Tata Motors 20-F 2009
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
For the fiscal year ended March 31, 2009
For the transition period from to
Date of event requiring this shell company report
Commission file number: 001-32294
TATA MOTORS LIMITED
(Exact name of Registrant as specified in its charter)
(Translation of Registrants name into English)
Tel.: +91 22 6665 7219
Facsimile: +91 22 6665 7260
24, Homi Mody Street
Mumbai 400 001, India
(Name, telephone, facsimile number and address of company contact person)
Securities registered or to be registered pursuant to Section 12(b) of the Act:
Securities registered or to be registered pursuant to Section 12(g) of the Act:
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
(Title of Class)
Indicate the number of outstanding shares of each of the issuers classes of capital or common stock as of the close of the period covered by the annual report. 44,98,32,659 Ordinary Shares, including 58,920,191 Ordinary Shares represented by 58,920,191 American Depositary Shares outstanding as of March 31, 2009.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. x Yes ¨ No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. ¨ Yes x No
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ¨ Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act. (Check one):
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.
U.S. GAAP ¨
International Financial Reporting Standards as issued by the International Accounting Standards Board x
If Other has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow: Item 17 ¨ Item 18 ¨
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No
Table of Contents
In this annual report
Special Note Regarding Forward-looking Statements
All statements contained in this annual report that are not statements of historical fact constitute forward-looking statements. Generally, these statements can be identified by the use of forward-looking terms such as anticipate, believe, can, could, estimate, expect, intend, may, plan, seek, will and would or similar words. However, these words are not the exclusive means of identifying forward-looking statements. All statements regarding our expected financial condition and results of operations, business, plans and prospects are forward-looking statements. These forward-looking statements include statements as to our business strategy, our revenue and profitability, planned projects and other matters discussed in this annual report regarding matters that are not historical fact. These forward-looking statements and any other projections contained in this annual report (whether made by us or any third party) involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements or other projections. Although we are a reporting company and will have ongoing disclosure obligations under U.S. federal securities laws, we are not undertaking to publicly update or revise any statements in this annual report, whether as a result of new information, future events or otherwise.
Table of Contents
The risks and factors that could cause our actual results, performances and achievements to be materially different from the forward-looking statements set out in Item 3.D and elsewhere in this annual report include, among others:
Item 3. Key Information.
A. Selected Financial Data.
The following table sets forth selected financial data including selected historical financial information as of and for each of the fiscal years ended March 31, 2009 and 2008 in accordance with International Financial Reporting Standards, or IFRS.
The selected IFRS consolidated financial data as of March 31, 2009 and 2008 and for each of the fiscal years ended March 31, 2009 and 2008 are derived from our audited IFRS consolidated financial statements included in this annual report together with the report of Deloitte Haskins & Sells, independent auditors, who have reported that they carried out their audit in accordance with standards of the Public Company Accounting Oversight Board (United States).
You should read our selected financial data in conjunction with Item 5 Operating and Financial Review and Prospects.
Exchange Rate Information
For convenience, some of the financial amounts presented in this annual report have been translated from rupee amounts into dollar amounts at the rate of Rs.50.72 = US $1.00, based on fixing rate in the City of Mumbai on March 31, 2009 for cable transfers in Indian rupees as published by the Foreign Exchange Dealers Association of India (FEDAI), the date of our most recent balance sheet included in this annual report. However, such translations do not imply that the rupee amounts have been, could have been or could be converted into dollars at that or any other rate.
The following table sets forth, for the fiscal years ended March 31, 2009, 2008, 2007, 2006 and 2005 information with respect to the exchange rate between the rupee and the dollar (in rupees per dollar) as published by Bloomberg L.P.
The following table sets forth information with respect to the exchange rate between the rupee and the dollar (in rupees per dollar) for the previous six months as published by Bloomberg L.P.
Source: Bloomberg L.P.
As of October 07, 2009, the value of the rupee against the dollar was Rs.46.89 per US$1.00, as published by Bloomberg L.P.
D. Risk Factors.
This section describes the risks that we currently believe may materially affect our business. The factors below should be considered in connection with any forward-looking statements in this annual report and the cautionary statements on page i. The risks below are not the only ones we face some risks may be unknown to us, and some risks that we do not currently believe to be material could later turn out to be material. Although we will be making all reasonable efforts to mitigate or minimize these risks, one or more of a combination of these risks could materially impact our business, revenues, sales, and net assets, results of operations, liquidity and capital resources.
Risk associated with Our Business and the Automotive Industry.
Lack of improvement or worsening global economic conditions could have a significant adverse impact on our sales and results of operations.
The sub-prime financial crisis that caused a collapse of the financial sector and as a consequence a severe tightening of credit has plunged many economies into severe recession and caused significant deterioration of consumer confidence and demand. Even economies that had little exposure to the sub prime assets, such as India, were impacted fairly severely as the credit crisis had a consequential impact on global credit markets combined with a significant fall in exports.
The Indian automotive industry is affected substantially by general economic conditions in India. The demand for automobiles in the Indian market is influenced by factors including the growth rate of the Indian economy, easy availability of credit, increase in disposable income among Indian consumers, interest rates, freight rates and fuel prices. The anti-inflationary policies of the Reserve bank of India in the past quarters had resulted in a significant increase in interest rates, tight liquidity conditions and slowing industrial activity towards the earlier part of the fiscal year. The onslaught of the impact of the crisis together with the tight monetary policy of the central bank affected the growth of the Indian economy which slowed to 6.7% in fiscal 2009 as compared to the average growth of over 9% in the previous three years. This was despite the governments efforts to stimulate the economy in the later part of the year. The automotive industry in general is cyclical and economic slowdowns in the past have affected the manufacturing sector including the automotive and related industries. Unless there is improvement in key economic factors such as growth rate, interest rates and inflation together with availability of financing for vehicles at competitive rates, our automotive sales in India and results of operations may be adversely affected.
We acquired the Jaguar and Land Rover business from Ford Motor Company in June 2008. In addition, we also have automotive operations in South Korea and Thailand. Jaguar and Land Rover have significant presence in the UK, North America, Continental Europe and have operations in most of the major countries across the globe. The global economic meltdown significantly impacted the global automotive markets, particularly the United States, Europe and Japan. Our strategy which includes new product launches and expansion into growing markets such as China and Russia may not be sufficient to mitigate the decrease in demand for our products in established markets, which could have a significant adverse impact on our financial performance. Should industry demand soften beyond our expectations because of a continuing slowdown or negative economic growth in key markets or other factors, our results of operations and financial condition could be substantially adversely affected.
As of March 31, 2009, we had a debt of Rs.435,815 million, including the bridge finance raised for purpose of the Jaguar Land Rover acquisition. While we were able to refinance the bridge loan in May 2009, continuing economic weakness and depressed demand for our products may put further pressure on our liquidity requirements and deterioration of the financial markets may impede our efforts to raise capital and/or raise capital at a reasonable cost in order to meet our future growth plans. These may adversely impact our results of operations.
We have incurred a substantial amount of indebtedness in connection with the acquisition of Jaguar Land Rover, and our proposed repayment of the amended acquisition facility may be delayed, each of which could adversely affect our future business performance and financial condition.
On June 2, 2008, we acquired Jaguar Land Rover from Ford Motor Company on a debt-free basis, for consideration of US$2.5 billion, in an all-cash transaction, through JaguarLandRover Limited, a wholly-owned subsidiary of TML Holdings Pte Ltd, Singapore, which is our 100% subsidiary. JaguarLandRover Limited borrowed US$3 billion under a short-term bridge loan facility, which we guaranteed. In May 2009, against the US$2 billion outstanding against this facility, US$852 million was repaid through proceeds of Secured Non-Convertible Credit Enhanced Rupee Debentures. An agreement was also reached with the syndicate of banks to amend the bridge loan facility, extending the final maturity of the residual US$1 billion by 18 months up to December 31, 2010 (the Amended Acquisition Facility).
As at March 31, 2009, we had a debt of Rs.435,815 million. Our substantial level of indebtedness may: (i) increase the possibility that we will be unable to generate cash sufficient to pay, when due, the principal of, interest on or other amounts due in respect of our indebtedness, (ii) require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, acquisitions and other general corporate purposes, (iii) materially impact our ability to pay dividends in the future and/or (iv) lead to a downgrade of our credit rating by international and domestic rating agencies, thereby adversely impacting our ability to raise additional financing and the interest rates and commercial terms on which such additional financing is available. Our rating for foreign currency borrowings was revised by Standard & Poors to B (Credit Watch with Negative Implications) and by Moodys to B3 (Stable), while for borrowing in local currency the rating was revised to A (Stable) by Crisil and to LA+ by ICRA.
We intend to refinance the Amended Acquisition Facility through the issuance of ordinary shares and/or securities linked to, or convertible into, ordinary shares, including, but not limited to, the issuance of depositary receipts in the international market and/or through other measures, such as monetization of a part of our investments through a phased divestment plan at prevailing market prices.
The execution of our refinancing plan is subject to various risks, including, among other things: (i) the receipt of any other regulatory or corporate approvals that are necessary, (ii) market conditions, which have been particularly exacerbated by the dislocation of the fixed income and securitization markets following the global credit crisis and (iii) foreign currency movements.
We cannot assure you that any of the conditions for our funding plans will be satisfied. If we or any other relevant parties are unable to satisfy any of the conditions for our funding plans or satisfy these conditions in the time frame that we expect, we may not be able to repay the Amended Acquisition Facility in the time frame that we expect, which could materially adversely affect our future business performance and financial condition. In addition, our costs of borrowing depend in part on our credit ratings by international and domestic rating agencies. A downgrade of our rating for foreign or local currency borrowings could adversely impact our ability to raise the amount proposed under our funding plans through the incurrence of debt and the interest rates at which such financing alternatives may be available to us.
Certain restrictive covenants in our financing agreements may limit our operational and financial flexibility and our future results of operations and financial condition may be adversely affected if we are not able to comply with certain maintenance covenants contained in our financing agreements.
Some of our financing agreements and debt arrangements set limits on, and/or require it to obtain lender consents before, among other things, undertaking certain projects, issuing new securities, changing management, merging, consolidating, selling significant assets, creating subsidiaries or making certain investments. In addition, certain financial covenants may limit our ability to borrow additional funds or to incur additional liens.
In the past, we have been able to obtain required lender consents for such activities. However, there can be no assurance that we will be able to obtain such consents in the future. If our financial or growth plans require such consents, and such consents are not obtained, we may be forced to forgo or alter our plans, which could adversely affect our results of operations and financial condition.
Certain of our financing arrangements also include covenants to maintain certain debt-to-equity ratios, debt-to-earnings ratios, liquidity ratios, capital expenditure ratios and debt coverage ratios. We cannot assure prospective investors that such covenants will not hinder our business development and growth in the future. In the event that we breach these covenants, the outstanding amounts due under such financing agreements could become due and payable immediately. A default under one of these financing agreements may also result in cross-defaults under other financing agreements and result in the outstanding amounts under such other financing agreements becoming due and payable immediately. Defaults under one or more of our financing agreements could have a material adverse effect on our results of operations and financial condition.
Jaguar Land Rover has incurred losses in previous years and our financial performance will be affected in the future by the performance of Jaguar Land Rover.
The global financial meltdown and high fuel prices, especially after September 2008, combined with vehicle financing and demand drying up, impacted the auto industry worldwide, including Jaguar Land Rover. The sales volume over the 10 months post-acquisition for Jaguar Land Rover decreased by approximately 32% from the comparable period in the previous year, resulting in a loss before tax of GBP427 million. In response, we have taken action to reduce inventory, improve working capital and reduce investments and payroll costs, including through workforce reduction of more than 2,000. However, profitability continues to come under strain given the slow revival of the global economy and impact of suppressed demand and prices.
Since March 2009, Jaguar Land Rover have secured, or have credit approval for, further financing facilities. This includes approved funding of GBP340 million from the European Investment Bank. While we anticipate that access to this funding can be secured in the near future through appropriate commercial arrangements without necessitating guarantees from the UK Government, for which discussions have been ongoing for some time, no assurance can be made that this or any other facility will be obtained, and the failure to do so could adversely affect our financial condition and results of operations.
In addition, the long-term profitability of Jaguar Land Rover continues to depend on successful execution of its business strategies, including sustained cost savings and successful introduction of its new models. Our financial performance, including our profit margins and our operating ratios, will be affected in the future by the performance of Jaguar Land Rover.
Because of the acquisition of Jaguar Land Rover, our historical financials may not be comparable.
On June 2, 2008, we completed the acquisition of Jaguar Land Rover from Ford. Therefore, our historical consolidated financial statements for the fiscal years ended on and before March 31, 2008 do not include the results of Jaguar Land Rover, and neither pro forma nor historical consolidated financial statements showing our combined results of operations and financial condition, including Jaguar Land Rover, have been prepared or are being provided in this annual report. Our financial statements for the fiscal year ended March 31, 2009 include the results of Jaguar Land Rover for the period from June 2, 2008 to March 31, 2009.
This may make it difficult to compare our past performance and financial condition or to estimate our consolidated performance in the future. Moreover, the global dislocation of the automotive industry, including Jaguar Land Rovers markets, make past performance of the business not necessarily indicative of future demand trends or results.
Currency and exchange rate fluctuations could adversely affect our results of operations.
Our operations are subject to risk arising from fluctuations in exchange rates with reference to countries in which we operate. These risks primarily relate to fluctuations of GBP to US Dollar, Japanese Yen and Euro, and fluctuations of Indian Rupee against GBP, US Dollar and Euro.
We import capital equipment, raw materials and components and also sell our vehicles in various countries. These transactions are denominated in foreign currencies, primarily the U.S. dollar and Euro. Moreover, we have outstanding foreign currency denominated debt and hence we are sensitive to fluctuations in foreign currency exchange rates. We have experienced and expect to continue to experience foreign exchange losses and gains on obligations denominated in foreign currencies in respect of our borrowings and foreign currency assets and liabilities due to currency fluctuations. Although we engage in currency hedging as per our policy in order to decrease our foreign exchange exposure, the weakening of rupee against the dollar or other major foreign currencies may have an adverse effect on our cost of borrowing and consequently may increase our financing costs, which could have a significant adverse impact on our results of operations.
Adverse fluctuations in the value of the rupee against the dollar and GBP and also fluctuations of GBP against other major foreign currencies during fiscal 2009 had an adverse impact on our financial condition and results of operations. Any further depreciation of rupee against dollar may affect our results of operations in the future periods, mainly due to dollar denominated borrowings.
Intensifying competition could materially and adversely affect our sales and results of operations.
The global automotive industry is intensely competitive and competition is likely to further intensify in light of continuing globalization and consolidation in the worldwide automotive industry. Factors affecting competition include product quality and features, innovation and product development time, ability to control costs, pricing, reliability, safety, fuel economy, customer service and financing terms. There can be no assurance that we will be able to compete successfully in the global automotive industry in the future.
The Indian automobile industry is highly competitive. We face strong competition in the Indian market from domestic as well as foreign automobile manufacturers. Improving infrastructure and robust growth prospects compared to other mature markets is attracting a number of international companies to India who have either created joint ventures with local partners or have established independently owned operations in India. International competitors bring with them decades of international experience, global scale, advanced technology and significant financial resources. Also the recent weakness in demand for passenger vehicles and commercial vehicles in the Indian automobile market has resulted in overcapacity and price competition. Consequently, domestic competition is likely to further intensify in the future. There can be no assurance that we will be able to implement our future strategies in a way that will mitigate the effects of increased competition in the Indian automotive industry.
Our future success depends on our ability to satisfy changing customer demands by offering innovative products in a timely manner and maintaining such products competitiveness.
In the competitive automotive industry, our competitors can gain significant advantage if they are able to offer products satisfying customer needs earlier than we are able to, which could adversely impact our sales and results of operations. Unanticipated delays in implementing the introduction of new products or in expansion plans resulting in delays in capacity enhancements and/or new product launches and cost overruns could adversely impact our results of operations. Customer preferences especially in many of the developed markets seem to be moving in favour of more fuel efficient vehicles. Further, in many countries there has been a significant pressure on the automotive industries for reduction in carbon dioxide emissions. In many markets these preferences are driven by increasing government regulations and rising fuel prices.
Our operations may be significantly impacted if there is a delay in developing fuel efficient products that reflect changing customer preferences, especially in the premium automotive category and products aimed at reducing carbon dioxide emissions. In addition, there can be no assurance that the market acceptance of our future products will meet our expectations, in which case we could be unable to realize the intended economic benefits of our investments and our results of operations may be adversely affected.
We are subject to risks associated with product liability, warranty and recall.
We are subject to risks and costs associated with product liability, warranties and recalls, should we supply defective products, parts, or related after-sales services, which could generate adverse publicity and adversely affect our business, results of operations and financial condition. Such events could also require us to expend considerable resources in correcting these problems and could adversely affect demand for our products.
We are subject to risk associated with our automobile financing business.
We are subject to-risk associated with our automobile financing business. Any defaults by our customers or inability to repay installments as due, could adversely affect our business, results of operations and cash flows. In addition, any downgrades in our credit ratings may increase our borrowing costs and restrict our access to the debt markets. Over time, and particularly in the event of any credit rating downgrades, market volatility, market disruption or otherwise, we may need to reduce the amount of financing receivables we originate, which could adversely affect our ability to support the sale of our vehicles.
Underperformance of our distribution channels and supply chains may adversely affect our sales and results of operations.
Our products are sold and serviced through a network of authorized dealers and service centers across our home markets, and a network of distributors and local dealers in international markets. We monitor the performance of our dealers and distributors and provide them with support to enable them to perform to our expectations. There can be no assurance, however, that our expectations will be met and under-performance by our dealers or distributors could adversely affect our sales and results of operations.
We rely on third parties to supply us with the raw materials, parts and components used in the manufacture of our products. Furthermore, for some of these parts and components, we are dependent on sole suppliers. Our ability to procure supplies in a cost effective and timely manner is subject to various factors, some of which are not always within our control. While we manage our supply chain as part of our vendor management process, any significant problems with our supply chain in the future could affect our results of operations in an adverse manner.
Adverse economic conditions and falling vehicle sales have had significant financial impact on some of our suppliers and distributors. Further deterioration of automobile demand and lack of access to sufficient financial arrangements to our supply chain could impair timely availability of components and parts to us while distress of our distributors may impact our performance in some markets.
In respect of our Jaguar Land Rover operations, as part of a separation agreement from Ford, we entered into supply and transitional service agreements with Ford and certain other third parties for critical components and other corporate services. Any disruption of such transitional services could have a material adverse impact on our operations and financial condition.
Increases in input prices may have a material adverse impact on our result of operations.
