has not taken a call on its loss-making Nano as yet. Jinesh Gandhi, an analyst with Motilal Oswal said with most of the investments being written off, the Nano is not impacting the company's performance. “It is a fully depreciated platform and there are also no working capital issues. The plant too is being utilised to make other models,” he said. Only 1,436 Nanos have sold during April to September 2017.

Most analysts are expecting the company to do well in FY18. The UK subsidiary JLR, which accounts for more than 80 per cent of consolidated revenue, is also gearing up for six launches over the next 12-15 months. JLR is also looking at acquisition of a luxury brand in Europe like Maserati. That could be another game changer for Tata Motors.