Established in 1945, Tata Motors Limited (NYSE:TTM) is India's largest automobile company with revenues of Rs. 703 billion crore in FY 2009. It is the largest producer of commercial vehicles, and the second largest in the passenger vehicles market in India. The company is the world's fifth largest medium and heavy commercial vehicle manufacturer, and the world's second largest medium and heavy bus manufacturer.
Over 4 million Tata vehicles ply on Indian roads. It is the first company from India's engineering sector to be listed in the New York Stock Exchange. In its efforts to internalize its operations, Tata Motors acquired the Daewoo Commercial Vehicles Company, Korea's second largest truck maker. Two-thirds of heavy commercial vehicle exports out of South Korea are from this subsidiary. It also acquired Jaguar Land Rover to gain a foothold in the luxury sports car and SUV market.
Tata Motors has transitioned into a range of activities all related to the automobile industry. Through its subsidiaries, the company is involved in engineering and automotive products, construction equipment manufacturing, automotive vehicle components manufacturing and supply chain activities, machine tools and factory automation products, high-precision tooling, electronic components for automotive and computer applications, and automotive retailing and service operations. The company's manufacturing base is spread across India. In the east they are based in Jamshedpur (Jharkhand). Pune (Maharashtra) is their main centre for the west. In the north Lucknow (Uttar Pradesh) and Pantnagar (Uttarakhand). A new plant to manufacture Nano which was being constructed in West Bengal has been moved to Kuch District in Gujarat.
TTM focuses on Research and Development and has over 2,500 engineers and scientists working for the company’s Engineering Research Centre. The company has R&D centres in Pune, Jamshedpur, Lucknow, in India, and in South Korea, Spain, and the UK. It has developed the first commercially viable prototype of air power car. The company’s dealership, sales, services and spare parts network comprises over 3500 touch points; TTM also distributes and markets Fiat branded cars in India. The company also has a strong auto finance operation, TML Financial Services Limited, supporting customers to purchase Tata Motors vehicles. The company actively markets its passenger cars and commercial vehicles to countries in Europe, Africa, the Middle East, Australia, South East Asia and South Asia. It has its operations in more than 40 countries across six continents, and its companies export products and services to 140 nations.
Tata Motors operates in four main automobile segments which cover the range of products in the automobile segments in India.
Passenger Cars:(31.8% of total units sold) This division also distributes Fiat branded cars in India. TTM has a presence in the compact car, mid-sized car and station wagon segment of the market in the form of Indica, Indigo and Indigo Marina and their variants. All the passenger cars are manufactured at plants at Pimpri and Chinchwad district in Maharashtra.
Tata Motors is in the process of launching "Nano", an affordable family car with a price tag of Rs. 1,00,000(around $2200) for the developing world. The project was delayed as the public opposition and political problems forced the management to abandon the plant site at Singur, West Bengal and shift it to Gujarat.
Utility Vehicles:(23.7% of total units sold) TTM entered the utility vehicle with the launch of Tata Sumo in 1994. Later it also entered SUV segment with the launch of Tata Safari in 1998.
Light Commercial Vehicles:(23.9% of total units sold) TTM manufactures light commercial vehicles including pickup trucks, trucks and buses with gross vehicle weight (GVW) of between 0.7 ton and 7.5 tons. TTM entered this category by indigenously developing a low priced product Ace(mini-truck) with a 0.7 ton payload.
Medium and Heavy Commercial Vehicles:(32% of total units sold) TTM manufactures medium and heavy commercial vehicles which include trucks, buses, dumpers and multi-axled vehicles with GVW of between 9 tons to 49 tons. In addition, through Tata Daewoo Commercial Vehicle Company Limited, or TDCV, a wholly-owned subsidiary in South Korea, TTM manufactures high horsepower trucks ranging from 220 horsepower to 400 horsepower, including dump trucks, tractor-trailers, mixers and cargo vehicles.
Automobile industry is a cyclical industry. It is substantially affected by general economic conditions. The demand is influenced by factors including the growth rate of the economy, easy availability of credit, increase in disposable income, interest rates, freight rates and oil prices. Lack of vehicle finance availability, lower growth on GDP and/or increases in fuel prices lead to a decline in the demand for automobiles. The decrease in freight rates due to slowdown of economy also leads to decrease in demand for commercial vehicles as expansion of fleet size is stopped. All these factors have affected the sales of TTM. In Feb 2009, the sales in commercial vehicles segment showed a decline of 53% as compared to that of Feb 2008. Furthermore, the turnaround and integration of the Jaguar and Land Rover business, may also be affected as the operations in over 165 countries have to managed for the acquired companies.
Tata Motors bought Jaguar Land Rover from Ford Motor Company for $2.3 billion. A bridge loan from a syndicate of banks was used to finance the deal. The success of the takeover depends on the ability of TTM to fully integrate with Jaguar Land Rover and turn around the Jaguar Land Rover business. The economic slump has led to a drop in sales of the cars and made turnaround of the business difficult. TTM had to refinance the bridge loans in order to adjust for the lower sales.
TTM has lost market share in its passenger car and utility vehicles segment because of no new product launch. Although new variants have been introduced time and again, they have not been able to sustain the consumer interest as competitors have come up with new product launches. The Nano plant in Singur, West Bengal also had to be abandoned because of public protest and political complications. This has caused delays in the launch of Nano, which was originally scheduled to be launched in Feb 2009.
The value of the Indian Rupee(INR) compared to the U.S. dollar impacts the value of ADR shares of TTM and its business operations. Tata Motors stock is listed on the NYSE. An increase in the value of the INR translates to higher share price and dividend payments in the ADR shares all else constant. An appreciating INR can purchase more U.S. dollar. However, on the flip side, a strengthening INR adversely impacts the export earnings of TTM.The Company’s exports constitute 9.8% of the revenues and imports constitute 4.6% of material consumption. TTM undertakes steps to hedge the currency risk for its operational requirements, but a weakening of the rupee against the dollar or other major foreign currencies adversely affects the cost of borrowing and consequently increase the financing costs. Additionally, with the acquisition of Jaguar Land Rover, around 66% of TTM revenues are contributed by this subsidiary. The fluctuations in the value of the British Pound against the dollar and other currencies such as the Indian Rupee would affect the net profits.
Light Commercial Vehicles:
Medium and Heavy Commercial Vehicles: