While on one hand Tata Motors is trying to make its business sustainably profitable with Turnaround 2.0 strategy, on the other hand company's share price has taken a beating because of the growing challenges to its luxury cars business, Jaguar and Land Rover (JLR).
As part of the new strategy, the company has shut down manufacturing operations in Thailand; nearly closed Nano production; and increased prices of passenger cars in India from this month. But sales of JLR took a hit and its volume growth slowed to low single digits in the past few months due to uncertainty regarding diesel cars in Europe and sales slowdown and heavy discounting in China.
The share price went down to Rs 260 -- a fall of around 2 per cent on Thursday -- compared to Rs 440 in the beginning of January, making TML among the worst performing automotive stocks in the world. The share slip is a worry for the company as it gears up for the launch of the new SUV Harrier.
Tata Motors has hiked the prices of its passenger vehicles across models by up to 2.2 per cent from this month to offset increased input costs. Last time it had increased prices in April, by 3 per cent. Mayank Pareek, President of Passenger Vehicles Business Unit, Tata Motors told PTI recently, "We have been working on cost cutting, but the problem of input cost pressure is piling up and we will be taking a price increase on our passenger vehicles by August."
The company has almost shut the business of its small car Nano. The car will be produced only if the manufacturing facility receives a confirmed order from a buyer. Nano was the brainchild of Ratan Tata, who envisaged giving a safer and more affordable alternative to families riding on two-wheelers. Just one unit of Nano was produced in June and the company sold just three cars in the domestic market.
Tata Motors also decided to cease its manufacturing operations in Thailand due to a subscale and unsustainable business in the region.
The auto company reported 21.3 per cent increase in domestic sales at 51,896 units in July. Domestic passenger vehicle sales were up 14.37 per cent at 17,079 units last month as compared to 14,933 units in July 2017, the company said in a statement.
Mayank Pareek said strong demand of new generation vehicles -- Tiago, Tigor, Hexa and the Nexon -- helped in growing the domestic sales numbers. "The recently launched Nexon AMT has been received well in the market. We will continue to strive towards driving volumes and increasing our market share as part of our on-going turnaround journey," he added.
It posted the worst bottom line performance in a decade, during the April-June quarter, registering a loss of Rs 1,863 crore because of slide in sales of JLR cars. JLR accounts for over 80 per cent of company's consolidated revenues and is facing varied risks across its key markets. While North American market is seeing a decline, the rising anti-diesel voices in Europe have hit the demand. Also the uncertainty over Brexit in its home market is still looming large in front of the company.
S&P Global Ratings earlier lowered the long-term credit rating of TML to 'BB' from 'BB+', citing weakening volumes and other operational issues plaguing its cash-cow JLR but retained its outlook at 'stable'. Rating agency Moody's downgraded the corporate family rating (CFR) and senior unsecured instrument ratings of the company, by a notch from Ba1 to Ba2, based on expectation of "continued weakness" in the company's consolidated credit metrics over the next two years, led by JLR.
In July, Bloomberg reported that Tata Motors restarted talks on the sale of a stake in Tata Technologies just months after a deal with Warburg Pincus was called off. Tata Motors plans to use proceeds from the sale on capital expenditures for its domestic automotive business, the report said.
Tata Motors has Rs 12,000 crore investment outlay in the passenger vehicle business for the next three years, said a Financial Express report. The investments will go into its new manufacturing line in Pune, which is going through a complete overhaul and Sanand, Gujarat to house the new modular platforms Omega and Alfa, which are to be built in the next five years. The company looks to build up as much as a dozen new models with these platforms, the reports said.
The investment is the part of the company's Turnaround 2.0 strategy, which focuses on winning sustainably in passenger vehicles.
In the last financial year, the company had saved Rs 1,900 crore in its passenger vehicle business alone by its Improvement by Actions (ImpACT) initiatives. It first reduced the number of suppliers drastically to save costs and internally introduced an employee stock ownership plans (ESOP), through which Tata Motors is trying to align rewards with performance. ImpACT initiatives at Tata Motors have not just helped the company to cut down its losses, but have seen introduction of new platform, effective use of its plant's capacity utilisation and the new design language on its vehicles like the Nexon, Tiago and Tigor cars.
"The global automobile industry is undergoing a structural shift due to technology and market disruption, evolving consumer preferences, market cyclicality, regulatory overhauls and geopolitical uncertainty and the situation calls for "Specific Intervention" to remain sustainably profitable," said N Chandrasekaran, chairman of Tata Motors in his annual letter to the shareholders.
He said that the India's automotive industry is the fourth-largest in the world, and the annual production in FY 2017-18 grew sharply at 14.8 per cent. "This sector is well positioned for growth, given low rates of auto penetration, rising incomes and increasing affordability," he said.