In fiscal 2009 and 2008 consumption of raw materials, components and aggregates and purchase of products for sale (including change in stock) constituted approximately 67.6% and 66.8% respectively, of total revenues. Prices of commodity items used in manufacturing automobiles, including steel, rubber, copper and zinc, have significantly increased over the past two years. Although, these prices have begun to show some signs of softening lately and we have been pursuing cost reduction programs and product price increases, to partially offset these input price increases, there can be no assurance that we will be able to recover any future cost increases in commodity products through cost-saving measures elsewhere or that we will be able to sufficiently increase the selling prices of our products, which could materially and adversely impact our sales and results of operations. In addition, because of intense price competition and our high level of fixed costs, we may not be able to adequately address changes in commodity prices even if they are foreseeable. Significant increases in these prices could have a substantial adverse effect on our financial condition and results of operations.
Further, after touching a low of approximately US$40 in February 2009, crude oil prices have begun an upward movement. Increased fuel costs pose a significant challenge to automobile manufacturers worldwide, including us, especially in commercial vehicle segments, where fuel costs represent a significant portion of the operational costs of such vehicles, and premium cars.
The performance of our subsidiaries and affiliates may adversely affect our results of operations.
We have made and may continue to make capital commitments to our subsidiaries and affiliates, and if the business and operations of subsidiaries and affiliates to which we make capital commitments, deteriorate, the value of our investments may be adversely affected.
We are subject to risks associated with growing our business through mergers and acquisitions.
We believe that our acquisitions provide us opportunities to grow significantly in the global automobile markets with access to additional brands, products, technologies and capabilities, and offer potential synergies. However, the scale, scope and nature of the integration required in connection with the acquisitions present significant challenges, and we may be unable to integrate effectively within our expected schedule the various subsidiaries, divisions and facilities. The acquisition may not meet our expectations and the realization of the anticipated benefits may be blocked, delayed or reduced as a result of numerous factors, some of which are outside our control.
We will continue to evaluate growth opportunities through suitable mergers and acquisitions in the future. Growth through mergers and acquisitions involve business risks, including unforeseen contingent risks or latent business liabilities that may only become apparent after the merger or acquisition is finalized. The key success factor will be successful integration and management of the merged/acquired entity with us, retention of key personnel, joint sales and marketing efforts, and management of a larger business. If we are not able to manage these risks successfully, our results of operations could be adversely affected.
Our business is seasonal in nature and a substantial decrease in our sales during certain quarters could have a material adverse impact on our financial performance.
The sales volumes and prices for our vehicles are influenced by the cyclicality and seasonality of demand for these products, primarily in the Indian market. Demand generally peaks between January and March, although there also is a decrease in demand in February just before release of the Indian fiscal budget. Demand is usually lean from April to July and picks up again in the festival season from September onwards, with a decline in December due to year-end. The automotive industry has been cyclical in the past and we expect this cyclicality to continue.
The business of Jaguar Land Rover is impacted by the bi-annual registration of vehicles in the United Kingdom wherein the vehicle registration number changes every six months which, in turn has an impact on the resale value of the vehicles. This leads to a bunching up of sales during the period when the aforementioned change occurs. Most other markets such as the United States are driven by introduction of new model year derivatives which typically occurs in the autumn of each year. Furthermore, western European markets tend to be impacted by main summer and winter holidays. The resulting sales profile influences operating results on a quarter-to-quarter basis.
We may be adversely affected by labor unrest.
All of our permanent employees, other than officers and managers, in India and most of our permanent employees in South Korea and the United Kingdom, including certain officers and managers, in relation to our automotive business, are members of labor unions and are covered by our wage agreements, where applicable with those labor unions which have different tenures at different locations. In general, we consider our labor relations with all of our employees to be good. However, we may in the future be subject to labor unrest, which may delay or disrupt our operations in the affected regions, including the acquisition of raw materials and parts, the manufacture, sales and distribution of products and the provision of services. If work stoppages or lock-outs at our facilities or at the facilities of our major vendors occur or continue for a long period of time, our business, financial condition and results of operations may be adversely affected.
Any inability to manage our growing international business may adversely affect our results of operations.
Our growth strategy also relies on the expansion of our operations by introducing certain automotive products in other parts of the world, including Europe, China, Russia and other parts of Asia. The costs involved in entering and establishing ourselves in new markets, and expanding such operations, may be higher than expected, and we may face significant competition in those regions. In addition, our international business is subject to many actual and potential risks, including language barriers, cultural differences and other difficulties in staffing and managing overseas operations, inherent difficulties and delays in contract enforcement and the collection of receivables through the legal systems of some foreign countries, the risk of non-tariff barriers, other restrictions on foreign trade or investment sanctions, and the burdens of complying with a wide variety of foreign laws and regulations.
If we are unable to manage risks related to our expansion and growth in other parts of the world, our business, results of operations and financial condition could be adversely affected.
Future pension obligations may prove more costly than currently anticipated and the market value of assets in our pension plans could decline.
We provide post retirement and pension benefits to our employees some of which are defined benefit plans.
Our pension liabilities are generally funded, and the pension plan assets are particularly significant in respect of the Jaguar and Land Rover pension plans. In the event that the actuarially determined liabilities exceed the plan assets at the time of valuation, we would have to agree on new contributions with the trustees of Jaguar and Land Rover pension to fund the deficit over such period of time as agreed.
Lower return on pension fund assets, changes in market conditions, changes in interest rates, changes in inflation rates, and adverse changes in other critical actuarial assumptions, may impact the pension liabilities and consequent increase funding requirements, which will adversely affect our financial condition and results of operations.
Our insurance coverage may not be adequate to protect us against all potential losses to which we may be subject, and this may have a material adverse effect on our business.
While we believe that the insurance coverage that we maintain is reasonably adequate to cover all normal risks associated with the operation of our business, there can be no assurance that any claim under our insurance policies will be honored fully or timely. Accordingly, to the extent that we suffer loss or damage that is not covered by insurance or which exceeds our insurance coverage, our financial condition may be affected.
Political and Regulatory Risks.
Indias obligations under the World Trade Organization Agreement.
Indias obligation under its World Trade Organization agreement could lower the present level of tariffs on imports of components and vehicles, particularly with respect to cars in completely built units and/or completely knocked down units, which could adversely affect our sales and results of operations.
Environmental, Fiscal and Other Governmental regulations.
As an automobile company, we are subjected to extensive governmental regulations regarding vehicle emission levels, noise, safety and levels of pollutants generated by our production facilities. These regulations are likely to become more stringent and compliance costs may significantly impact our future results of operations. In particular, the U.S. and Europe have stringent regulations relating to vehicular emissions. The proposed tightening of vehicle emissions regulations by the European Union will require significant costs for compliance. While we are pursuing various technologies in order to meet the required standards in the various countries in which we sell our vehicles, the costs for compliance with these required standards can be significant to our operations and may adversely impact our results of operations.
Imposition of any additional taxes and levies designed to limit the use of automobiles could adversely affect the demand for our products and our results of operations. Changes in corporate and other taxation policies as well as change in export and other incentives given by the various governments could also adversely affect our results of operations.
Regulations in the areas of investments, taxes and levies may also have an impact on Indian securities, including our shares and ADSs. In this regard it is important to note that the Government has recently released a new draft direct tax code which if brought into force will have a significant impact on the current tax regime, including in respect of our shares and ADSs.
We may be adversely impacted by political instability, wars, terrorism, multinational conflicts, natural disasters, fuel shortages/prices, epidemics and labor strikes.
Our products are exported to a number of geographical markets and we plan to expand our international operations further in the future. Consequently, we are subject to various risks associated with conducting our business outside our home markets and our operations may be subject to political instability in those markets, wars, terrorism, regional and/or multinational conflicts, natural disasters, fuel shortages, epidemics and labor strikes. Any significant or prolonged disruptions or delays in our operations related to these risks could adversely impact our results of operations.
Compliance with new and changing corporate governance and public disclosure requirements adds uncertainty to our compliance policies and increases our costs of compliance.
Changing laws, regulations and standards relating to accounting, corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and new Securities and Exchange Commission (SEC) regulations, Securities and Exchange Board of India (SEBI) regulations, New York Stock Exchange (NYSE) listing rules and Indian stock market listing regulations, have increased complexity for us. These new or changed laws, regulations and standards may lack specificity and are subject to varying interpretations. Their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs of compliance as a result of ongoing revisions to such governance standards.
We are committed to maintaining high standards of corporate governance and public disclosure. However, our efforts to comply with evolving laws, regulations and standards in this regard have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management resources and time.
In addition, new laws, regulations and standards regarding corporate governance may make it more difficult for us to obtain director and officer liability insurance. Further, our board members, chief executive officer and chief financial officer could face an increased risk of personal liability in connection with the performance of their duties. As a result, we may face difficulties attracting and retaining qualified board members and executive officers, which could harm our business. If we fail to comply with new or changed laws or regulations and standards differ, our business and reputation may be harmed.
Risks associated with Investments in an Indian Company.
Political changes in the Government in India could delay and/or affect the further liberalization of the Indian economy and adversely affect economic conditions in India generally and our business in particular.
Our business could be significantly influenced by economic policies adopted by the Government. Since 1991, successive Indian Governments have pursued policies of economic liberalization and financial sector reforms.
The Government has at various times announced its general intention to continue Indias current economic and financial liberalization and deregulation policies. However, protests against privatizations, which have occurred in the past, could slow the pace of liberalization and deregulation. The rate of economic liberalization could change, and specific laws and policies affecting foreign investment, currency exchange rates and other matters affecting investment in India could change as well.
The Government has traditionally exercised and continues to exercise influence over many aspects of the economy. Our business and the market price and liquidity of our ADSs and Shares may be affected by interest rates, changes in Government policy, taxation, social and civil unrest and other political, economic or other developments in or affecting India.
Although the previous Government had announced policies and taken initiatives that supported the economic liberalization policies pursued by earlier Governments, the rate of economic liberalization could change, and specific laws and policies affecting foreign investment and other matters affecting investment in Our securities could change as well. While we expect the new Government to continue the liberalization of Indias economic and financial sectors and deregulation policies, there can be no assurance that such policies will be continued.
A change in the Governments policies in the future could adversely affect business and economic conditions in India and could also adversely affect our financial condition and results of operations. A significant change in Indias economic liberalization and deregulation policies could disrupt business and economic conditions in India generally, and specifically those of our company, as a substantial portion of our assets are located in India
Terrorist attacks, civil disturbances, regional conflicts and other acts of violence, particularly in India, may disrupt or otherwise adversely affect the markets in which we operate, our business and our profitability.
India has from time to time experienced social and civil unrest and hostilities, including terrorist attacks and riots and armed conflict with neighboring countries. Events of this nature in the future could influence the Indian economy and could have a material adverse effect on the market for securities of Indian companies, including our ADSs and shares, and on the market for our vehicles.
Rights of shareholders under Indian law may be more limited than under the laws of other jurisdictions.
Our Articles of Association, which include regulations applicable to our Board of Directors, and Indian law govern our corporate affairs. Legal principles relating to these matters and the validity of corporate procedures, directors fiduciary duties and liabilities, and shareholders rights may differ from those that would apply to a company incorporated in another jurisdiction. Shareholders rights under Indian law may not be as extensive as shareholders rights under the laws of other countries or jurisdictions, including the United States. You may have more difficulty in asserting your rights as a shareholder than you would as a shareholder of a corporation organized in another jurisdiction.
The market value of your investment may fluctuate due to the volatility of the Indian securities market.
The Indian stock exchanges have, in the past, experienced substantial fluctuations in the prices of their listed securities. The Indian stock exchanges, including the Bombay Stock Exchange Limited (BSE), have experienced problems that, if they continue or recur, could affect the market price and liquidity of the securities of Indian companies, including our shares. These problems in the past included temporary exchange closures, broker defaults, settlement delays and strikes by brokers. In addition, the governing bodies of the Indian stock exchanges have from time to time imposed restrictions on trading in certain securities, limitations on price movements and margin requirements. Furthermore, from time to time disputes have occurred between listed companies and stock exchanges and other regulatory bodies, which in some cases may have had a negative effect on market sentiment.
There may be a different level of regulation and monitoring of the Indian securities markets and the activities of investors, brokers and other participants, than in the United States. The Securities and Exchange Board of India (SEBI) received statutory powers in 1992 to assist it in carrying out its responsibility for improving disclosure and other regulatory standards for the Indian securities markets. Subsequently, SEBI has prescribed regulations and guidelines in relation to disclosure requirements, insider dealing and other matters relevant to the Indian securities market. There may, however, be less publicly available information about Indian companies than is regularly made available by public companies in the United States.
Investors may have difficulty enforcing judgments against us or our management.
We are a limited liability company incorporated under the laws of India. Substantially all of our directors and executive officers named in this annual report are residents of India and all or substantial portion of our assets and the assets of these directors and executive officers are located in India. As a result, investors may find it difficult to (i) effect service of process upon us or these directors and executive officers in jurisdictions outside of India, (ii) enforce court judgments obtained outside of India, including those based upon the civil liability provisions of the U.S. federal securities laws, against us or these directors and executive officers, (iii) enforce, in an Indian court, court judgments obtained outside of India, including those based upon the civil liability provisions of the U.S. federal securities laws, against us or these directors and executive officers, and (iv) obtain expeditious adjudication of an original action in an Indian court to enforce liabilities, including those based upon the U.S. federal securities laws, against us or these directors and executive officers.
India is not a party to any international treaty in relation to the recognition or enforcement of foreign judgments. Recognition and enforcement of foreign judgments is provided under Section 13 of the Code of Civil Procedure, 1908, or the Civil Code.
Section 13 and Section 44A of the Civil Code provide that a foreign judgment shall be conclusive as to any matter thereby directly adjudicated upon except (i) where it has not been pronounced by a court of competent jurisdiction, (ii) where it has not been given on the merits of the case, (iii) where it appears on the face of the proceedings to be founded on an incorrect view of international law or a refusal to recognize the law of India in cases where Indian law is applicable, (iv) where the proceedings in which the judgment was obtained were opposed to natural justice, (v) where it has been obtained by fraud or (vi) where it sustains a claim founded on a breach of any law in force in India.
Section 44A of the Civil Code provides that where a foreign judgment has been rendered by a superior court in any country or territory outside India which the Government has by notification declared to be a reciprocating territory, it may be enforced in India by proceedings in execution as if the judgment had been rendered by the relevant court in India. However, Section 44A of the Civil Code is applicable only to monetary decrees not being in the nature of any amounts payable in respect of taxes or other charges of a like nature or in respect of a fine or other penalty.
The United States has not been declared by the Government of India to be a reciprocating territory for the purpose of Section 44A of the Civil Code. Accordingly, a judgment of a court in the United States may be enforced only by a suit upon the judgment and not by proceedings in execution. The suit must be brought in India within three years from the date of the judgment in the same manner as any other suit filed to enforce a civil liability in India. It is unlikely that a court in India would award damages on the same basis as a foreign court if an action is brought in India. Furthermore, it is unlikely that an Indian court would enforce foreign judgments if it viewed the amount of damages awarded as excessive or inconsistent with public policy. A party seeking to enforce a foreign judgment in India is required to obtain approval from the Reserve Bank of India (RBI) to execute such a judgment or to repatriate outside India any amount recovered.
Risks associated with our Shares and ADSs.
Fluctuations in the exchange rate between the rupee and the dollar may have a material adverse effect on the market value of the ADSs and the shares, independent of our operating results.
Fluctuations in the exchange rate between the rupee and the dollar will affect, among others things, the dollar equivalents of the price of the shares in rupees as quoted on the Indian stock exchanges and, as a result, may affect the market price of the ADSs. Such fluctuations will also affect the dollar equivalent of any cash dividends in rupees received on the shares represented by the ADSs and the dollar equivalent of the proceeds in rupees of a sale of shares in India.
The exchange rate between the rupee and the dollar has changed substantially in the last two decades and may substantially fluctuate in the future. The value of the rupee against the dollar was Rs. 46.89 = US$ 1.00 as of October 07, 2009.
Holders of ADSs have fewer rights than shareholders and must act through the depositary to exercise those rights.
Although holders of ADSs have a right to receive any dividends declared in respect of shares underlying the ADSs, they cannot exercise voting or other direct rights as a shareholder with respect to the shares underlying the ADSs evidenced by ADRs. Citibank, N.A. as depositary is the registered shareholder of the deposited shares underlying our ADSs, and therefore only Citibank, N.A. can exercise the rights of shareholders in connection with the deposited shares. Only if requested by us, the depositary will notify holders of ADSs of upcoming votes and arrange to deliver our voting materials to holders of ADSs. The depositary will try, in so far as practicable, subject to Indian laws and the provisions of our Articles of Association, to vote or have its agents vote the deposited securities as instructed by the holders of ADSs. If the depositary receives voting instructions in time from a holder of ADSs which fail to specify the manner in which the depositary is to vote the shares underlying such holders ADSs, such holder will be deemed to have instructed the depositary.
to vote in favor of the items set forth in such voting instructions. If the depositary has not received timely instructions from a holder of ADSs, the holder shall be deemed to have instructed the depositary to give a discretionary proxy to a person designated by us, subject to the conditions set forth in the deposit agreement. If requested by us, the depositary is required to represent all shares underlying ADSs, regardless whether timely instructions have been received from the holders of such ADSs, for the sole purpose of establishing a quorum at a meeting of shareholders. Additionally, in your capacity as an ADS holder, you will not be able to bring a derivative action, examine our accounting books and records, or exercise appraisal rights. Registered holders of our shares withdrawn from the depositary arrangements will be entitled to vote and exercise other direct shareholder rights in accordance with Indian law. However, a holder may not know about a meeting sufficiently in advance to withdraw the underlying shares in time. Furthermore, a holder of ADSs may not receive voting materials, if we do not instruct the depositary to distribute such materials, or may not receive such voting materials in time to instruct the depositary to vote.
Further, pursuant to Indian regulations, we are required to offer our shareholders pre-emptive rights to subscribe for proportionate number of shares to maintain their existing ownership percentages prior to the issue of new shares. These rights may be waived by a resolution passed by at least 75% of our shareholders present and voting at a general meeting. Holders of ADSs may be unable to exercise pre-emptive rights for subscribing to these new shares unless a registration statement under the Securities Act is effective or an exemption from the registration requirements is available to us. Our decision to file a registration statement would be based on the costs, timing, potential liabilities and the perceived benefits associated with any such registration statement and we do not commit that we would file such a registration statement. If any issue of securities is made to our shareholders in the future, such securities may also be issued to the Depositary, which may sell such securities in the Indian securities market for the benefit of the holders of ADSs. There can be no assurance as to the value, if any, the Depositary would receive upon the sale of these rights/securities. To the extent that holders of ADSs are unable to exercise pre-emptive rights, their proportionate interest in us would be reduced.
As a result of Indian Government regulation of foreign ownership the price of the ADSs could decline.
Foreign ownership of Indian securities is regulated and is partially restricted. In addition, there are restrictions on the deposit of shares into our ADS facilities. ADSs issued by companies in certain emerging markets, including India, may trade at a discount to the underlying equity shares, in part because of the restrictions on foreign ownership of the underlying equity shares and in part because ADSs are sometimes perceived to offer less liquidity than underlying shares which can be traded freely in local markets by both local and international investors. See Item 10.D Exchange Controls. The ADSs could trade at a discount to the market price of the underlying shares.
A. History and Development of the Company.
We were incorporated on September 1, 1945 as a public limited liability company under the Indian Companies Act VII of 1913 as Tata Locomotive and Engineering Company Limited. Our name was changed to Tata Engineering and Locomotive Company Limited on September 24, 1960 and to Tata Motors Limited on July 29, 2003. We commenced operations as a steam locomotive manufacturer. This business was discontinued in 1971. Since 1954, we have been manufacturing automotive vehicles. This business commenced with the manufacture of commercial vehicles under financial and technical collaboration with Daimler-Benz AG (now Daimler AG) of Germany. This agreement ended in 1969. We produced only commercial vehicles until 1991, when we started producing passenger vehicles as well. In September 2004, we became the first company from Indias engineering sector to be listed on the New York Stock Exchange.
We are Indias largest automobile manufacturer by revenue, the largest commercial vehicle manufacturer and among the top three passenger vehicle manufacturer in terms of units sold in India during fiscal 2009. We are also the worlds fourth largest truck manufacturer and we believe we are one of the largest bus manufacturers in the above 6 ton category. We have a broad portfolio of automotive products, ranging from sub 1 ton to 49 ton gross vehicle weight, or GVW, trucks (including pickup trucks) and from small, medium, and large buses and coaches to passenger cars including the worlds cheapest car- the Tata Nano, introduced in 2009 and utility vehicles.
We have expanded our international operations through mergers and acquisitions and in India we have made strategic alliances involving non-Indian companies.
We have a substantial presence in India and we estimate that more than four million vehicles produced by us are currently being operated in India. We believe that the recent Jaguar Land Rover acquisition represents an important milestone in our growth strategy , allowing us to participate immediately in the luxury performance car and premium all-terrain vehicle segments and enhance our global market presence.
We produce a wide range of automotive products, including:
We believe that the foundation of our growth over the last 50 years has been a deep understanding of economic conditions and customer needs, and the ability to translate them into customer desired products though leading edge research and development. Our Engineering Research Centre, established in 1966, has enabled us to successfully design, develop and produce our own range of vehicles. We have acquired impressive engineering facilities of Jaguar and Land Rover. In addition, we established a wholly-owned subsidiary under the name Tata Motors European Technical Centre PLC, or TMETC, in the United Kingdom, in the field of automobile research and engineering. TMETC acquired Miljobil Grenland AS (Miljobil Grenland), a Norwegian company specializing in the development and manufacture of electric vehicles, in October 2008. Electric vehicles form a significant part of our ongoing strategy. Miljo Innovasjon AS, a wholly owned subsidiary of Miljobil Grenland, specializes in the development and manufacture of lithium ion batteries. This acquisition has enabled us to secure a route to market for batteries for electric vehicles and enables us to develop convenient and sustainable solutions for electric and hybrid vehicles. We believe this research center along with the capabilities of our Jaguar Land Rover business will also facilitate the development of our products, in particular, our passenger cars.
Through our subsidiary and associate companies, we are engaged in engineering and automotive solutions, construction equipment manufacturing, automotive vehicle components manufacturing and supply chain activities, machine tools and factory automation solutions, high-precision tooling and plastic and electronic components for automotive and computer applications, and automotive retailing and service operations.
Tata Technologies Limited, or TTL our 82.66% owned subsidiary, provides through its operating companies, INCAT and Tata Technologies iKS, specialized engineering & design services, product lifecycle management and product-centric IT services to leading global manufacturers. TTLs customers are among the worlds premier automotive, aerospace and consumer durable manufacturers. TTL had 11 functional subsidiary companies as at March 31, 2009. A few of these subsidiaries are being wound-up, liquidated or merged as part of our restructuring initiatives being undertaken with the objective of enhancing operating efficiencies by sharpening focus on its services and product business, fixing territorial responsibility for top and bottom line growth and establishing a global delivery centre supporting the overall business. The consolidated revenue for TTL was Rs.12,286 million in fiscal 2009, an increase of 12.1% from Rs.10,963 million in fiscal 2008, due to augmented relationships with existing global automotive and aerospace customers and the acquisition of new customers.
Telco Construction Equipment Company Ltd, or Telcon, is engaged in the business of manufacturing and sale of construction equipment and providing related supporting services. We own 60% of Telcon, with the remaining 40% being held by Hitachi Construction Machinery Company Limited, (HCM) Japan. In April 2008, Telcon acquired two Spanish Companies, namely Serviplem S.A and Comoplesa Lebrero S.A, by acquiring 79% and 60% shares of the respective companies. These acquisitions are expected to further strengthen the companys product capabilities.
TML Distribution Company Limited or TDCL, our wholly-owned subsidiary, was incorporated on March 28, 2008. TDCL is engaged in the business of dealing and providing logistics support for distribution of our products throughout India. TDCL has commenced operations in August 2008.
Our wholly-owned subsidiary, Tata Motors Finance Limited, or TMFL, was incorporated on June 1, 2006 with the objective of becoming a preferred financing provider for our dealers customers by capturing customer spending over the vehicle life-cycle relating to vehicles sold by us. In India, TMFL is registered with the RBI as a Systemically Important Non-Deposit Taking Non-Banking Financial Company and is classified as an Asset Finance Company under the RBIs regulation on Non-Banking Finance Companies. For the year ended March 31, 2009, TMFL made disbursements of approximately Rs.49,000 million.
Our wholly-owned subsidiary, Tata Motors Insurance Services Limited, now known as Tata Motors Insurance Broking and Advisory Services Limited undertakes the business of insurance and reinsurance broking, which commenced business in July 2008.
As of March 31, 2009, our operations included 74 consolidated subsidiaries and 7 equity method affiliates, in respect of which we exercise significant influence.
As of March 31, 2009, we had approximately 49,473 permanent employees, including approximately 25,835 permanent employees at our consolidated subsidiaries.
Tata Incorporated serves as our authorized United States representative. The address of Tata Incorporated is 3 Park Avenue, 27th Floor, New York, NY 10016, United States of America.
Our Registered Office is located at Bombay House, 24, Homi Mody Street, Mumbai 400 001, India and our telephone number is +91-22-6665-8282 and our website address is www.tatamotors.com. Our website does not constitute a part of this annual report.
B. Business Overview.
We primarily operate in the automotive segment. Our automotive segment operations includes all activities relating to development, design, manufacture, assembly and sale of vehicles including financing thereof, as well as sale of related parts and accessories. The acquisition of Jaguar Land Rover is intended to expand our presence into the premium car market. The integration of Jaguar Land Rover into our automotive business is in progress, pending which we have bifurcated our automotive segment into Tata vehicles and Jaguar Land Rover business for the year ended March 31, 2009.
Our other operations business segment includes information technology, or IT services, construction equipment manufacturing, machine tools and factory automation solutions, high-precision tooling and plastic and electronic components for certain applications and investment business.
We believe that we have established a strong position in the Indian automobile industry by launching new products, investing in research and development and maintaining our financial strength. We have also benefited from the expansion of our manufacturing and distribution network. Our goal is to position ourselves as a major international automotive company by offering products across various markets by combining our engineering and other strengths and through strategic acquisitions. Our strategy to achieve these goals consists of the following elements:
Leveraging our capabilities: We have an extensive range of products in commercial vehicles (for both goods and passenger transport) as well as passenger vehicles. We have plans to leverage this broad product base further with our strong brand recognition in India, our understanding of local consumer preferences, well developed in-house engineering capabilities and extensive distribution network.
We believe that our in-house research and development capabilities, our subsidiary TDCV in South Korea, our association with Hispano in Spain, our joint ventures with Marcopolo of Brazil in India and with Thonburi in Thailand, our relationship with Fiat and our acquisition of the Jaguar Land Rover business will enable us to expand our product range and extend our geographical reach. We launched the Ace, the first sub one-ton payload mini-truck in India, in May 2005, which has created a new category in the Indian commercial vehicle industry and we rolled out the 100,000th Ace in a record time of 22 months since its launch. In fiscal 2008 we launched the Magic, a passenger variant from the same platform, to tap into the potential increase in mass passenger transport in both rural and urban regions. We also launched the Winger, Indias only maxi-van, to cater to the intra-city and long-distance transportation needs of our customers. Similarly we believe that the manufacturing prowess of the joint venture with Marcopolo was proven in the execution of the 650 buses order we received from Delhi Transport Corporation (DTC) in 2007. Based upon the performance of these vehicles, we received another order of 1625 buses to be supplied to DTC.
In passenger vehicles, we entered the compact car segment with the Indica in 1998. We sold approximately 100,000 units of Indica within 25 months of its launch in the market. On the same platform, we developed a sedan version, the Indigo, which was launched in 2002. We also launched an estate version in 2004. In 2006, we expanded the Tata Indigo range by launching the Tata Indigo XL the countrys first stretched sedan concept. We are currently working to upgrade and expand our product offerings in the passenger car market. In August 2008, we launched the new generation of the Indica, the Indica Vista, with options of diesel and gasoline engines, from our joint venture with Fiat as well as our own engines and have plans to launch the next generation sedan in the near future. We have also conceptualized, developed and commercially launched the Nano, a low cost car for safe family transportation, breaking several conventional ideas of automobile development. We believe that this product will enable us to capture a strong share of a large potential market for safe and affordable transportation. Our investment in Miljobil Grenland will also enable us to develop convenient and sustainable solutions for electric and hybrid vehicles. The recent acquisition of Jaguar Land Rover has given us the opportunity to participate immediately in the luxury performance car and premium all-terrain vehicle segments with globally recognized brands and has diversified our business across markets and product segments. We will continue to build upon the internationally recognized brands of Jaguar Land Rover.
Mitigating cyclicality: The automobile industry is impacted by cyclicality. To mitigate the impact of cyclicality, we plan to continue to strengthen our operations through significant presence across different segments, wide range of products and geographies. We also plan to continue to strengthen our non-vehicle business, such as spare part sales, annual maintenance contracts, sales of aggregates for non-vehicle businesses, reconditioning of aggregates, sale of castings, production aids and tooling and fixtures to reduce the impact of cyclicality.
Expanding our international business: We have a two-fold strategy of expanding our operations into other geographic areas, through strategic acquisitions and by expanding our product range into select geographies where we have an opportunity to grow in markets with similar characteristics to the Indian market. Our international business strategy has already resulted in the continuous growth of our international operations over the past three fiscal years. For example, we have consolidated our position in the Ukraine to become the largest competitor in the light bus market under seven meters and the third largest competitor in the seven ton GVW light truck segment, in terms of unit sales. TDCV continues to be the largest exporter of heavy commercial vehicles from South Korea. Additionally our acquisition of Jaguar Land Rover has significantly expanded our geographical presence. While we continue to export from India and South Korea into many of these markets, we are also establishing a manufacturing footprint where it is beneficial to do so. We have established a Subsidiary along with Thonburi in Thailand to manufacture pickup trucks and have also received approval from the Thailand government for the Eco-car project. During fiscal 2008, we established a joint venture company to undertake manufacture and assembly operations of our in South Africa, which has been one of our largest export market from India in terms of unit volume.
Reducing costs and breakeven points: We believe that our scale of operations provides us with a significant advantage in reducing costs and we plan to continue to sustain and enhance our cost advantage. While we believe that our commercial vehicle business has scale that is competitive in relation to global standards, with the launch of the Tata Nano, we will be able to benefit from global economies of scale in the passenger vehicle business as well.
Our ability to leverage our technology capabilities and our manufacturing facilities among our commercial vehicle and passenger vehicle businesses enables us to reduce cost. For example, the diesel engine used in our Indica was modified for use in the Ace, which helped to reduce the project cost of the Ace. Similarly, platform sharing for the manufacture of pickup trucks and UVs enables us to reduce capital investment that would otherwise be required while allowing us to improve the utilization levels at our manufacturing facilities. Where it is advantageous for us to do so, we intend to add our existing low cost engineering and sourcing capability to vehicles manufactured under the Jaguar Land Rover umbrella.
Our vendor relationships also contribute to our cost reductions. For example, we believe that the vendor rationalization program that we are undertaking will provide economies of scale to our vendors which would benefit our cost programs. We are also undertaking various internal and external benchmarking exercises that would enable us to improve the cost effectiveness of our components, systems and sub-systems.
In response to the recent economic slowdown, we have further intensified efforts to review and realign our cost structure. We have adjusted our production in line with demand and undertaken steps to reduce overheads such as manpower costs and other fixed costs. In our Indian manufacturing locations we undertook block closures of plants to synchronize supply with demand and also reduced our flexible manpower. Similarly our Jaguar Land Rover business undertook steps to reduce production and also entered into an agreement with its labour unions for a pay freeze until 2010 and also reduced headcount. Further, Jaguar Land Rover is exploring opportunities to reduce the raw material costs through increase in sourcing from low cost countries.
Continuing focus on high quality and enhancing customer satisfaction: One of our principal goal is to achieve international quality standards for our products and services and we are pursuing various quality improvement programs, both internally and at our suppliers premises. We have established a procedure for ensuring quality control of outsourced components. Products purchased from approved sources undergo a supplier quality improvement process. We also have a program for assisting vendors from whom
we purchase raw materials or components to maintain quality. Each vendor is reviewed on a quarterly basis on parameters of quality, cost and delivery. Preference is given to vendors with QS-9000 certification. We also maintain a stringent quality assurance program that includes random testing of production samples, frequent re-calibration of production equipment and analysis of post-production vehicle performance and ongoing dialogue with workers to reduce production errors.
Our extensive sales and service network has also enabled us to provide quality and timely customer service. We are in advanced stages of deploying a Siebel customer relations management system at all dealerships and offices across India, which we believe will help to improve our responsiveness to market and customer service needs.
The new Jaguar XF saloon has received more than 20 international awards, most recently Britains Best Car in the Auto Express Driver Power survey for 2009, Best Executive Car at the What Diesel Magazine awards 2009 and the award for Best Executive Car at the 2009 Fleet World Honours. It was previously voted Car of the Year by What Car? Magazine. The XJ 2.7 Litre Diesel has been named Britains greenest luxury car in the Environmental Transport Associations 2009 Car Buyers Guide for a third successive year. Jaguar was also ranked No. 1 in J.D. POWER. Customer Service Index (CSI) and Sales Satisfaction Index (SSI) Study for 2008 in the United States.
Enhancing capabilities through the adoption of superior processes: Tata Sons Limited, or Tata Sons, and the entities promoted by Tata Sons, including us, aim at improving the quality of life through leadership in various sectors of national economic significance. In pursuit of this goal, Tata Sons and the Tata Sons promoted entities have institutionalized an approach, called the Tata Business Excellence Model or TBEM, which has been formulated on the lines of the Malcolm Baldridge National Quality Award to enable them to drive performance and attain higher levels of efficiency in their businesses and in discharging social responsibility. The model aims to nurture core values and concepts embodied in various focus areas such as leadership, strategic planning, customers, markets and human resources to be translated to operational performance. Our adoption and implementation of this model seek to ensure that our business can be conducted through superior processes in the future.
We have deployed a balance score card (BSC) management system, developed by Dr. Robert Kaplan and Dr. David Norton of the Harvard Business School for measurement based management and feedback. We have also deployed a new product introduction (NPI) process for systematic product development and product lifecycle management system for effective product data management across our organization. On the human resources front, we have adopted various processes to enhance the skills and competencies of our employees. We have also enhanced our performance management system, with appropriate mechanisms to recognize talent and sustain our leadership base. We believe these will enhance our way of doing business, given the dynamic and demanding global business environment.
Customer financing: With financing increasingly becoming a critical factor in vehicle purchases and the rising aspirations of consumers in India, we intend to expand our vehicle financing activities to enhance our vehicle sales. Further, in a scenario where there is lack of sufficient finance availability to vehicles in the Indian market as was witnessed in last two fiscal years, our captive finance business is expected to play a significant role to fill the gap created by other banks and Non Banking Financial Companies, while we will continue to focus on expanding our vehicle financing activities through our 100% subsidiary, Tata Motors Finance Limited, or TMFL.
Continuing to invest in technology and technical skills: We believe, we are one of the most technologically advanced indigenous vehicle manufacturers in India. Over the years, we have enhanced our technological strengths through extensive internal research and development activities. Our research and development resources, which include those at our subsidiaries, like TMETC, TDCV, TTL and Hispano together with the two advanced engineering and design centers of Jaguar Land Rover we recently acquired, further increase our capabilities in product design, manufacturing and quality control. In our Jaguar Land Rover business, we are committed to continue to invest in new technologies to develop products that meet the opportunities of the premium segment, including developing sustainable technologies to improve fuel economy and reduce CO2 emissions. We consider technological leadership to be a significant factor in continued success, and therefore intend to continue to devote significant resources to upgrade our technological base.
Maintaining financial strength: Our cash flow from operating activities in fiscal 2009 and 2008 was Rs. 25,194 million and Rs. 23,114 million respectively. Our net income declined in fiscal 2009, due to sudden and significant deterioration of the world economy, resulting in a significant decline in sales volumes, which affected our income and operating cash flow. However, our net change in working capital has improved. We continue to work on implementation of cost reduction programs, prudent working capital management to improve the cash flows at our automotive operations. We have established processes for project evaluation and capital investment decisions with an objective to enhance our long term profitability.
Leveraging brand equity: We believe the Tata brand name is associated by Indian customers with reliability, trust and value and is gaining significant international recognition due to the international growth strategies of various Tata Sons promoted entities. The Tata brand is used and its benefits are leveraged by Tata Companies to their mutual advantage. We recognize the need for enhancing our brand recognition in highly competitive markets in which we compete with internationally recognized brands. We, along with Tata Sons and other Tata Companies, will continue to promote the Tata brand and leverage its use in India, as well as in various international markets where we plan to increase our presence. Supported by the corporate level Tata brand, our product brands like Indica, Indigo, Sumo, Safari, Nano and Ace, along with Daewoo, Hispano, Jaguar, Range Rover and Land Rover are highly regarded, and will be nurtured and promoted.
In total we sold 672,747 and 597,197 vehicles in fiscal 2009 and 2008 respectively, consisting of 505,399 units of Tata vehicles (including TDCV and Hispano) and 167,348 units of Jaguar Land Rover vehicles in fiscal 2009. In terms of units sold our largest market is India where we sold 461,825 and 530,547 units during fiscal 2009 and 2008 (constituting 68.6% of total sales in fiscal 2009) followed by United Kingdom where we sold 38,630 units in fiscal 2009 (constituting 5.7% of total sales). A geographical breakdown of our revenues is set forth in Item 5.A Operating Results Geographical breakdown.
Our total sales (including international business sales and Jaguar Land Rover sales) for fiscal 2009 and 2008 are set forth in the table below:
The revenues from our automotive operations were Rs.691,778 million and Rs.337,040 million in fiscal 2009 and 2008, respectively. Tata vehicles (including spares and financing thereof) constituted 43.5% of our total automotive revenues before inter-segment elimination in fiscal 2009 while Jaguar Land Rover constituted 56.5%.
Note: Jaguar Land Rover vehicle sales are included from June 2, 2008.
Tata Vehicles (including spares and financing thereof)
In all we sold 505,399 and 597,197 units of Tata vehicles in fiscal 2009 and 2008 respectively. Of this 461,825 units were sold in India while sales outside of India were 43,533 units in fiscal 2009, compared to 530,547 units and 66,650 units respectively for fiscal 2008. Our share in the Indian four-wheeler automotive vehicle market (i.e., automobile vehicles other than two and three wheeler categories) declined from 26.1% in fiscal 2008 to 24.4% in fiscal 2009 mainly on account of a mature product portfolio in passenger vehicles and a relatively larger decline in M&HCV industry volumes in fiscal 2009, where we are the market leader.
The following table sets forth our Total sales of Tata Vehicles:
The following table sets forth our market share in various categories in the Indian market-based on wholesale volumes:
Note: Passenger cars include Fiat vehicles distributed by us.
Our performance in various categories of the Indian market is described below:
Passenger cars: Adverse liquidity conditions, a high interest rate environment and overall negative sentiment significantly impacted the demand for passenger cars during fiscal 2009. Despite new product launches and promotion spends by us and our competitors the domestic passenger car industry declined by 1% in fiscal 2009.
The small car category, which consists of mini and compact cars, constitutes over 60% of total domestic passenger car sales in India. In fiscal 2009, the small car category growth decelerated to just .0.7% to 936,500 units, despite of new product launches. The sales of Indica declined by 21.9% to 105,739 units, mainly due to the phasing out of the older Indica variants during the first half of the fiscal year and a delay in volume ramp after the introduction of the second generation Indica Vista in the later part of the year. In commemoration of 10 years since the launch of the Indica, during which time about 940,000 Indicas and over 1.2 million cars have been produced from the platform, we launched a Limited Edition of the Indica Vista in December 2008. We also expanded customer choice through the launch of an LPG version of the Indica V2 Xeta. The Indicas market share declined from 14.6% in fiscal 2008 to 11.9% in fiscal 2009 in the small car (mini + compact) category. Our market share has been rising since the launch of the Indica Vista in August 2008 growing to 14.5% for March 2009.
The much awaited Tata Nano was launched in March 2009. The Tata Nano is Bharat Stage III emission norms compliant and Bharat Stage IV ready. It comes with an all-new 2-cylinder aluminium MPFI 624 cc petrol engine mated to a four-speed gear box and is available in three variants. With a length of just 3.1 metres, width of 1.5 metres and height of 1.6 metres, the Tata Nano has the smallest exterior footprint for a car in India, but is 21% more spacious than the smallest car available today. A high seating position makes ingress and egress easy. Its small size coupled with a turning radius of just 4 metres, makes it extremely maneuverable in the smallest of parking slots. The car has been certified by the Automotive Research Association of India (ARAI) under mandated test conditions to have a fuel efficiency of 23.6 km/litre, which is the highest for any petrol car in India. Higher fuel efficiency, coupled with a low curb weight of 600 kg, ensures that the Tata Nano has the lowest CO2 emission amongst cars in India. There was an overwhelming response for paid bookings.
We are also present in the entry mid-size car category through our sedan, the Indigo, and its station wagon version, the Indigo Marina, which are both derived from the Indica platform. The entry mid-size car category grew by 54.6% in fiscal 2009 aided by new product launches. The Indigo CS is a sub-4 meter sedan that has the foot print and price point of a hatchback and the appeal of the sedan. Launched in the last quarter of fiscal 2008, the Indigo CS continued to receive an encouraging market response in fiscal 2009. This saw our sales grow by 51.1% to 47,447 vehicles in this category, with a market share of 32.8%.
We have also been distributing Fiat branded cars through the Tata-Fiat dealer network since March 2006. During fiscal 2009, we sold 7,149 Fiat cars. The Fiat 500 was launched in the market as a CBU and has done well to shore up the brand image of Fiat prior to the launch of its locally manufactured new products. We also entered the upper mid size category through the distribution of the newly launched Fiat Linea in January 2009. The product received a good response from the market and became the second highest seller in the segment in the three months of launch in the fiscal. With Fiat 500, Palio and Linea, Fiat acquired a position among the top ten car companies in the country. The joint dealer network has also been expanded from 65 in fiscal 2008 to 79 as of March 31, 2009.
Utility Vehicles: The Utility Vehicle market witnessed severe compression due to the increase in fuel prices and an additional excise duty imposed by the Government on vehicles with higher engine displacements, in the first half of the year. Despite a number of new product launches, the segment declined by 6.5% in fiscal 2009. We sold 38,371 units in our UV category in the Indian domestic market in fiscal 2009, a decline of 19.3% as compared to 47,531 units sold in fiscal 2008, ending the year with a market share of 17.6%, while regaining the second position in the segment this year, compared to the previous year. During fiscal 2009 we launched the Xenon XT a lifestyle pickup vehicle in its effort to develop a new segment.
Light Commercial Vehicles (including pickups): Our range of LCVs includes small commercial vehicles, pickup trucks, trucks and commercial passenger carriers up to 7.5 GVW. The LCV segment was also impacted due to the lack of liquidity for customer financing and slowing economic activity, growing by a mere 1.2% during fiscal 2009. Our sales declined by 2.9% to 142,985 units. Our market share on a wholesale basis however improved to 65.4% in fiscal 2009 from 64.4% in fiscal 2008. During fiscal 2009, we launched the Winger Ambulance and broke the long standing monopoly of the incumbent in this segment.
Medium and Heavy Commercial Vehicles: Our M&HCVs have a wide range of applications and are generally configured as trucks, tippers, buses, tankers, tractors or concrete mixers. The M&HCV category was the most impacted by the economic slowdown and financing inadequacy shrinking by about 33% during fiscal 2009. Despite the adversities, we continued to strengthen our product portfolio in this segment by introducing multi-axle and heavy duty trucks, tippers and tip trailers to our existing offerings. We also strengthened our M&HCV passenger range by launching the Super Milo range of buses with superior operating economics, and the Hi Deck Coaches in association with Hispano our Spanish subsidiary. During fiscal 2009, our M&HCV volumes declined 27.7% to 119,745 units, compared to 165,624 units in fiscal 2008. Our market share in the M&HCV category improved from 60.4% to 61.9%.
During fiscal 2009, the bus manufacturing facility of Tata Marcopolo Motors Limited at Dharwad began commercial production. This joint venture will enable us to address Indias growing need for world class fully built buses for intra-city and inter-city transportation with comfort, quality and safety of international standard.
Tata Vehicles Sales and Distribution:
Our sales and distribution network in India as of March 2009 comprised over 1,500 sales outlets for our passenger and commercial vehicle business. In line with our growth strategy, we formed a 100% subsidiary, TML Distribution Company Limited, or TDCL, in March 2008 to act as a dedicated logistics management company to support the sales and distribution operations of our vehicles in India. We believe this will improve the efficiency of our selling and distribution operations and processes.
TDCL will take over and/or set up stocking points for both commercial vehicles and passenger vehicles, in the places of manufacture and also at different places throughout India. TDCL will help improve planning, inventory management, transport management and on-time delivery. As a focused entity, we believe it will make delivery and inventory management more efficient.
Additionally, we have completed the initial rollout of a new customer relations management system, which has been certified by Oracle as the largest Siebel deployment in the automotive market at all our dealerships and offices across the country. Being implemented in phases since 2003, the combined online customer relations management system initiative supports users both within the Company and among our distributors in India and abroad.
Through our vehicle financing division and wholly owned subsidiary, Tata Motors Finance Limited, or TMFL we also provide financing services to purchasers of our vehicles through our independent dealers, who act as our agents, and through our branch network. During fiscal 2008 and 2009, approximately 34% and 31%, respectively, of our vehicle unit sales in India were made by the dealers through financing arrangements where our captive vehicle financing divisions provided the credit. Total vehicle finance receivables outstanding as at March 31, 2009 and 2008 amounted to Rs.158,803 million and Rs.163,960 million, respectively.
We use a network of service centers on highways and a toll-free customer assistance center to provide 24-hour on-road maintenance (including replacement of parts) to vehicle owners. We believe that the reach of our sales, service and maintenance network provides us with a significant advantage over our competitors.
We also market our commercial and passenger vehicles in several countries in Europe, Africa, the Middle East, Australia, South East Asia and South Asia. We have a network of distributors in almost all of the countries where we export our vehicles, who work with us in appointing a local dealer for sales and servicing our product in various regions. We have also stationed overseas resident sales and service representatives in various countries to oversee our operations in their respective territories.
Tata Vehicles Competition:
We face competition from various domestic and foreign automotive manufacturers in the Indian automotive market. Improving infrastructure and robust growth prospects compared to other mature markets, is now attracting a number of international companies to India who have either created joint-ventures with local partners or have established independently owned operations in India. Global competitors bring with them decades of international experience, global scale, advanced technology and significant financial resources. Hence competition is likely to further intensify in the future.
We have designed our products to suit the requirements of the Indian market based on specific customer needs such as safety, driving comfort, fuel efficiency and durability. We believe that our vehicles are suited to the general conditions of Indian roads, and the local climate and they comply with applicable environmental regulations currently in effect. We also offer a wide range of optional configurations to meet the specific needs of our customers. We intend to and are developing products to strengthen our product portfolio in order to meet the increasing customer expectation of owning world class products.
Tata Vehicles Seasonality:
Demand for our vehicles in the Indian market is subject to seasonal variations. Demand generally peaks between January and March, although there is a decrease in demand in February just before release of the Indian Fiscal Budget. Demand is usually lean from April to July and picks up again in the festival season from September onwards with a decline in December due to year end.
Tata Vehicles Exports:
We are expanding our export operations, which have been ongoing since 1961. We market our commercial and passenger vehicles in several countries in Europe, Africa, the Middle East, Australia, South East Asia and South Asia. Our exports of vehicles manufactured in India declined by 38.6% in fiscal 2009 to 33,536 units from 54,628 units in fiscal 2008. In fiscal 2009, exports volumes were mainly impacted by the global economic slowdown and credit crunch especially, in prime markets which witnessed adverse impact on automotive demand.
In fiscal 2009, our top five export destinations from India accounted for approximately 48% and 50% of our exports of commercial vehicles and passenger vehicle units respectively. Our exports were adversely impacted during fiscal 2009 due to by the global economic slowdown and credit crunch especially, in prime markets which witnessed adverse impact on automotive demand. We are strengthening our position in the geographic areas we are currently operating in and exploring possibilities of entering new markets with similar market characteristics to the Indian market.
Tata Daewoo Commercial Vehicle Co. Ltd., Korea: TDCV recorded a 21.9% decline in its overall vehicle sales to 9,137 units in fiscal 2009 from 11,692 units in fiscal 2008, before inter-segmental elimination. In the South Korean market, TDCVs performance was impacted by adverse liquidity conditions, high interest rates and higher base effect as a result of pre-purchases by the customers in fiscal 2008 prior to the switch from Euro III to Euro IV, effective in January 2008. In South Korea, TDCVs market share declined to 27.1% in fiscal 2009 from 33.5% in fiscal 2008 in the M&HCV category, adversely impacted largely by vendor constraints. On the exports front, TDCV registered growth of 29% to 4,280 units including CKDs in fiscal 2009, compared to fiscal 2008.
TDCV vehicles are assembled primarily from aggregates and components manufactured in South Korea. However, some major aggregates are sourced from the United States and various European component suppliers. In the South Korean market, TDCV uses Daewoo Motor Sales Corporations distribution network, which is the largest in South Korea. After-sales service is made available through 69 service centers and over 110 parts outlets. Exports are carried out largely through TDCVs own international distribution channel.
The management initiatives and business processes of Tata Sons and the Tata Sons promoted entities have also been implemented at TDCV. Relations between the management and the labor union of TDCV continue to be cordial.
Hispano Carrocera, S.A. Spain: We believe that our subsidiary Hispano, with its design and development capabilities in manufacturing bodies for high-end buses, will complement our current range of light and medium commercial passenger carriers. We believe that this investment will also help to increase our presence in the international bus market. We own the brand rights of Hispano. Hispano reported sale of 271 units for the period of January 2008 to March 2009. The volume decline from 328 units sold during the calendar year 2007 was mainly on account of the general economic downturn which has resulted in a slow-down of the bus market and increasing competition from original equipment manufacturers.
Jaguar Land Rover
On June 2, 2008, we completed the acquisition of Jaguar Land Rover from Ford. As part of the acquisition we acquired the global businesses relating to Jaguar Land Rover including three vehicle manufacturing facilities, one veneer production facility, two advanced design centers, 26 national sales companies, intellectual property rights (including perpetual royalty free licenses), and brands and trade marks.
The strengths of Jaguar Land Rover include its internationally recognized brands, strong product portfolio of award winning luxury performance cars and premium all-terrain vehicles, global distribution network, strong research and development capabilities, and a strong management team which has strengthened its business operations.
Our total sales of Jaguar Land Rover from June 2, 2008 to March 2009 are set forth in the table below:
Jaguar: Jaguars principal products are the X-Type, XF, XJ and XK. The Jaguar X-Type is a compact-size four-door sedan available with a range of petrol and diesel engines, manual and automatic transmissions. The Jaguar XF is medium-size four-door sports sedan, available with a range of turbocharged V6 diesel and V6/V8 petrol engines and standard automatic transmission. The Jaguar XJ is an all-aluminium large-size four-door sedan, offered with a range of V6 turbocharged diesel engines or V8 petrol engines, naturally aspirated and supercharged. The Jaguar XK is an all-aluminium sports coupe and convertible available with naturally aspirated and supercharged V8 petrol engines.
Land Rover: Land Rovers principal products are the Defender, Freelander 2 (LR2), Discovery (LR3), Range Rover Sport and Range Rover. The Defender is Land Rovers most capable off-roader. The Freelander 2 (LR2) is versatile for both urban sophistication and off-road capability. The Range Rover Sport is the most exhilarating Land Rover which fuses the excitement of a Sports Tourer with the versatility of a Land Rover. The Range Rover is the flagship of the brand with a unique blend of pure British luxury, classic design with distinctive, high quality interiors and legendary ability. Land Rover products offer a range of powertrains:- turbocharged V6 diesel, V6 petrol engines and V8 naturally aspirated and supercharged petrol engines; together with manual and automatic transmission. Land Rovers global market share in the Premium SUV market stood at 14.9% in calendar year 2008.
From August 2008, the automotive industry faced extraordinarily difficult market conditions. The global financial crisis has impacted the world automotive industry and the effect on the premium market has been particularly pronounced, with industry volumes estimated to have fallen between 25% and 30%. There had been a progressive weakening of the economies of the United States, the UK and Europe which has had a negative impact on volumes. The credit crunch constrained business and consumer spending, particularly in the United States, the UK and Europe coupled with a significant fall in consumer confidence. Adverse market conditions in the United States, the UK and Europe have been partially offset by growth in developing markets such as China, Russia, Middle East and Eastern Europe.
Jaguar Land Rover unit sales (wholesales) in total were down by 32% during the period June 2, 2008 to March 31, 2009 compared to corresponding period last year. Jaguar volumes fell marginally by 3.6% during this reporting period compared to the same period last year, primarily as a result of the success of the all new XF launched in 2008. Land Rover volumes have fallen by 39.2% during the period June 2008 to March 2009, compared to period June 2007 to March 2008. Strong growth in the early part of the reporting period resulted in Russian volumes growing by 10%. However retail growth continues in Russia and China where volumes have grown by 41% and 40%.
Jaguar Land Rovers performance in key geographical markets on retail basis
The US industry volumes were down 18.1% in the year ended December 2008, compared to the year ended December 2007. The worst performing segment was the Large SUV which was down by 38% in 2008 compared to 2007, Small SUV and Medium SUV were both down by 36%. Of the segments relevant to Jaguar, Luxury Sport and Upper Luxury were down 29% and 30% respectively, with only the Medium Luxury car segment, down by 20%, being close to the overall industry movement.
Jaguar retail volumes for the period January to December 2008 were 5.5% down compared to 2007, relatively strong compared to the relevant segment trends, which was largely due to the positive market reaction to the new Jaguar XF, launched in the United States in March 2008. Jaguars share of the premium car segment was 1.3% in 2008.
Land Rover retail volumes during the calendar year 2008 were down 40% compared to 2007. Land Rovers share of the premium SUV segment was 5.6% in 2008, compared to 7.2% in 2007.
The UK car market experienced a significant decline during January to December 2008 as a result of the credit crisis and other worsening macro economic factors. Full year industry volumes were down over 12% compared with 2007, with the off road vehicle segment particularly badly affected.
Jaguar retail volumes during the calendar year 2008 grew by 8.6% compared with 2007, a strong performance against the industry trend and largely driven by favourable market reaction to the new Jaguar XF, launched in the UK in March 2008.
Land Rover retail volumes during 2008 declined by 26.9% compared to 2007.
Europe (excluding Russia)
Across the major markets (Germany, France, Spain and Italy), the overall market conditions were broadly similar to those experienced in the UK, with substantial declines between January and March 2009 compared to corresponding period of the previous year. Vehicle scrapping incentive schemes in Germany and France did have some effect on overall volumes, but the impact on the premium car and off road segments is minimal. Full year industry volumes were down over 14.4% compared with 2007.
Jaguar retail volumes grew 14.5% in 2008 while Land Rover retail volumes declined by 28.2% in 2008 in comparison with 2007.
Automotive market and Land Rover volume growth continued through 2008. Jaguar retail volumes grew by 51.4% in 2008 while Land Rover retail volumes grew by 61.6% compared with 2007. However demand in recent months has shown some weakness and it appears that future trading conditions may be challenging. Whilst the downturn has slowed Land Rovers expansion plans, Land Rover maintains its position as the number one premium brand in Russia, outselling its competitors. Rouble exchange volatility and credit restrictions, continue to severely affect the total automotive market, including Jaguar Land Rover.
For the period June 2008 to March 2009, the imported vehicle segment of the Chinese automotive industry increased by 20% compared to the same period in 2007, outperforming overall industry growth at 8%.
There was a significant increase in consumption tax from September 1, 2008, which affected vehicles with an engine capacity of over 3.0 litres. Vehicles with an engine capacity of between 3.0 and 4.0 litres had taxes and duties increased 23%. On vehicles with an engine capacity in excess of 4.0 litres the combined tax burden increased 61%.
Jaguar retail volume grew by 26.1% compared to 2007 largely due to the success of the new Jaguar XF, launched in China in June 2008.
Land Rover retail volume for the period grew by 69% compared to 2007. A decline in the retail sales rate was noticeable from September/October 2008 and corresponds to the introduction of the consumption tax change mentioned above as many of the Land Rover products sold in China have V8 petrol engines with capacities in excess of 4.0 litres.
