Management and workshop facilities need to be improved. It is an important learning for Tata Motors.
Meanwhile, for a long time, the company was selling cars to fleet customers, such as taxi operators and hotels, who have different priorities. A fleet customer looks for deals while individual car buyers focus on products and services. “So, we are improving the networking skills of employees, especially while selling cars to individuals, families and professionals,” says Pareek.
Pareek and his team have been striving to raise the company’s standards on all fronts including product quality, customer service and manufacturing. He appears satisfied with the outcome. In June 2015, Tata Motors’ passenger business grew at a robust 12.5 per cent. The industry actually shrunk by 0.54 per cent in the same month. “We are on a growth trajectory and will continue to grow every month,” he says. But not all numbers are impressive.
Tata Motors’ net profit for the fourth quarter of 2014/15 fell 56 per cent – worse than expected – and India’s largest automobile company by revenue also held back dividends for the first time since 2002. While the company’s consolidated revenue rose 13 per cent to 12.6 lakh crore in the last financial year, profit remained flat at II 4,073 crore. In a body blow, the Indian unit made a standalone loss of 14,739 crore – largely a consequence of the bleeding PV business. ButJLR recorded an 8.5 per cent rise in profits to £2 billion (nearly 120,000 crore) despite slowing de-
Tata Motors’ new strategy
Intense Product Focus
The company plans a bevy of
launches for the global market
There are a slew of new products
in the pipeline
The company is focusing on quality to take on competition. It claims that rigorous quality assurance processes, based on global best practices, have been initiated
With the launch of its compact
sedan Zest and premium hatchback
Bolt, Tata Motors took a strategic
decision that new passenger vehicle
products will only target the
personal segment. The company will
open 1,500 outlets, adding 200 this
year alone, to boost market share
Improving Service Standards All customer-related concerns need to be resolved at the dealer level within 24 hours of the complaint being filed. If any issue remains unresolved, the management will directly look into the matter
mand for luxury cars in China.
Tata Motors’ PV products have failed to create an impact in India and that is the primary reason for its financial woes, according to V.K. Vijayakumar, Investment Strategist, Geojit BNP Paribas Financial Services. “They thought they could piggy ride on Nano for growing the numbers in the first half of this decade. But all their efforts to revamp Nano (with models like Twist) failed to attract buyers.”
A gross debt of 173,610 crore in 2014/15 is the other major worry for the automaker, a steep rise from 160,642 crore in 2013/14. This was largely because Mistry was advised to persist with capital expenditure (capex) plans for turning the wheels of fortune in the company’s favour. The capex and product development spend during the last financial year was 137,912 crore, including £3.1 billion (around 131,000 crore) at JLR. Cash and bank balance (including mutual funds) stood at 146,174 crore.
Vijay Somaiya, Vice President and Head of Treasury and Investor Relations at Tata Motors, says the company will reduce the debt by some 14,000 crore by August Sarkari Naukri latest news. The automaker will use the proceeds of its 17,490 crore rights issue to retire debt. “The rights issue proceeds are in fixed deposits. We will redeem the deposits when debt maturity comes up,” he says. The Indian unit is also going for product development in a big way.
Vinayak S. Bapat, President and CEO, VXL Consulting believes that the bill for the JLR acquisition – the company paid $2.3 billion to Ford Motor Co in 2008 for the British brands – still hurts the Indian busi-
ness financially. “JLR has enough cash on its books. The Indian unit has also paid for the acquisition. Then, why can’t we take back the free cash to reduce the debt?” JLR has a debt of £2.5 billion. However, cash reserves stood at £4.3 billion. In addition, it has undrawn credits to the tune of £1.5 billion.
But JLR has ambitious investment plans lined up. It plans an in-
Figures in ? crore; Source: CMIE Prowess S company
vestment of £3.6 billion to £3.8 billion in this financial year to grow its footprint in China, Brazil and Russia, in addition to the European markets. JLR chief Ralf Speth says the company will spend £400 million for manufacturing Jaguar XF and aims to make it a landmark product. “We are ramping up the sales of the new Jaguar XE now. After the XF, 16MY Evoque and
F-PACE will be launched in early 2016,” he says. “We are using our entire capacity. There is shortage in supply compared to the demand of JLR vehicles. For that we are looking at expansion.”
Reinventing Tata Motors
After the sudden demise of Karl Slym, former chief executive of Tata Motors in January 2014, Mistry has been spending a substantial chunk of his time and bandwidth in reviving the company and ensuring innovation in technology, design, marketing and after-sales service. The company launched two new products – Zest and Bolt – last year as part of its new strategy. In 2015, it has unveiled a refurbished version of Nano, GenX Nano.
The car maker has taken several steps to improve the quality of vehicles as part of its ‘HorizonNext’ strategy. The manufacturing and engineering processes have changed, asserts a Tata Motors spokesperson. “At Tata Motors, we are in the process of developing multiple new platforms in line with market requirements and constantly working towards improving the performance and reliability of our existing ones. Besides products, we have also developed a host of innovative service offerings, along with various technological upgrades,” adds the spokesperson.
