Tata Motors targets selling 250,000 cars this fiscal
MUMBAI: Tata Motors Ltd has set an aggressive passenger vehicle sales target for the current financial year as the nation’s largest vehicle maker seeks to claw back market share amid intense competition.
The company aims to sell 250,000 units of cars and utility vehicles in the year ending March 31, said three people who attended a meeting of dealers in Beijing last week addressed by company MD and CEO Guenter Butschek. The three requested anonymity.
Tata Motors is hoping the domestic operations will be able to swing back to profitability by FY19, the people said.
If the company is able to meet the targets, the sales would be the highest in four years. The company sold 371,350 passenger vehicle units in fiscal 2012-13.
A Tata Motors spokesperson declined to comment. “The dealer conference is an internal matter and hence we do not wish to comment,” he said.
Butschek’s confidence of robust, double-digit growth, stems from the resurgence in passenger vehicle sales after the introduction of models including the Tiago hatchback, Hexa crossover and Tigor styleback.
In the year ended March 31, Tata Motors sold 172,504 units, up 15% from a year ago, against 149,420 units a year ago, according to the Society of Indian Automobile Manufacturers (Siam).
“The company has set a very big target for the current year and we are confident of achieving it,” said one of the people cited above. Close to 700 dealers attended the meeting, he added.
“All this while we were struggling because of lack of good products. The recent launches have changed that,” he said, adding the company’s management shared a clear strategic plan and details on product life cycle management. “There was an assurance that Tata is coming back.”
Tata Motors is hoping that an improvement in passenger car sales will also help the firm turn around its domestic operations, which has been incurring losses. The loss at Tata Motors’ domestic business widened to ₹1,046 crore in the quarter ended December from ₹137 crore in the year-earlier period.
In a April 19 report, Raghunandan NL, an analyst at Quant Capital, wrote that Tata Motors expects standalone operations to break even by fiscal 2018-19. “The management expects standalone business to witness a turnaround by FY19E, led by higher profits in commercial vehicles and reduction of losses in passenger vehicles. Losses in passenger vehicle division could reduce due to robust volumes (led by aggressive launches) and cost reduction efforts.”
Under Butscheck’s leadership, Tata Motors is executing a strategy to reduce vehicle platforms from the current six to two and has also signed an agreement with Volkswagen AG for a manufacturing tie-up to help the firm utilise its capacity, better. Not every one is optimistic. “We expect domestic operations to continue incurring losses for two years,” said an analyst at a domestic brokerage. He declined to be identified. As bank deposit rates fall, there is increasing retail interest in debt funds and many investors believe that equity is risky but debt is safe. You’d be right in making this judgment call if the ‘debt’ was a bank fixed deposit or a government-guaranteed bond. But debt mutual funds carry risk. The risk in debt funds comes from several sources. The first is interest rate changes, or an interest rate risk. This is the risk of your fund manager’s interest rate call going wrong. We know that bond prices rise when interest rates fall. If your fund manager expected rates to fall and managed his portfolio (I am deliberately not using jargon here, but for those interested do look up ‘duration’) accordingly, but rates went up, your investment will compare unfavourably with others who took the right interest rate call.
The second is the risk of default by the borrower—or a credit risk. Funds are allowed to invest in debt papers that are rated investment grade by credit rating agencies. But within this band of investment grade, it is possible for fund houses to invest in lowerrated papers than the safest paper in the market. When things go wrong for the firm that borrowed money from the mutual fund, the credit ratings can drop sharply and the value of the fund suffers. When such an event happens (we’ve had three such cases in the past few years) and there is a big redemption pressure, the third risk kicks in: lack of liquidity—or the lack of a market when you want to exit. The non-government Indian bond market is not very liquid, that is, fund managers may not find buyers if they need to sell in distress.
Unlike equity, debt fund risks are much more difficult for the retail investors to understand. Not just investors, even mutual fund agents and advisers may not correctly understand all the risks or have the ability to analyse portfolios. Some of them have pushed the concept that debt funds are safe and equity is risky. Debt fund investors have chased higher returns believing that debt funds are ‘safe’. As funds have flowed into schemes that performed better than others in their category, mutual funds have increasingly begun to take credit risk, that is, buy paper that is investment grade but lower rated by credit rating agencies. Remember that less creditworthy firms need to offer higher interest to borrow in the market. When the mutual fund buys lower rated paper, it increases the risk on your investment. Fund houses have come up with innovative names to indicate the higher risk such as ‘credit opportunities funds’. But the retail investor understands ‘opportunity’ not as risk but as a good opportunity to earn better returns, forgetting that higher returns come with higher risk.
What can you do? Unless you can analyse portfolios of funds, understand credit ratings and can evaluate concentration risks, do not attempt buying debt funds on your own. The market regulator needs to find ways of labelling debt funds that make it easy for the retail investor to buy these excellent products that are misunderstood today. Find a good planner and then on-board debt funds.