Jaguar Land Rover Sales & Distribution:
We distribute Jaguar Land Rover vehicles in 168 markets across the world. Sales locations for Jaguar Land Rover vehicles are operated as independent franchises. Jaguar Land Rover is represented in its key markets through national sales companies as well as third party importers. Jaguar and Land Rover have regional offices in certain select countries that manage customer relationships, vehicle supplies and provide marketing and sales support to their regional importer markets. The remaining importer markets are managed from the UK.
We also sell Jaguar Land Rover vehicles to our dealerships for sale to fleet customers, including rental car companies, commercial fleet customers, leasing companies, and governments. We do not depend on any single customer or group of customers to the extent that the loss of such customer or group of customers would have a material adverse effect on our business.
Prior to our acquisition of Jaguar Land Rover, Ford Motor Credit Company provided automotive financial services to a number of dealers and customers of Jaguar Land Rover. Under agreements with Ford, Jaguar Land Rovers dealers and customers will continue to have access to Ford Motor Credits financing facilities for a period of up to 12 months in various markets following our acquisition of Jaguar Land Rover, while Jaguar Land Rover migrates to alternative arrangements. Jaguar Land Rover has now transitioned to financing arrangements with FGA Capital (JV between Fiat Auto and Credit Agricole) in UK/Europe and Chase Auto Finance in the US and local providers in certain other key markets.
Jaguar Land Rover Competition:
Jaguar Land Rover operates in a globally competitive environment and faces stiff competition from established premium and other vehicle manufacturers who aspire to move into the luxury performance car and premium SUV segments. Jaguar vehicles compete primarily against other European brands such as BMW, Mercedes Benz and Audi. Land Rover vehicles compete largely against SUVs manufactured by Audi, BMW, Infiniti, Lexus, Mercedes Benz, Porsche and Volkswagen. The Land Rover Defender competes with vehicles manufactured by Isuzu, Nissan and Toyota.
Jaguar Land Rover Seasonality:
The business of Jaguar Land Rover is impacted by the bi-annual registration of vehicles in the United Kingdom where the vehicle registration number changes every six months, which in turn has an impact on the resale value of the vehicles. This leads to a bunching up of sales during the periods when the change occurs. Most other markets are driven by introduction of new model year derivatives. Furthermore, western European markets tend to be impacted by summer and winter holidays. The resulting sales profile influences operating results on a quarter to quarter basis.
Research and Development:
Our research and development activities focus on product development, environmental technologies and vehicle safety. Our Engineering Research Centre, or ERC, established in 1966, which is one of the few government recognized in-house automotive research and development centers in India. We are also widening the scope of our research and development activities from in-house product and technology development to managing the research and development process across various internal and external agencies, including our research and development centers in South Korea, Spain and the United Kingdom, as well as at various aggregate parts suppliers and outsourcing partners.
One of the most significant achievements of our ERC has been the design and development of our compact car the Indica, which is Indias first indigenously developed compact car. ERC also designed our mid-size car the Indigo, which was launched in 2002 and has been the market leader in the entry mid-size market category in India. We have also developed the Tata Nano, an affordable family car, which was launched in March 2009. We believe that the Tata Nano, which has charted a new path in low cost design in the global automobile industry, signifies the progression of our in house capabilities. The customer response to the product has been very encouraging during the initial booking process conducted in April 2009.
During fiscal 2006, we established our wholly-owned subsidiary, TMETC, in the United Kingdom to augment the abilities of our Engineering Research Centre. We believe that TMETC provides us with an access to leading-edge technologies and supports the product development activities, which we currently plan to undertake for the future in order to sustain and enhance our position in the increasingly competitive global markets. TMETCs investment in Miljobil Grenland in fiscal 2009 would enable us to develop convenient and sustainable solutions for electric and hybrid vehicles.
We endeavor to absorb the best of technologies for our product range to meet the requirements of a globally competitive market. All of our vehicles and engines are compliant with the prevalent regulatory norms in India and also in the countries to which they are exported. In addition, our research and development activities also focus on developing vehicles running on alternative fuels, including CNG, liquefied petroleum gas, bio-diesel and compressed air and electric cars. We are in a constant endeavor to develop green vehicles and are presently developing an electric vehicle on the Indica Vista platform. We are pursuing alternative fuel options such as ethanol blending for development of vehicles fuelled by hydrogen. Initiatives in the area of vehicle electronics such as engine management systems, in-vehicle network architecture, telematics for communication and tracking and other emerging technological areas are also being pursued and which could possibly be deployed on our future range of vehicles. Likewise various new technologies and systems that would improve safety, performance and emissions of our product range are under implementation on our passenger cars and commercial vehicles.
Our acquisition of TDCV provided us with a significant advantage in the development process of our World Truck, now referred to as Prima, which will be a sophisticated and contemporary M&HCV with performance standards akin to those in developed markets. The development of the Prima range was nearing completion towards the end of fiscal 2009 and has since been unveiled in the Indian market in May 2009.
We have two engineering facilities in the United Kingdom, supported by powertrain and other test facilities, extensive test track and off-road facilities. We are pursuing various initiatives, such as the introduction of Premium Lightweight Architecture (PLA), to enable our business to comply with the existing and evolving emissions legislations in the developed world, which we believe will be a key enabler of both reduction in CO2 and further efficiencies in manufacturing and engineering. Over recent years Jaguar Land Rover have made significant progress in reducing the development cycle times.
We have a modern crash test facility for testing our new products for passenger safety. We have a pedestrian safety testing facility, a pendulum impact test facility and a bus rollover test facility, to develop products with various safety norms. We also have a hemi-anechoic chamber testing facility for developing vehicles with lower noise and vibration levels and an engine emissions testing facility to develop products meeting international standards.
For providing prompt service to the customer, development of enterprise level vehicle diagnostics system for achieving speedy diagnostics of complex electronics of modern vehicles has been underway. Also the initiative in telematics has further spanned into fleet management and vehicle tracking system using GNSS (Global Navigation Satellite Systems).
Our product design and development centers are equipped with computer-aided design, manufacture and engineering tools, with sophisticated hardware, software, and other information technology infrastructure, designed to create a digital product development environment and virtual testing and validation, resulting in a reduction in the product development cycle-time and data management. Rapid prototype development systems, testing cycle simulators, advanced emission test laboratories and styling studios are also a part of our product development infrastructure. We have aligned our end-to-end digital product development objectives and infrastructure with
our business goals and have made significant investments to enhance the digital product development capabilities especially in the areas of product development through Computer Aided Design/Computer Aided Manufacturing/Computer Aided Engineering/Knowledge Based Engineering/Product Data Management.
Over the years, we have devoted significant resources towards our research and development activities. Our total expenditure on research and development during fiscal years 2009 and 2008 was Rs.50,154 million and Rs.12,507 million respectively.
We create, own, and maintain a wide array of intellectual property assets that we believe are among our valuable assets throughout the world. Our intellectual property assets include patents and patent applications related to our innovations and products; trademarks related to our brands, and products, copyrights in creative content, designs for aesthetic features of products/components, trade secrets, and other intellectual property rights. We aggressively seek to protect our intellectual property in India and other countries.
We own a number of patents registered and have applied for new patents which are pending registration in India. We have also filed a number of patent applications outside India under the Patent Corporation Treaty which will be entered in different countries later.
We own registrations for number of trade marks and have pending applications for registration in India and abroad. The registrations mainly include trademarks for our vehicles. We use the Tata brand, which has been licensed to us by Tata Sons Limited. See Item 4.C Organizational Structure. We believe that establishment of the Tata word mark and logo mark in India and world over is material to our operations. As part of our acquisition of TDCV, we have the perpetual and exclusive use of the Daewoo brand and trademarks in Korea and overseas markets for the product range of TDCV.
As part of the acquisition of Jaguar Land Rover business, ownership/co-ownership of core intellectual property were transferred to us. Additionally, perpetual royalty free licenses to use other essential intellectual properties have been licensed to us for use in Jaguar and Land Rover vehicles. Jaguar and Land Rover own registered designs, to protect the design of their vehicles in several countries.
In addition to the above, we also have various copyright and Internet domain name registrations.
Components and Raw Materials
The principal raw materials and components required by us for use in our vehicles are steel sheets and plates, castings, forgings and items such as tires, batteries, electrical items and rubber and plastic parts. We have long term purchase agreement for some critical components such as powertrains and engines. The raw materials, components and consumables that are sourced, include steel (sheet-metal, forgings and castings), tires and tubes, batteries, fuel injection systems, air-oil filters, consumables (paints, oils, thinner, welding consumables, chemicals, adhesives and sealants) and fuels. We also require aggregates like axles, engines, gear boxes and cabs for our vehicles, which are manufactured either by ourselves or by our subsidiaries and affiliates. Most commodities have had huge price volatility during fiscal 2009. We established contracts with the commodity suppliers to cover our own as also our suppliers requirements to moderate the effect of such high volatility. Special initiatives were also undertaken to reduce material consumption through value engineering and value analysis techniques.
We have undertaken an e-commerce initiative through the development of a business-to-business site with the assistance of our subsidiary, TTL, for electronic interchange of data with our suppliers. This has enabled us to have real time information exchange and processing to manage our supply chain effectively. We use external agencies as third party logistic providers. This has resulted in space and cost saving.
As part of our strategy to become a low-cost vehicle manufacturer, we have undertaken various initiatives to reduce our fixed and variable costs including an e-sourcing initiative started in 2002 through which we procure some supplies through reverse auctions.
We have established a procedure for ensuring quality control of outsourced components. Products purchased from approved sources undergo a supplier quality improvement process. We also have a program for assisting vendors from whom we purchase raw materials or components to maintain quality. Each vendor is reviewed on a quarterly basis on parameters of quality, cost and delivery. Preference is given to vendors with QS-9000 certification. We also maintain a stringent quality assurance program that includes random testing of production samples, frequent re-calibration of production equipment and analysis of post-production vehicle performance and ongoing dialogue with workers to reduce production defects. Further, we have established a Strategic Sourcing Group for certain regions to consolidate, strategize and monitor our supply chain activities with respect to major items of purchase as well as major inputs of technology and services. The Strategic Sourcing Group is responsible for recommending, for the approval by the Management Committee, the long-term strategy and purchase decision for these items, negotiation and relationship with vendors with regard to these items, formulating and overseeing our purchasing policies, norms in respect of all items, evolving guidelines for vendor quality
improvement, vendor rating and performance monitoring and undertaking company-wide initiatives such as e-sourcing and supply chain management/policies with respect to vehicle spare parts. We are also exploring opportunities for global sourcing of parts and components from lower cost countries, and have embarked on a vendor management program that includes vendor base rationalization, vendor quality improvement and vendor satisfaction surveys. We initiated steps to include our supply chain in our initiatives on social accountability, environment management activities including tree plantation, energy conservation etc.
We have an extensive supply chain for procuring various components. We also outsource many of the manufacturing processes and activities to various suppliers. In such cases, we provide training to outside suppliers who design and manufacture the required tooling and fixtures.
Tata AutoComp Systems Ltd., or TACO, in which now we have 30.56% ownership stake, manufactures auto components and encourages the entry of internationally acclaimed auto component manufacturers into India by setting up joint ventures with them. Some of these joint ventures include: Tata Johnson Controls Limited for seats, Knorr Bremse CV Systems for commercial vehicle air brakes, Tata Yazaki Autocomp Limited for wiring harnesses, JBM Sangwoo Limited for pressed components and Tata Toyo Radiators Limited for radiator assemblies. These joint ventures supply components for our products.
We have embarked upon a vendor management program that includes vendor base rationalization, vendor quality improvement and vendor satisfaction surveys. As part of driving continuous improvement in procurement, we have integrated our system for electronic interchange of data with our suppliers with the ERP. This has facilitated real time information exchange and processing to manage our supply chain more effectively.
We import some components that are either not available in the domestic market or when equivalent domestically- available components do not meet our quality standards. We also import products to take advantage of lower prices in foreign markets, such as special steels, wheel rims and power steering assemblies.
Closer interaction with suppliers acquired top priority in the difficult period of fiscal 2009. In response to the pressure on our suppliers caused by the lower automotive demand and the general lack of liquidity due to the financial crisis, we worked closely with our vendors with short and medium term plans.
Capital and Product Development Expenditures:
Our capital expenditure aggregated to Rs.101,197 million and Rs.51,386 million during fiscal 2009 and 2008, respectively. Our capital expenditure during the past fiscal years has been related mostly to new product development and capacity expansion for new and existing products to meet the market demand and investments towards improving quality, reliability and productivity that are aimed at operational efficiency.
We intend to continue to invest in our business units and research and development over the next several years for improving our existing product range and developing new products and platforms to build and expand our presence in the passenger vehicle and commercial vehicle categories. We believe this would strengthen our position in India and help us to grow our presence in the select international markets.
As a part of this future growth strategy, we plan to make investments in product development, capital expenditure in capacity enhancement, plant renewal and modernization and to pursue other growth opportunities. Our subsidiaries also have their separate growth plans and related capital expenditures plans. These expenditures are expected to be funded largely through cash generated from operations, existing investible surplus in the form of cash and cash equivalents, investment securities and other external financing sources. In July 2008, we obtained shareholders approval to raise additional long term resources up to US$ 1 billion and to increase our borrowing limit from Rs.120 billion to Rs.200 billion.
In addition to our automotive operations, we are also involved in various other business activities, of which information technology services and construction equipment manufacturing are the main activities. Net revenues from these activities totaled to Rs.35,434 million and Rs.37,099 million in fiscal 2009 and 2008, respectively, representing nearly 4.9% and 9.9% of our total revenues before inter-segment elimination in fiscal 2009 and fiscal 2008, respectively.
Information Technology Services:
Tata Technologies Limited, or TTL, is our 82.66% owned subsidiary as of March 31, 2009. Through its operating companies, INCAT and Tata Technologies iKS, TTL provides specialized engineering and design services, product lifecycle management and product-centric IT services to leading manufacturers. TTL responds to customers needs through its subsidiary companies and through its two offshore development centers. TTLs customers include automobile, aerospace and consumer durable manufacturers. TTL has 11 functional subsidiary companies as at March 31, 2009.
INCAT is a leading independent provider of engineering and design services, product and information lifecycle management, enterprise solutions and plant automation. INCATs services include product design, analysis and production engineering, Knowledge Based Engineering, PLM, Enterprise Resource Planning and Customer Relationship Management systems. INCAT also distributes implements and supports PLM products from leading solution providers in the world such as Dassault Systèms, UGS and Autodesk. With a combined global work force of more than 4,000 employees, INCAT has operations in the United States (Novi, Michigan), Germany (Stuttgart) and India (Pune).
Tata Technologies iKS is a global leader in engineering knowledge transformation technology. For over 15 years, iKS has enabled engineering knowledge transformation through i get it, the only web application in the world offering 100,000 hours of engineering knowledge for AutoCAD, INVENTOR, Solid Works, Solid Edge, UG/NX, Teamcenter, COSMOS Works and CATIA on a single delivery platform application.
The downturn in the global economy significantly impacted the engineering design services industry last year. During this challenging period TTL won a multi-year multi-million dollar contract to provide Engineering Design, PLM and IT support services from a major Global Auto OEM and also expanded presence in aerospace design and aero structures market with the help of strategic group alliances and enhanced capability. It also won several projects in the PLM consulting arena.
Through sustained focus on growing the share of offshore business and tight cost management, Tata Technologies witnessed growth in their profitability last year. The consolidated revenue for the TTL Group was Rs. 12,286 million in fiscal 2009, an increase of 12.1% against Rs.10,963 million in the previous year. Due to augmented relationships with existing global automotive and aerospace customers and the acquisition of new customers.
Telco Construction Equipment Company Limited, or Telcon, is engaged in the business of manufacturing and sale of construction equipment and providing related supporting services. We own 60% of Telcon, with the remaining 40% being held by Hitachi Construction Machinery Company Limited, Japan.
The global financial meltdown had a telling effect on the financial sector in India, and the flow of credit to the customers of the Construction Equipment (CE) industry significantly contracted with the impact to the end customers in the form of interest rate increases, increased margin money requirements and stringent credit checks and lack of risk appetite. The impact of global developments on India contributed to a market contraction of 24% for excavators, and a pronounced fall of over 45% in the demand for backhoe loaders. Also, the whole of the CE industry slowed down dramatically with investments dropping off and postponement or shelving of a number of Infrastructure Projects, due to heightened uncertainty. Most of the domestic manufacturers, including the Telcon, had to restrict production with periodic shut downs and short closures, so as to clear the stockpile of inventories. Consequently Telcon registered a total sale of 5,194 units during the year compared with 7,698 machines in the previous year. Telcon consolidated net revenue was Rs.21,417 million in fiscal 2009 compared to Rs.24,097 million in fiscal 2008. Introduction of new models and improved versions helped it widen the range of its products to facilitate a variety of applications. Also, this enabled Telcon in addressing and capturing the opportunities in demand, especially in the mining sector. In April 2008, Telcon acquired 79% and 60% shares of two Spanish Companies, Serviplem S.A and Comoplesa Lebrero S.A, respectively. These acquisitions provide Telcon with the opportunity to enter the concrete value chain.
Emission and Safety:
In 1992, the government of India issued emission and safety standards, which were further tightened in April 1996, under the Indian Motor Vehicle Act. Currently Bharat Stage III norms (equivalent to Euro III norms) are in force for four wheelers in 11 cities in India and Bharat Stage II norms (equivalent to Euro II norms) are in force in rest of India. Our vehicles comply with these norms. The next change in emission regulations is currently expected to be implemented by fiscal 2010, when 11 major cities in India are expected to move to Bharat Stage IV norms (equivalent to Euro IV norms) and the rest of India to Bharat Stage III norms.
The vehicles manufactured by TDCV comply with the emission regulatory requirements in South Korea and also of countries where its vehicles are exported. Our vehicle exports to Europe comply with Euro IV norms, and we believe our vehicles also comply with the various safety regulations in effect in the other international markets we operate. We are also working on meeting all the regulations which we believe are likely to come into force in various markets in future.
The Indian automobile industry is progressively harmonizing its safety regulations with international standards in order to facilitate sustained growth of the Indian automobile industry as well as to make India a large exporter of automobiles.
India has become a signatory to 1998 UNECE Agreement on Global Technical Regulations (GTR) since April 22, 2006 and has voted in favour of all the 7 Global Technical Regulations, Tata Motors works closely with the Government of India to participate in WP 29 World Forum Harmonisation activities.
India has a well established regulatory framework administered by the Indian Ministry of Shipping, Road Transport and Highways. The ministry issues notifications under the Central Motor Vehicles Rules and the Motor Vehicles Act. Chapter V of the Central Motor Vehicles Rules, 1989 which deals with construction, equipment and maintenance of vehicles. Vehicles being manufactured in the country have to comply with relevant Indian standards and automotive industry standards. The Indian Ministry of Shipping, Road Transport and Highways had finalized a road map on automobile safety standards in January 2002. The road map is based on current traffic conditions, traffic density, driving habits and road user behavior in India and is generally aimed at increasing safety requirements for vehicles considering Indian markets.