The ‘HorizonNext’ strategy, introduced in June 2013, has focused on new launches. Tata Motors has unveiled eight improved and enhanced vehicles across five key brands including Nano Twist, Zest. Bolt, GenX Nano and the Safari Storme Refresh. The launch of Zest and Bolt – designed with inputs from Tata Motors’ design centres in the UK, Italy and India (Pune) – has revived the demand for Tata cars and there is consistent rise in month-on-month sales of PVs. In the first five months of this year (January-May), the overall sales of Tata Motors’ PVs rose 20 per cent to
I Interview with Ravindra Pisharodyat
64,261 units over the same period last year. Moreover, Mistry wants to continue with at least two passenger vehicle launches every year until 2020. Typically, new models usher growth, says a Maruti Suzuki spokesperson. “In fact, all original equipment manufacturers (OEMs) that brought new models in the last financial year benefited and grew in the market,” says the spokesperson.
Meanwhile, the Indian unit of Tata Motors has also learnt from JLR. “We learnt processes from ILR but not shared any technology,” says Pareek. Speth of JLR points out that the synergy can’t go beyond processes because the business and science of luxury cars is completely different from that of mass vehicles.
Tata Motors has also introduced Forward Model Quality (FMQ) and Launch Quality Operating System (LQOS) programmes to boost sales. The FMQ team works closely with design and development teams, right from the early stages of the product evolution. The idea is to design a product keeping in mind the changing needs and demands of
the end customer.
The LQOS process ensures that teams involved in product development, manufacturing, material planning and logistics, partner for steady new products launches. The company claims that the quality and finish of the vehicles improved as a result of these initiatives.
Another hurdle along the way is the poor brand perception of the Tata vehicles and needs to be changed. It will be possible only by launching blockbuster products. Historically, Tata Motors has been a late entrant in many categories and missed developing trend-setting products like Scorpio, Innova, Honda City and Renault Duster. Such products will dramatically alter the perception about Tata products, say several brand specialists.
Kaushik Madhavan, head of automotive and transportation practice.
Frost & Sullivan, a glo
bal consulting firm, says there will be opportunities in compact SUV, crossover and sedan categories. The margins are better in these products. Competition will rise in the hatchback segment since new transmission technologies (which control the speed of the vehicle) will play a major role in luring customers. Global carmakers such as Volkswagen and Ford have introduced sporty but expensive dualclutch transmission (DCT) but Japanese companies Honda and Nissan have opted for the fuel-efficient continuously variable transmission (CVT). “For fighting them, Tatas have chosen the cost-effective and fuel-efficient mass market technology, automated manual transmission (AMT). Zest is an AMT machine, while Maruti uses it in Celerio and Alto K-10,” says Madhavan. AMT is an auto gear shift technology.
August 2 2015 BUSINESS TODAY 53
Tata Motors’s passenger vehicle
market share has shrunk in the
MAHINDRA & MAHINDRA
nology and is designed for heavy traffic conditions.
Batra of EY says modularisation in the architecture of the car is going to be the next phase in engineering. “The areas inside the car are being developed as modules in the developed world. Modularised architecture will save costs as the car maker doesn’t need to design it for each product.” Tata Motors will benefit from modularisation if the company opts for it, given its large portfolio, say analysts.
A customer requires four things from any automobile manufacturer – a sound product, robust build quality, goods sales experience and reliable service support, points out Pareek. “Any player can capture market share in the country if they deliver on these four pillars of customer requirements. After all, market share is but a result of the value proposition of an OEM’s products,” says Pareek. So, Tata Motors is hopeful of a comeback.
Tata Motors plans to build global standard products, as a part of the Horizonext initiative. Zest, Bolt and GenX Nano are part of this strategy. There are several new products in the pipeline including Kite (Hatchback and Sedan), Nano Diesel, Hexa (premium crossover SUV) and Nexon (compact SUV). The company has built a process for improving the quality of its products, says Pareek. “Our processes have changed, materials have changed and the engineering itself has changed.” The automaker has decided that the new products will only be available for individual customers and not for fleet operations.
Competition in CV Market
Meanwhile, in the CV segment, Tata Motors has had to contend with growing competition from global giants. Daimler and Volvo, the world’s top two players in CVs, are trying to find a toehold in the Indian market. Daimler started production in June 2012 and
launched its first heavy-duty truck in three months. Volvo rolled out its first truck way back in 1998 in India but has, so far, preferred to compete in the premium category without touching the mass market, dominated by Tata Motors and Ashok Leyland.
Tata Motors has managed to prevent a big erosion in its market share. “We are keen to protect our dominance in market share. Today, there are at least eight players in the truck business, while it was two or three about seven years ago. Competition has been coming in. However, our market share has not fallen more than one or two per cent. We are geared up for competition,” says Ravindra Pisharody. Executive Director, Commercial Vehicles at Tata Motors. To deal with the competition, Tata Motors is looking to brand commercial vehicles despite a dip in sales of Prima top-end trucks.
The economic slowdown impacted demand for trucks in the country. “When the economy slides, the capacity utilisation of trucks will slip drastically. As a result, fleet owners postpone new purchases,” says Pisharody. “In CV purchases, everybody takes a loan of 80 to 90 per cent. Since paying instalments is directly related to their monthly income, many customers delayed new purchases to replace the old trucks.”
The incipient economic recovery, though, is leading to a gradual turnaround in the business environment for CV makers. After more than two years, demand for medium and heavy commercial vehicles (M&HCVs) has started picking up. Light commercial vehicles (LCVs) too are expected to see a revival soon, says Pisharody. In the first two months of this financial year (April and May), the cumulative volume sales of Tata CVs clocked at 55,683 units, compared to 56,215 and 78,610 in the same period in FY 2014 and FY 2013, respectively.