Our manufacturing plants have received /are in the process of obtaining the Indian governments environmental clearances required for our operations. We are fully committed to our role as a responsible corporate citizen with respect to reducing environmental pollution. We treat the effluents at our plants and have made significant investments in lowering the emissions from our products.
In the Indian Union Budget 2008-09, the Government of India reduced the Excise duty on small cars from 16% to 12%. The Government of India further reduced the excise duty rate from 12% to 8% in December 2008. This reduction was a part of Government initiative towards revival of Automobile industry from the recessionary situation. The excise duty on cars other than small cars was also reduced from 24% to 20%. Small cars are defined to mean cars of length not exceeding 4,000 mm and with an engine capacity not exceeding 1,500 cc for cars with diesel engines and not exceeding 1,200 cc for cars with gasoline engines.
The excise duty on motor vehicles for transport of more than 13 persons, including the driver, from 16% to 12% and this was further reduced to 8% in December 2008 . Excise duty on chassis fitted with engines for such vehicles was also reduced from 16% + Rs.10,000 per chassis to 12% + Rs.10,000 per chassis which was further reduced to 8% + Rs.10,000 per chassis in December 2008.
Excise duty on Trucks was reduced from 16% to 14%, which was further reduced to 10% in December 2008. The excise duty on Trucks was again reduced from 10% to 8% in the Union Budget 2009-10.
In December 2008, the excise duty on Safari, SUVs & UVs was reduced from 24% + Rs. 20,000 per vehicle to 20% + Rs. 20,000 per vehicle which was further reduced to 20% + Rs. 15,000 per vehicle in the Union Budget of 2009-10.
Import Regulations and Duties:
Automobiles and automotive components can, generally, be imported into India without a license from the Indian government subject to their meeting Indian standards and regulations as specified by designated testing agencies. Cars, UVs and SUVs in completely built up or CBU condition can be imported at 60% Basic Customs duty, and commercial vehicles can be imported at Basic Custom duty of 10% and components can be imported at Basic Customs Duty ranging from at 10% to at 7.5% (for engine component).
In addition, vehicle and component imports are also subject to countervailing duty which is equivalent to Excise Duty indicated above plus an additional Customs duty at 4%, NCCD at 1% (only for vehicles), Educational Cess at 2%, Higher Education Cess at 1%, Vehicle Cess (only in case of vehicles) at 0.125%.
Valued Added Tax:
Value Added Tax (VAT) has been implemented throughout India. VAT enables set-off from sales tax paid on inputs by traders and manufacturers against the sales tax collected by them on behalf of the government, thereby eliminating the cascading effect of taxation. Two main brackets of 4% and 12.5%, along with special brackets of 0%, 1% and 20%, have been announced for various categories of goods and commodities sold in the country and certain states have introduced additional VAT of 1% & 3% on specified commodities including Automobiles. In one of the states, surcharge of 10% on VAT has been introduced on Automobiles. Central Sales Tax, however, continues to exist, although it is proposed to be abolished in a phased manner. Since its implementation, VAT has had a positive impact on us. Prior to the implementation of VAT, sales tax formed part of our total cost of material. However, the implementation of VAT would result in savings on sales tax component as VAT paid on inputs can be set off against tax paid on outputs.
In the Indian Union Budget of 2008-09, the Government of India reduced the Central Sales Tax rate from 3% to 2%.
Economic Stimulus Package:
In January 2009, the government of India announced an Economic Stimulus Package targeting the Automotive Industry. The Public Sector banks will step forward to fund the auto sector along with providing a line of credit to NBFCs, specifically for the CVs. States shall be provided a one time assistance to purchase 15,000 buses for their urban transport system. There was a 4% cut in the Cenvat rate on Cars and Trucks and 2% cut in Cenvat rate on motor vehicles for transport of more than 13 persons, including the driver. Further in February 2009, the Cenvat was reduced from 10% to 8% for Trucks & Buses and Service Tax was also reduced from 12% to 10%. The government of India has also provided for an accelerated tax depreciation of 50% for commercial vehicles purchased between January 1 and September 30, 2009.
Emission and Safety:
There has been a greater emphasis by governments on the emission and safety levels for the automobile industry. Existing EU4 and EU5 regulations, and planned EU6 regulations place limits on particulate emissions and emissions of pollutants other than CO2 and encourage fuel economy. The EU has indicated that it will introduce legislation to reduce CO2 emissions from passenger cars. Jaguar Land Rover carefully monitors environmental requirements and has plans to reduce the average CO2 emissions of its vehicle fleet through the introduction of sustainable technologies including modular lightweight vehicle architectures, smaller and more fuel efficient SUVs, and development of technologies that use hybrid and alternative fuels. While Jaguar Land Rover has plans to reduce emissions, the risk remains that eventual legislation may impose requirements in excess of currently planned design actions. Also, consumers may demand further fuel efficiency and reductions in emissions. To comply with current and future environmental norms, Jaguar Land Rover may have to incur substantial capital expenditure and research and development costs to upgrade products and manufacturing facilities, which would have an impact on its cost of production and results of operation.
The regulatory environment continues to intensify with EU draft regulations, U.S. CAFE and national CO2 actions/incentives. These have had a potentially negative impact on larger vehicles/premium segments, influenced by significant tax related impacts, particularly in smaller European markets.
Vehicles sold in Europe are subject to vehicle safety regulations established by the EU or by individual countries which are similar to those in the United States Major regulatory changes in Europe are:
In addition, within the framework of the United Nations Economic Commission for Europe (UNECE), the EU may establish new vehicle safety regulations (e.g. regarding head restraints).
The U.S. National Highways Transport Safety Agency (NHTSA) issues federal motor vehicle safety standards covering a wide range of vehicle components and systems such as airbags, seatbelts, brakes, windshields, tires, steering columns, displays, lights, door locks, side impact protection, and fuel systems. We are required to test new vehicles and equipment and assure their compliance with these standards before selling them in the United States. We are also required to recall vehicles found to have defects that present an unreasonable risk to safety or which do not conform to the required Federal Motor Vehicle Safety Standards, and to repair them without charge to the owner. The financial cost and impact on consumer confidence of such recalls be significant depending on the repair required and the number of vehicles affected. Jaguar Land Rover has no investigations relating to alleged safety defects or potential compliance issues pending before NHTSA.
These standards add to the cost and complexity of designing and producing vehicles and equipment. In recent years the NHTSA has mandated, among other things:
Furthermore, the Cameron Gulbransen Kids Transportation Safety Act of 2007 (Kids and Cars Safety Act) passed into law in 2008 requires NHTSA to enact regulations related to rearward visibility and brake-to-shift interlock, and requires that NHTSA consider regulating the automatic reversal functions on power windows. The cost to meet with these proposed regulatory requirements may be significant.
Vehicle safety regulations in Canada are similar to those in the United States; however, many other countries have vehicle regulatory requirements which differ to those in the United States. The differing requirements among various countries create complexity and increase costs such that the development/production of a common product that meets all country regulatory requirements is not possible. Global Technical Regulations (GTRs), developed under the auspices of the United Nations (UN), continue to have increasing impact on automotive safety activities. In 2008, GTRs on Electronic Stability Control, Head Restraints, and Pedestrian Protection were adopted by the UN World Forum for the Harmonisation of Vehicle Regulations, and are now in different stages of national implementation. While global harmonization is fundamentally supported by the auto industry in order to reduce complexity, national implementation yet may introduce subtle differences into the system.
Economic Stimulus Package/Incentives:
Some of the European governments have introduced support schemes for the motor industry within their countries. The US government has also provided support to the US car manufacturers. The UK government announced the Automotive Assistance Program, a program of support for the British car industry back in January 2009. The EIB has also announced a support package of aid to the car industry.
In January 2009, the UK government announced the UK Automotive Assistance Programme (AAP) to address funding requirements of the UK automotive industry. The AAP will facilitate the government loan guarantees on a case by case basis, for projects for which EIB (European Investment Bank) funding has been approved and to bring special value to the UK through the preservation of jobs and new investments which fulfill government objectives of low carbon emission. In March 2009, it was confirmed that the UK government was to make available a grant of up to £27 million to support the production of a new model based on the compact and sustainable LRX Concept to be produced at the Halewood factory. The vehicle, which is subject to final production confirmation later in 2009, would be the smallest, lightest and most fuel efficient addition to the Range Rover family of luxury vehicles. This vehicle is planned to further enhance the Jaguar Land Rover commitment to sustainability.
The UK government also introduced a vehicle scrappage incentive scheme on vehicles that are aged 10 years plus in order to stimulate car purchases within the UK market. Limited sales activity has been witnessed by the Jaguar Land Rover brands. Several European countries have also introduced versions of vehicle scrappage schemes and incentives, including Cyprus, France, Germany, Italy, Luxembourg, Portugal, Romania and Spain. In July 2009, the US government introduced a $1 billion scrappage scheme which has been concluded.
We have insurance coverage which we consider reasonably sufficient to cover all normal risks associated with our operations (including business interruptions) and which we believe is in accordance with industry standards in India. We have obtained coverage for product liability for some of our vehicle models in several countries to which we export vehicles. We have also taken insurance coverage on directors and officers liability to minimize risks associated with international litigations for us and some of our subsidiaries.
Jaguar Land Rover has global insurance coverage which Jaguar Land Rover considers to be reasonably sufficient to cover normal risks associated with our operations and insurance risks (including property, business interruption, Marine and Product/General Liability).
In the normal course of business, we face claims and assertions by various parties. We assess such claims and assertions and monitor the legal environment on an ongoing basis, with the assistance of external legal counsel wherever necessary. We record a liability for any claims where a potential loss is probable and capable of being estimated, and disclose such matters in our financial statements, if material. For potential losses which are considered reasonably possible, but not probable, we provide disclosure in the financial statements, but do not record a liability in our financial statements unless the loss becomes probable. Should any new developments arise, such as a change in law or rulings against us, we may need to make provisions in our financial statements, which could adversely impact our reported financial condition and results of operations. Furthermore, if significant claims are determined against us and we are required to pay all or a portion of the disputed amounts, there could be a material adverse effect on our business and profitability. Certain claims that are above Rs.200 million in value are described in Note 38 to our consolidated financial statements included in this annual report. In respect of claims against us below Rs.200 million, the majority of cases pertain to motor accident claims (involving vehicles that were damaged in accidents while being transferred from our manufacturing plants to regional sales offices) and consumer complaints. Some of these cases relate to replacement of parts of vehicles and/or compensation for deficiency in services provided by us or our dealers. There are some indirect tax, labour and other civil cases as well which fall under this category.
There are outstanding litigation proceedings against Jaguar Land Rover and its subsidiaries. These legal proceedings are pending at different levels of adjudication before various courts and tribunals.
We believe that none of the contingencies, either individually or in the aggregate, would have a material adverse effect on our financial condition, results of operations or cash flows.
C. Organizational Structure
Tata Sons Limited, or Tata Sons, is a principal holding company that has equity holdings in a range of businesses. The various companies promoted by Tata Sons, including us, are based substantially in India and had combined revenues of approximately US $ 70.8 billion for fiscal 2009.
The operations of Tata Sons promoted entities are highly diversified and can be categorized under seven business sectors, namely, engineering, materials, energy, chemicals, consumer products, services, communications and information systems. These companies do not constitute a group under Indian Law.
Tata Sons has its origins in the trading business founded by Jamsetji Tata in 1874 that was developed and expanded in furtherance of his ideals by his two sons, Sir Dorabji Tata and Sir Ratan Tata, following their fathers death in 1904. The family interests subsequently vested largely in the Sir Ratan Tata Trust, the Sir Dorabji Tata Trust and other related trusts. These trusts were established for philanthropic and charitable purposes and together own a substantial majority of the shares of Tata Sons Limited.
By 1970, the operations of Tata Sons promoted entities had expanded to encompass a number of major industrial and commercial enterprises including The Indian Hotels Company Limited (1902), The Tata Steel Limited (Tata Steel) (1907), The Tata Power Company Limited (1910), Tata Chemicals Limited (1939), Tata Motors Limited (1945), Voltas Limited (1954), and Tata Tea Limited (1962). Tata Sons also promoted Indias first airline, Tata Airlines, which later became Air India (Indias national carrier), as well as Indias largest general insurance company, New India Assurance Company Limited, both of which were subsequently taken over by the Government as part of the Governments nationalization program. Tata Consultancy Services Limited (TCS) is Asias leading software services provider and the first Indian software firm to exceed sales of US$ 4 billion. In 1999, Tata Sons has also invested in several telephony and telecommunication ventures, including acquiring a portion of the Indian Governments equity stake in the state owned Tata Communications Limited (formerly known as Videsh Sanchar Nigam Limited (VSNL)).
We have for many years been a licensed user of the Tata brand owned by Tata Sons Limited, and thus have both gained from the use of the Tata brand as well as helped to sustain its brand equity. Tata Sons along with the Tata Sons promoted entities instituted a corporate identity program to re-position itself to compete in a global environment. A substantial ongoing investment and recurring expenditure is planned to develop and promote a strong, well-recognized and common brand equity, which is intended to represent for the consumer a level of quality, service and reliability associated with products and services offered by the Tata Sons promoted entities.
Each Tata Sons promoted consenting entities pays a subscription fee to participate in and gain from the Tata brand identity. We believe that we benefit from the association with the Tata Brand identity and, accordingly, Tata Motors Limited and certain of our subsidiaries have agreed to pay an annual subscription fee to Tata Sons Limited which is equal to 0.15%-0.25% of annual net income (defined as net revenues exclusive of excise duties and other governmental taxes and non-operating income), subject to a ceiling of 5% of annual profit before tax (defined as profit after interest and depreciation but before income tax). Tata Sons also has lowered in the past the subscription fee, considering its requirement of outlay for activities related to brand promotion and protection. For the fiscal years ended March 31, 2008 and 2009, Tata Motors on a standalone basis paid an amount less than 0.25% of its annual net income as per Indian GAAP. Pursuant to our licensing agreement with Tata Sons Limited, we have also undertaken certain obligations for the promotion and protection of the new Tata brand identity licensed to us under the agreement. The agreement can be terminated by written agreement between the parties, by Tata Sons Limited upon our breach of the agreement and our failure to remedy the same, or by Tata Sons Limited upon providing six months notice for reasons to be recorded in writing. The agreement can also be terminated by Tata Sons Limited upon the occurrence of certain specified events, including liquidation.
The Tata Sons promoted entities have sought to continue to follow the ideals, values and principles of ethics, integrity and fair business practices originally established by the founder of Tata Sons, Mr. Jamsetji Tata, and his successors. To further protect and enhance the Tata brand equity, these values and principles have been articulated in the Tata code of conduct, which has been adopted by most of the Tata Companies that have access to the larger resources and services of the Tata Sons promoted entities. These companies have endeavored to maintain high standards of management efficiency and to promote the commercial success of Indian enterprises. The Tata Sons promoted entities have also made significant contributions towards national causes through promotion of public institutions in the field of science, such as the Indian Institute of Science and the Tata Institute of Fundamental Research, and in the field of social services through the Tata Institute of Social Sciences, the Tata Memorial Hospital and the National Center of the Performing Arts. Tata trusts are among the largest charitable foundations in the country.
A large number of the Tata Sons promoted entities hold shares in one another and some of our directors hold directorships on the boards of Tata Sons and/or Tata Sons promoted entities. However, there are no voting agreements, material supply or purchase agreements or any other relationships or agreements that have the effect of tying us together with other Tata Sons promoted entities at management, financial or operational levels. With the exception of Tata Steel Limited, which under our Articles of Association has the right to appoint one director to the Board, Tata Sons Limited and its subsidiaries do not have any special contractual or other power to appoint our directors or management beyond the voting power of their shareholdings in us. Except as set forth in the tables below under the heading Subsidiaries and Affiliates and except for an approximately 12.3% stake in Tata Industries Limited, our shareholdings in other the Tata Sons promoted entities are generally insignificant as a percentage of their respective outstanding shares or in terms of the amount of our investment or the market value of our shares of those companies.
Subsidiaries and Affiliates
We have the following consolidated subsidiaries and equity method affiliates as of March 31, 2009:
We currently operate four principal automotive manufacturing facilities in India. The first facility was established in 1945 at Jamshedpur in the State of Jharkhand in eastern India. We commenced construction of a second facility in 1966 (with production commencing in 1976) at Pune, in the State of Maharashtra in western India, and a third in 1985 (with production commencing in 1992) at Lucknow, in the State of Uttar Pradesh in northern India. We have set up our fourth manufacturing plant in Uttarakhand, in India commenced operations in fiscal 2008. The Jamshedpur, Pune and Lucknow manufacturing facilities have been accredited with ISO/TS 16949:2000(E) certification. We are also in the process of setting up a plant in Sanand in Gujarat, for the manufacture of the Nano. We have set up plant for the manufacture of Tata Marcopolo buses under our joint venture with Marcopolo at Dharwad in Karnataka. We have also set up research and development facilities in the United Kingdom.
The manufacturing facilities of TDCV are based in Gunsan, South Korea. TDCV has received the ISO/TS 16949 certification, an international quality systems specification given by SGS UK Ltd., an International Automotive Task Force (IATF) accredited certification body. It is the first Korean automobile original equipment manufacturer to be awarded the same.
The manufacturing facilities of Telcon are located at Jamshedpur in the State of Jharkhand in eastern India and at Dharwad in the State of Karnataka in Southern India. The newly acquired Telcon subsidiaries have their operations based at Zaragoza, Spain which are in the business of manufacture of concrete Transit mixers, dry bulk tanks, pumps, compactors and Tandem Rollers of various capacities for road making and at China which engaged in manufacturing of Compactors.
Fiat India Automobiles Limited, our joint venture with Fiat Group Automobiles S.p.A, has its manufacturing facility located at Ranjangaon, Maharashtra. The plant would be used for the manufacture of Tata and Fiat branded cars as well as engines and transmissions for use by both the partners.
Tata Motors (Thailand) Limited is our joint venture with Thonburi Automotive Assembly Plant Co Ltd for the manufacture and assembly of pickup trucks. We presently own 86.78% and Thonburi Automotive owns 13.22% of this venture. The manufacturing facility is located in Samutprakarn province, Thailand.
Our 21% stake in Hispano provides us with access to two manufacturing units, one in Spain and another one in Morocco.
Following our acquisition of Jaguar Land Rover, we currently operate three principal automotive manufacturing facilities in the United Kingdom:
We have also established two product development facilities in the United Kingdom:
Most of these facilities are owned freehold or held through long-term leaseholds, generally with nominal rents.
Tata Motors European Technical Centre Plc, along with its Norwegian subsidiaries, are specialized in the development and manufacture of electric cars and lithium ion batteries.
As of March 31, 2009, our total vehicle production capacity in India determined on the basis of two production shifts per day and including capacity for the manufacture of replacement parts, was 870,156 units annually. In addition, we also have vehicle production capacity of 20,000 units annually in South Korea through the manufacturing facilities of TDCV. Our Marcopolo plant has capacity of 6,600 units; we have bus body building capacity of 330 units in Spain and 240 units in Morocco, and our joint venture in Thailand has capacity of 25,000 units.
The following table shows our installed capacity as of March 31, 2009, and production levels by plant and product type in fiscal 2009 and 2008:
At Jaguar Land Rover, manned capacity has been reduced in response to falling demand to 170,000 units, and we are currently operating at 97% of that capacity.
We produce vehicles and related components and carry out other businesses through various manufacturing facilities. In addition to our manufacturing facilities, our properties include sales offices and other sales facilities in major cities, repair service facilities, and research and development facilities.
The following table sets forth information, with respect to our principal facilities, a substantial portion of which are owned by us as of March 31, 2009. The remaining facilities are on leased premises.
Substantially all of our owned properties are subject to mortgages in favor of secured lenders and debenture trustees for the benefit of secured debenture holders. A significant portion of our property, plant and equipment is pledged as collateral securing indebtedness incurred by us. We believe that there are no material environmental issues that may affect our utilization of these assets.
We have additional property interests throughout the world for limited manufacturing, sales offices, dealer training and testing. The majority of these are housed within leased premises.
Property, plant and equipment as of March 31, 2009 includes building under construction of Rs 3,620 million for the purposes of manufacturing automobiles. Consequent to the decision to relocate and construct a similar manufacturing facility at another location, the management is in the process of evaluating several options, under all of which, no adjustment to the carrying amount of the building is considered necessary based on the information available at the balance sheet date.
Since the end of the year, a substantial proportion of our owned properties have become subject to mortgages in favor of secured lenders. In addition, a significant portion of our property, plants and equipment is pledged as collateral securing indebtedness incurred by us. We believe that there are no material environmental issues that may affect our utilization of these assets.
We consider all of our principal manufacturing facilities and other significant properties to be in good condition and adequate to meet the needs of our operations.
You should read the following discussion of our financial condition and results of operations together with our consolidated financial statements prepared in conformity with IFRS and information included in this annual report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors including, but not limited to, those set forth in Item 3.D and elsewhere in this annual report.
A. Operating Results.
Our financial statements included in this Annual Report on Form 20-F have been prepared in accordance with International Financial Reporting Standards as issued by International Accounting Standards Board. Pursuant to General Instruction G of Form 20-F, the financial statements included herein are for our two most recent fiscal years. Accordingly the information set forth in Operating and Financial Review and Prospects is also for our two most recent fiscal years.
On June 2, 2008, we acquired the Jaguar Land Rover business. Consequently, the operating results discussed in this section for the year ended March 31, 2009 are not comparable with the previous year.
In fiscal 2009, our total revenue (net of excise duties) including finance revenues was Rs. 722,806 million as compared to Rs. 370,255 million for fiscal 2008. The entire increase in revenue is attributable to Jaguar Land Rover business. Excluding Jaguar Land Rover, there was a decrease of 10.4% in total revenue in fiscal 2009 compared to fiscal 2008. We recorded a net loss (excluding the share of loss attributable to minority interest) of Rs. 60,142 million in fiscal 2009 compared with a net income of Rs. 21,977 million in fiscal 2008.
Automotive operations is our most significant segment, accounting for 95.7 % and 91.0% for fiscal 2009 and 2008 respectively, of our total revenues. For Fiscal 2009, revenue from automotive operations before inter segment eliminations was Rs. 691,778 million as compared to Rs. 337,040 million for fiscal 2008. For fiscal 2009 Jaguar Land Rover contributed 56.5 % of our total automotive revenue and the balance Rs. 300,889 million (43.5% of total) was contributed by Tata products in India and outside of India. Our automotive operations were negatively impacted in fiscal 2009 by the sudden and significant deterioration in the world economy, the effect of which was more severe on our premium car business.
Our automotive operations includes:
The acquisition of Jaguar Land Rover in June 2008 has expanded the Companys presence in the international markets. Pending completion of the integration process of Jaguar Land Rover, with the Companys automotive business, which is being undertaken following the acquisition, the Company has disclosed two reportable segments in its automotive business Tata vehicles and Jaguar Land Rover, for the year ended March 31, 2009.
Tata Vehicles (including spares and financing thereof)
In fiscal 2009, the automotive sector in India suffered severe contraction in demand, arising from major financial and other market upheavals. This exacerbated the lack of liquidity and unavailability of financing, which led to a fall in automotive demand. High interest rates and peak commodity prices also affected the industry and the supply chain. Consequently, our vehicle sales declined by 15.4% to 505,399 units in fiscal 2009 from 597,197 units in fiscal 2008, resulting in a revenue (before inter-segment elimination) decline of 10.7% to Rs.300,889 million in fiscal 2009, compared to Rs.337,040 million in fiscal 2008.
Sales of our commercial vehicles in India declined by 16% to 262,730 units in fiscal 2009. Contraction in freight movement in many segments of the industry and a decline in consumer confidence led to a massive drop in the M&HCV category. The M&HCV was the most impacted by the slowdown and financing inadequacy shrinking by about 33% compared with the previous fiscal year. Our M&HCV volumes declined by 27.7% to 119,745 units in fiscal 2009. Despite the adversities, we continued to strengthen our product portfolio in this segment by introducing multi-axle and heavy duty trucks, tippers and tip trailers to our existing offerings. Our LCV volumes declined by 2.9% to 142,985 units in fiscal 2009 from 147,311 units in fiscal 2008. New products introduced in-recent years such as the Ace, Magic and Winger continued to receive encouraging response.
Our Passenger vehicle sales in India declined by 8.5% to 199,095 units in fiscal 2009, primarily due to a 21.9% decline in our small car sales due to a delay in volume ramp up of our newly introduced Indica Vista and a 19.3% decline in our UV sales. We sold 38,371 units in our UV category in the Indian domestic market in fiscal 2009 compared to 47,531 units in fiscal 2008. Continuing encouraging response to our mid-size sedan the Indigo CS launched in the last quarter of fiscal 2008, saw our sales grow by 51.1%. During fiscal 2009, we sold 7,149 Fiat cars.
Our overall sales in international markets declined by 34.6% to 43,574 units in fiscal 2009 as compared to 66,650 units in fiscal 2008. Our exports of vehicles manufactured in India declined by 38.6% in fiscal 2009 to 33,536 units from 54,628 units in fiscal 2008, affected by slowdown in our prime markets.
TDCV volumes in fiscal 2009 declined by 21.9% to 9,137 units affected by a severe slowdown in domestic consumption, industrial production and lack of funds for vehicle financing and higher interest rates in South Korea. In addition, demand was also impacted due to advancement of purchase by customers in the previous year preceding the change in emission norms from Euro III to Euro IV effective January 1, 2008. Exports from South Korea, however have increased by 37.8% in fiscal 2009 to 4,280 units. TDCVs major export markets were Algeria, UAE, Libya and South Africa.
In an environment of severe credit crunch in the economy, our vehicle financing operations ensured sufficient availability of funding support. Our revenue from financing business increased by 14.8% to Rs.20,170 million in fiscal 2009 as compared to fiscal 2008.
Segment results before inter-segment eliminations from Tata vehicles/spares and financing thereof declined by 50.5% to Rs.17,121 million in fiscal 2009, compared to Rs.34,612 million in fiscal 2008. Our results were adversely impacted by steep significant volume decline, higher raw material costs and impact of fixed overheads. These negative effects were partly offset by vehicle price increases and various cost reduction initiatives undertaken-during the year.
Jaguar Land Rover Business
The severe global credit crisis, weakening economic environment and steep decline in consumer confidence, adversely impacted Jaguar Land Rovers sales volumes and more particularly in the developed markets such as the United States, the UK and Europe in fiscal 2009. Furthermore a decline in residual values, lack of finance availability and movement away from vehicles with large engine capacity due to high fuel prices, affected demand for premium cars and SUVs in the developed markets. Jaguar Land Rover business posted a 32% decline in sales volumes for the period June 2008 to March 2009, compared the corresponding period of the previous year. In response to the declining demand, Jaguar Land Rover worked to adjust production and stocks in line with the external environment. This caused wholesale sales volumes to be lower than retail volumes for the period. Revenues were Rs.390,889 million for the period June to March 2009.
For the period June 2008 to March 2009, Jaguar Land Rover reported a segment loss before inter segment eliminations of Rs.30,529 million, due to steep fall in volumes, increase in incentives in key markets to drive sales volume, higher raw material costs, lower absorption of fixed costs and volatility in foreign exchange rates. In addition to aligning of production with demand, Jaguar Land Rover is also working to reduce costs through headcount reduction, lowering of fixed marketing and selling costs and other overhead costs.
Other operations comprise primarily activities relating to production, designing and selling of construction equipment, engineering solutions and software operations. Our revenue from other operations before inter segment eliminations was Rs. 35,434 million in fiscal 2009, a decline of 4.5% from Rs. 37,099 million in fiscal 2008. This decline was mainly due to the sluggish demand experienced by our construction equipment subsidiary, Telcon, on account of the economic slowdown and lower infrastructural spending. Revenues from other
operations represent 4.9% and 9.9% of our total revenues, before inter-segment eliminations, in fiscal 2009 and 2008 respectively. Segment results before inter-segment eliminations was Rs. 2,902 million and Rs. 5,522 million before inter-segment eliminations in fiscal 2009 and 2008 respectively.
We have been pursuing a strategy of focusing on growth of revenues outside India. It has been achieved in the recent past through exports of Tata products in the international markets including through our acquisition of TDCV. Following our acquisition of the Jaguar Land Rover business, there has been a significant shift in our geographic revenue break-down.
The following table sets forth our revenue from our key geographical markets:
Significant Factors Influencing Our Results of Operations.
Our results of operations are dependent on a number of factors, which include mainly the following:
Results of operations
Fiscal 2009 was impacted by a severe economic crisis across the world. The sudden deterioration in the economic environment had a negative impact on consumer confidence. The impact was more pronounced in the United States, the UK and Europe, which significantly affected our volumes in fiscal 2009. The impact was less severe in India. The Indian GDP growth slowed to 6.7% in the year compared to 9% growth achieved in the prior year. The Indian markets also witnessed a steep increase in interest rates coupled with restricted funding by vehicle financiers, which negatively affected vehicle sales volumes.
The following table sets forth selected items from our consolidated statements of income for the periods indicated and shows these items as a percentage of total revenues:
The following table sets forth selected data regarding our automotive operations for the periods indicated and the percentage change from period to period.
The following table sets forth selected data regarding our other operations for the periods indicated and the percentage change from period to period.
Fiscal 2009 Compared to Fiscal 2008
Our total consolidated revenues (net of excise duty, where applicable) including finance revenues were Rs. 722,806 million in fiscal 2009, an increase of 95.2%, from Rs. 370,255 million in fiscal 2008. The entire increase in revenue is attributable to the Jaguar Land Rover business. Excluding Jaguar Land Rover there was a decrease of 10.4% in total revenue in fiscal 2009 compared to fiscal 2008.
The following is a discussion of our revenues for each of our business segments.
Revenues from Automotive Operations.
Automotive operations constitute the largest proportion of our total revenues. Revenues from automotive operations (before inter-segment elimination) increased by Rs. 354,738 million to Rs. 691,778 million, or 105.3%, from Rs. 337,040 million in fiscal 2008. While revenue from the Jaguar Land Rover business for the period from June 2, 2008 to March 31, 2009 was Rs. 390,889 million, Tata vehicles/spares revenue declined 10.7% to Rs. 300,889 million. This decrease in Tata vehicles/spares revenue was primarily due to:
which were partly offset by:
A steep decline in sales volume in many of the traditionally large developed markets significantly reduced the revenue of the Jaguar Land Rover business. While the success of the new Jaguar XF helped to provide some support, the deteriorating economic conditions caused volumes to decline by about 32%.
Revenues from Other Operations
Revenues (net of excise duty, where applicable) from other operations were Rs. 35,434 million in fiscal 2009, a decline of 4.5% from Rs. 37,099 million in fiscal 2008. This decline was mainly due to the sluggish demand experienced by our construction equipment subsidiary, TELCON, on account of the economic slowdown. However, TELCON continues to maintain its market leadership in the Indian excavator market and expanded its offering with new product introductions. With the integration of the INCAT business, TTL consolidated its position as one of the top solutions and software providers of leading engineering and PLM products in all major economic geographies. This business saw revenue growth of 12.1% in fiscal 2009 compared with fiscal 2008. Revenues from other operations represented 4.9% and 9.9% of our total revenues, before inter-segment eliminations, in fiscal 2009 and 2008 respectively.
Cost and Expenses
Raw Materials and Purchase of Products for Sale (including change in stock): Raw material costs as a percentage to sales was 67.6% in fiscal 2009 as compared to 66.8% in fiscal 2008. Raw material costs for fiscal 2009 were Rs. 488,733 million compared to Rs. 247,243 million in fiscal 2008. We consume a number of raw materials in the manufacture of vehicles such as steel, aluminum, copper, precious metals and resins. During fiscal 2009, the prices of steel, non ferrous and precious metals and rubber witnessed unprecedented increases, in a short period which could be only partially offset by our cost reduction initiatives.
Employee Cost: Our employee cost increased to Rs. 75,200 million in fiscal 2009 from Rs. 28,764 million in fiscal 2008. The increase is attributable to differences in salary/wage structure between India and UK/Europe. The increase in our employee cost as a percentage of total revenues (excluding other income) increased to 10.4% in fiscal 2009 from 7.8% in fiscal 2008, primarily on account of the level of salaries in the UK as expressed in rupees. Our permanent employee level increased from 36,364 persons to 49,473 persons in fiscal 2009. Several measures to lower the employee cost have been taken, such as block closures, reduction in temporary head count and voluntary retirement.
Other Expenses: Other expenses increased to Rs. 175,614 million in fiscal 2009 from Rs.57,921 million in fiscal 2008. As a percentage of revenue these represented 24.3% in fiscal 2009 compared to 15.6% in fiscal 2008. The major components of expenses are as follows:
The increase in works operation expenses was mainly due to the change in composition and differences in cost structure following our acquisition of Jaguar Land Rover. The increase in freight and transportation expenses is attributable to increases in freight rates. Impairment loss pertaining to finance receivables increased due to general increase in delays/defaults on account of changes in market conditions. The company has stepped up the monitoring process of the delinquent cases. Warranty expenses are significantly higher in our Jaguar Land Rover business because of a longer warranty period and higher cost of settlement. The increase in publicity related expenses was mainly due to the new product launches at Jaguar Land Rover and in our Indian operations. We have embarked upon initiatives to reduce our costs across all areas including raw material costs.
Expenditure capitalized: These represent employee costs, store and other manufacturing supplies and other works expenses incurred for in-house capital projects, mainly product development projects. The increase relates to increased spending on product development.
Depreciation and Amortization: Our depreciation and amortization cost increased to Rs.28,040 million in fiscal 2009, compared to Rs.8,276 million in fiscal 2008. The increase reflects significant increase in our asset base by way of expansion, product development and acquisition.
Other income: Our other income increased to Rs.15,700 million in fiscal 2009, compared to Rs.7,678 million in fiscal 2008. The increase is mainly due to gain on sale of held for sale investments of Rs. 6,058 million in fiscal 2009. It also includes gain due to change in fair value conversion option of Rs. 2,807 million for fiscal 2009 and Rs. 3,156 million for fiscal 2008.
Interest expense: We availed a bridge loan of US $ 3 billion for our acquisition of Jaguar Land Rover in fiscal 2009. We had plans to prepay the bridge loan from the proceeds of fresh issuance of capital, divestments and internal cash generation. Due to the sudden deterioration in the economic environment, affecting our cash flows, we had to borrow further to finance our capital expenditure plans and working capital requirements. In order to support our vehicle sales, we increased our vehicle financing to customers, which, in turn, required additional borrowings. As a result of the above, total borrowings increased from Rs. 220,348 million in fiscal 2008 to Rs. 435,815 million in fiscal 2009. Further, there was a significant increase in borrowing rates in fiscal 2009.
Foreign exchange (gain)/loss (net): We incurred a foreign exchange loss of Rs.48,143 million in fiscal 2009, compared to a gain of Rs.1,902 million in fiscal 2008. A significant portion of the exchange losses in the fiscal 2009 reflect (a) exchange loss on foreign currency borrowing; (b) notional exchange loss on year end valuation of foreign currency borrowings; and (c) the Jaguar Land Rover business and the Indian operations suffered foreign exchange losses on account of fluctuations in US Dollar, GBP, Euro and Rupee during the year.
Income Taxes: We had an income tax expense of Rs.842 million in fiscal 2009, compared to Rs. 9,470 million in fiscal 2008.
Minority Interest in Consolidated Subsidiaries and Share of profit of equity accounted investees, net of tax: In fiscal 2009 share of minority interest was a loss of Rs. 632 million, as compared to income of Rs. 1,226 million in fiscal 2008. This is due to a decrease in profitability of some of our subsidiaries and losses incurred in a few subsidiaries which started operations in fiscal 2008. Share of loss of equity method investees was Rs.3,464 million in fiscal 2009, compared to a profit of Rs.52 million in fiscal 2008. This change was primarily due to our proportionate share of loss in some of our affiliates, which are yet to scale operations, and also the impact of a slowdown in the automotive industry.
Our consolidated net loss for fiscal 2009 excluding the share of minority was Rs.60,142 million, compared to net income of Rs.21,977 million in fiscal 2008. This decline was the result of the following factors:
Recent Accounting Pronouncements
In September 2007, IASB issued revised IAS 1 Presentation of Financial Statements, which is applicable for annual periods beginning on or after January 1, 2009. This standard replaced IAS 1 revised in 2003. The revised standard aims to improve users ability to analyze and compare information given in the financial statements. The adoption of the revised standard will have no effect on reported results. It will, however, result in changes in the presentation of financial statements.
In January 2008, IASB issued revised IFRS 3 Business Combinations, which is applicable to business combinations for which the acquisition date is on or after the first annual reporting period beginning on or after July 1, 2009. This standard replaced IFRS 3 issued in 2004. The main changes are:
We are evaluating the impact of adoption of this Standard.
In January 2008, IASB amended IAS 27 Consolidated and Separate Financial Statements, which is applicable for annual periods beginning on or after July 1, 2009. The main changes are:
We are evaluating the impact of adoption of the amendments.
In November 2006, IASB issued IFRS 8 Operating Segments, which is applicable for annual periods beginning on or after January 1, 2009. This standard replaced IAS 14 Segment Reporting. This standard specifies how an entity should disclose information about its segments which enables users to evaluate the nature and financial effects of its business activities and the economic environments in which it operates. We are evaluating the application of this Standard.
IFRIC 13 Customer Loyalty Programs was issued in June 2007, which is applicable for annual periods beginning on or after July 1, 2008. IFRIC 13 addresses as to how companies that grant their customers loyalty award credits (often called points) when buying goods or services, should account for their obligation to provide free or discounted goods and services, if and when the customers redeem the points. IFRIC 13 requires companies to allocate some of the proceeds of the initial sale to the award credits and recognize these proceeds as revenue when they have fulfilled their obligations to provide goods or services. We are evaluating the application of this Interpretation.
IFRIC 16, Hedges of a Net Investment in a Foreign Operation, was issued in July, 2008, which is applicable for annual periods beginning on or after October 1, 2008. IFRIC 16 applies to an entity that hedges the foreign currency risk arising from its net investments in foreign operations and wishes to qualify for hedge accounting in accordance with IAS 39. The Company is evaluating the application of this Interpretation.
IAS 23 Borrowing Costs removes the option to expense borrowing costs and requires that an entity capitalize borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. The revised IAS 23 will become mandatory for our consolidated financial statements for the year ending March 31, 2010. Because we currently follow a policy of capitalizing borrowing costs, this new standard will not have any material impact on our consolidated financial statements.
In May 2008 and April 2009, the IASB issued Improvements to IFRS a collection of amendments to certain International Financial Reporting Standards as part of its program of annual improvements to its standards, which is intended to make necessary, but non-urgent, amendments to standards that will not be included as part of another major project. The amendments resulting from these improvements mainly have effective dates for annual periods beginning on or after January 1, 2009, although entities are permitted to adopt them earlier. The Company is evaluating the application of other improvements.
Exemptions to which we have availed in accordance with IFRS 1, First time adoption of IFRS
Exemptions from retrospective application
For transition to IFRS our previous GAAP is considered as Indian GAAP. Following are the optional exemptions which we have opted.
Exceptions from full retrospective application
Financial assets and liabilities derecognized before January 1, 2004 are not re-recognized under IFRS. The Company has chosen not to apply the IAS 39 derecognition criteria to an earlier date.
Upon an assessment of the estimates made under previous GAAP, the Company has concluded that there was no necessity to revise such estimates under IFRS, except where estimates were required by IFRS and not required by previous GAAP.
Critical Accounting Policies
The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income, expenses and disclosures of contingent assets and liabilities at the date of these financial statements and the reported amounts of revenues and expenses for the years presented. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and future periods affected. In particular, information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements is included in the following notes:
Property, plant and equipment
Property, plant and equipment are stated at cost of acquisition or construction less accumulated depreciation. Freehold land is measured at cost and is not depreciated. Cost includes purchase price, taxes and duties, labor cost and direct overheads for self constructed assets and other direct costs incurred up to the date the asset is ready for its intended use. Interest cost incurred for constructed assets is capitalized up to the date the asset is ready for its intended use, based on borrowings incurred specifically for financing the asset or the weighted average rate of all other borrowings, if no specific borrowings have been incurred for the asset.
Depreciation is provided on a straight-line basis over estimated useful lives of the assets. Depreciation on finance lease assets is recorded over the shorter of the estimated useful life of the asset or the period of the lease. Depreciation is not recorded on capital work-in-progress until construction and installation are complete and the asset is ready for its intended use.
Intangible assets purchased including acquired in business combinations, are measured at cost or fair value, where applicable, less accumulated amortization. Intangible assets with indefinite lives are reviewed annually to determine whether indefinite-life assessment continues to be supportable. If not, the change in the useful-life assessment from indefinite to finite is made on a prospective basis.
The amortization period for intangible assets with finite useful lives is reviewed at least at each year-end. Changes in expected useful lives are treated as changes in accounting estimates.
Internally generated intangible asset
Research costs are charged to the statement of operations in the year in which they are incurred.
Product development costs incurred on new vehicle platform, engines, transmission and new products are recognized as intangible assets, when feasibility has been established, the Company has committed technical, financial and other resources to complete the development and it is probable that asset will generate probable future and economic benefits.
The costs capitalized include the cost of materials, direct labor and directly attributable overhead expenditure incurred up to the date the asset is available for use. Interest cost incurred is capitalized up to the date the asset is ready for its intended use based on borrowings incurred specifically for financing the asset or the weighted average rate of all other borrowings if no specific borrowings have been incurred for the asset.
Product development cost is amortized over a period of 36 months to 120 months or on the basis of actual production to planned production volume over such period after commencement of the commercial production of the underlying product.
Capitalized development expenditure is measured at cost less accumulated amortization and accumulated impairment loss.
Impairment of property, plant and equipment and intangible assets
At each balance sheet date, the Company assesses whether there is any indication that any property, plant and equipment and intangible assets with finite lives may be impaired. If any such impairment exists the recoverable amount of an asset is estimated to determine the extent of impairment, if any. Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs.
Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually, or earlier there is an indication that the asset may be impaired.
Classification, initial recognition and measurement: A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial assets are classified into categories: financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables and available-for-sale financial assets. Financial liabilities are classified into financial liabilities at fair value through profit or loss and other financial liabilities.
Financial instruments are recognized on the balance sheet when the Company becomes a party to the contractual provisions of the instrument.
Initially, a financial instrument is recognized at its fair value. Transaction costs directly attributable to the acquisition or issue of financial instruments are recognized in determining the carrying amount, if it is not classified as at fair value through profit or loss. Subsequently, financial instruments are measured according to the category in which they are classified.
For discussion on various types of Financial Instruments refer to Note 2(t) to our consolidated financial statements included in this annual report.
Vehicle warranties are provided for a specified period of time. Our vehicle warranty obligations vary depending upon the type of the product, geographical location of its sale and other factors.
The estimated liability for vehicle warranties is recorded at the time products are sold. These estimates are established using historical information on the nature, frequency, and average cost of warranty claims and our estimates regarding possible future incidence based on actions on product failures.
Changes in warranty liability as a result of changes in estimated future warranty costs and any additional costs in excess of estimated costs, can materially affect our net income. Determination of warranty liability is based on the estimated frequency and amount of future claims, which are inherently uncertain. Our policy is to continuously monitor warranty liabilities to determine the adequacy of our estimate of such liabilities. Actual claims incurred in the future may differ from our original estimates, which may materially affect warranty expense.
Employee benefit costs and obligations are dependent on assumptions used in calculating such amounts. These assumptions include salary increase, discount rates, health care cost trend rates, benefits earned, interest cost, expected return on plan assets, mortality rates and other factors.
While we believe that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect our employee benefit costs and obligations.
B. Liquidity and Capital Resources
We finance our capital requirements by cash from operations, debt, capital market borrowings and sale of investments. As of March 31, 2009, our borrowings (including short term debt) were Rs.435,815 million. For our loan maturity profile, see Liabilities and Sources of Financing. We raised bridge financing of US $ 3 billion for financing the acquisition of Jaguar Land Rover in June 2008.
We raised equity of Rs. 41,393 million through rights issue of shares and divested certain investments to prepay part of the bridge loan. Upto March 31, 2009, US $ 984 million was prepaid. We further raised in May 2009, debentures of Rs. 42000 million with maturities ranging from 23 months to 83 months. The Company used the proceeds to repay a part of the bridge loan outstanding as of March 31, 2009. The balance of the bridge loan will be repaid in four tranches by December 2010.
During the fiscal 2009, there had been a sudden and significant deterioration in global economic conditions, which has affected the auto industry severely. In view of our current debt position and considering the current economic environment, our strategy includes ensuring that we have sufficient funding available with high degree of certainty throughout the business cycle. We have set up plans for aggressive cost reduction to improve generation of operating cash. We believe that our working capital is sufficient for our present requirements.
Cash Flow Data
The following table sets forth selected items from our consolidated statements of cash flows for the periods indicated and shows the percentage change between periods.
See consolidated statement of cash flows on Pages F-6 and F-7 for details.
Our cash flow statement for fiscal 2009 includes activities pertaining to acquired businesses of Jaguar Land Rover , Serviplem S.A and Comoplesa Lebrero S.A. from the respective dates of acquisition.
Net cash provided by operating activities was Rs. 25,194 million and Rs. 23,114 million in fiscal 2009 and 2008 respectively.
Our net income as adjusted for non-cash and other items declined to Rs. 32,902 million in fiscal 2009 from Rs. 54,715 million in fiscal 2008. Sudden and significant deterioration of the world economy, resulting in a significant decline in sales volumes, adversely affected our income and operating cash flows.
The following factors contributed to cash decrease on account of change in operating assets and liabilities of Rs 2,039 million in 2009.
The above decrease was partially offset by the following factors:
Net cash used in investing activities increased to Rs.162,380 million in fiscal 2009 from Rs. 87,362 million in fiscal 2008, mainly on account of our acquisition of Jaguar Land Rover and investments in property, plant and equipment as highlighted below.
Net cash inflow from financing activities was Rs. 155,437 million and Rs. 67,989 million in fiscal 2009 and 2008 respectively. Our acquisition of Jaguar Land Rover during fiscal 2009 and the impact on operating results due to economic downturn affected our financing. The following are the major changes in financing during fiscal 2009.
Certain of our subsidiaries and equity method affiliates have contractual and other limitations in respect of their ability to transfer funds to us in the form of cash dividends, loans or advances. However this has not had and is not expected to have any impact on our ability to meet our cash obligations.
Balance Sheet Data
Total assets were Rs.782,629 million and Rs. 474,136 million and as of March 31, 2009 and 2008, respectively. The increase in total assets during fiscal 2009 was primarily due to acquisitions which added Rs.373,682 million to our total assets in fiscal 2009 and also increase in property, plant and equipment of Rs.56,615 million and intangible assets of Rs.44,582 million on account of our ongoing capital expenditure programme. Total assets of Rs.373,682 million on acquisition includes Rs.103,982 million of property, plant and equipment and Rs.74,550 million of intangible assets.
Total shareholders equity was Rs.38,726 million and Rs. 124,316 million as of March 31, 2009 and 2008, respectively. In October 2008, we raised Rs.41,393 million through a simultaneous but unlinked rights issue of ordinary shares and a new group of A ordinary shares with differential voting rights. We issued 64,175,655 shares each of ordinary shares and A ordinary shares of face value Rs.10 in the ratio of one ordinary and/or one A ordinary share for every six ordinary shares at a premium of Rs.330 per share and Rs.295 per share respectively. Proceeds from the rights issue were used to prepay part of the bridge loan availed for the acquisition of Jaguar Land Rover.
In addition, 153,025 ordinary shares were allotted consequent to conversion of a portion of our outstanding convertible debt securities in fiscal 2009. Consequently, our ordinary share capital increased from Rs.3,855 million as of March 31, 2008 to Rs.4,499 million as of March 31, 2009 and A ordinary share capital stood at Rs.642 million as on March 31, 2009. Issuance of shares at the premium resulted in an increase in our additional paid in capital from Rs.38,258 million in fiscal 2008 to Rs.78,170 million in fiscal 2009.
Our reserves (including other components of equity) declined from Rs.75,851 million as of March 31, 2008 to a deficit of Rs.48,765 million as of March 31, 2009, primarily due to our net loss for fiscal 2009, foreign currency translation differences, actuarial losses in pension plans and decline in fair value of available for sale securities during the year.
Our total debt increased to Rs.435,815 million as of March 31, 2009 compared to Rs.220,348 million as of March 31, 2008. We acquired Jaguar Land Rover. Further, due to sudden and significant deterioration in the economic scenario, our operating results in fiscal 2009 were impacted and this has also affected our capital raising plans. As a result of combination of these factors the loans have considerably increased. The short term debt, including the current portion of the long-term debt, was Rs. 319,629 million as of March 31, 2009 compared to Rs.112,320 million as of March 31, 2008. Of the US$ 3 billion short term bridge loan taken for acquisition of Jaguar Land Rover US $ 2.016 billion (Rs. 102,291 million, including exchange fluctuation) is outstanding as at March 31, 2009. Increased working capital and other business requirements due to slowdown in our automotive demand caused an increase in short term borrowings. Excluding the current portion of long-term debt, the short-term debt was Rs.251,252 million as of March 31, 2009, compared to Rs.55,645 million as of March 31, 2008. Many of these incremental borrowings had to be contracted at higher levels of interest rates due to a near freeze in lending markets causing borrowing cost to spike during the year.
The long-term debt, excluding the current portion, increased from Rs.108,028 million as of March 31, 2008 to Rs. 116,186 million as of March 31, 2009. In December 2008, we launched public fixed deposit scheme in India (with maturities of 1,2 and 3 years) to meet a part of our funding requirements. The scheme has received an overwhelming response and we collected an aggregate amount of Rs.12,325 million from 1,44,000 depositors. During the year, we repurchased and cancelled US$ 17 million of our outstanding convertible debt securities due 2012 and ¥ 300 million of our outstanding convertible debt securities due 2011. In line with our short term borrowing rates, long term borrowing rates also increased in fiscal 2009. The long-term debt include Rs. 90,776 million as at March 31, 2009 and Rs. 91, 866 million as at March 31, 2008 by way of collateralized debt obligation representing finance receivables securitized which do not meet derecognition criteria as per IFRS. The outstanding foreign currency convertible note have increased from Rs. 37,504 million as at March 31, 2008 to Rs. 46,437 million as at March 31, 2009, mainly due to exchange fluctuations. The company continued its investment plan in expansion and product development.
Current liabilities other than short-term debt increased from Rs.106,581 million as of March 31, 2008 to Rs.262,530 million as of March 31, 2009, primarily due to liabilities assumed as part of the acquisitions. We assumed current liabilities of Rs. 217,039 million excluding short term debt.
As of March 31, 2009, we had cash and cash equivalents of Rs.22,827 million, compared to Rs.11,416 million as of March 31, 2008. The increase mainly relates to Jaguar Land Rover.
Finance receivables (net of allowances) were Rs.158,803 million as of March 31, 2009 compared to Rs. 163,960 million as of March 31, 2008.
As of March 31, 2009, inventories stood at Rs.107,956 million compared to Rs.34,337 million as of March 31, 2008, which included inventory on acquisition of Jaguar Land Rover business of Rs.98,404 million. Due to lower volumes and reduction actions, the inventory has been lowered in fiscal 2009.
Trade receivables increased from Rs. 30,041 million as of March 31, 2008 to Rs.51,697 million as of March 31, 2009. As part of acquisitions we acquired Rs.50,212 million of trade receivables. Our focus on improved collections to meet liquidity requirements helped us to reduce our accounts receivables towards the later part of the fiscal year.
Our investment (short term and long term investments) declined from Rs.40,659 million as of March 31, 2008 to Rs.9,265 million as of March 31, 2009. In fiscal 2009, we sold investments of Rs.9,595 million available for sale securities and Rs.9,673 million investment in mutual fund to repay bridge loan, meet our capital expenditure and other business requirements. A significant part of our investments are in available for sale equity shares whose fair value as on March 31, 2009 is Rs.5,502 million. Due to the significant fall in market prices in fiscal 2009 the value of available for sale equity shares declined by Rs. 10,798 million. Equity investments recognized at cost (due to lack of readily determinable market value), investment in mutual funds, corporate bonds and other debt, loans and receivables etc accounted for the balance amount. More than 90% of investments are non-current in nature.
Our investments in equity accounted investees was Rs.8,012 million as of March 31, 2009, compared to Rs.9,784 million as of March 31, 2008. Decline is primarily due to losses in some of our associates.
Our other current assets increased from Rs.11,072 million as of March 31, 2008 to Rs.27,714 million as March 31, 2009. The increase is attributable to the Jaguar Land Rover acquisition. Our current tax receivables increased from Rs.5,792 million as of March 31, 2008 to Rs.7,466 million as of March 31, 2009.
Our other financial assets including non-current financial assets increased from Rs.22,966 million as of March 31, 2008 to Rs.28,790 million as of March 31, 2009. A major portion of our other financial assets is margin money (Rs.19,037 million and Rs.15,999 as at March 31, 2009 and 2008 respectively) with banks in the nature of restricted cash, and consists of collateral provided in support of guarantees issued by banks towards securitization of finance receivables on the Companys behalf as may be required in the transaction of transfer of finance receivables.
Capital expenditure increased from Rs.51,386 million during fiscal 2008 to Rs.101,197 million in fiscal 2009. Our automotive operations accounted for majority of this capital expenditure. Within automotive segment capital expenditure in Tata vehicle business was Rs.52,577 million in fiscal 2009, compared to Rs.49,925 million in fiscal 2008. Our capital expenditures during the past two years related mostly to capacity expansion of our production facilities, the introduction of new products such as the Ace Magic, Winger, Sumo Grande, Indica Vista and development of planned future products and technologies as well as quality and reliability improvements aimed at operating cost reductions. During the fiscal 2009, we announced that the mother plant for the Nano will be relocated from Singur in West Bengal to Sanand in Gujarat. The integrated project, comprising the mother plant and the vendor park, will come up on an area of about 1100 acres. The plant, to begin with, will produce 250,000 cars per annum. The capacity is expandable up to 500,000 cars per annum.
Capital expenditure in the Jaguar Land Rover business amounted to Rs.46,090 million for the period post our acquisition mainly representing product development projects. Jaguar Land Rover continues to invest in new technologies through its research and development activities to develop products that meet the requirements of the premium segment including developing sustainable technologies to improve fuel economy and reduce CO2 emissions. Jaguar Land Rover has committed to comply with European emissions legislation and has announced an £800million program specifically aimed at reducing CO2 emissions which is supported by a carbon offset programme balancing emissions from the manufacture of all Land Rover vehicles as well as the first 45,000 miles of Land Rover customer vehicle use in the UK and other countries. The UK government has recently offered a grant of £27million to help enable the development.
We will continue to invest in our business units and research and development over the next several years, including committed capital expenditure for our ongoing projects, new projects, product development programs, mergers, acquisitions and strategic alliances to build and expand our presence in the passenger vehicle and commercial vehicle categories.
Liabilities and Sources of Financing
We fund our short-term working capital requirements with cash generated from operations, overdraft facilities with banks, short and medium term borrowings from lending institutions, banks and commercial paper. The maturities of these short and medium term borrowings and debentures are generally matched to particular cash flow requirements. We had short-term borrowings (including the current portion of long-term debt) of Rs. 319,629 million and Rs.112,320 million as of March 31, 2009 and 2008 respectively. We had unused short-term credit facilities of Rs.10,422 million and Rs.41,052 million as of March 31, 2009 and 2008, respectively.
On April 27, 2004, Tata Motors raised US$ 100 million by way of Zero Coupon Convertible Notes due for redemption on April 27, 2009. The noteholders have an option to convert these Notes into ordinary shares or ADSs determined at an initial conversion price of Rs. 573.106 per share with a fixed rate of exchange on conversion of Rs.43.85 per USD, from and including June 7, 2004 to and including March 28, 2009. The conversion price will be subject to certain adjustments. Further, Tata Motors has a right to redeem in whole, but not in part, these Notes at any time on or after April 27, 2005, subject to certain conditions. Unless previously converted, redeemed or purchased and cancelled, these Notes will be due for redemption on April 27, 2009, at 95.111% of the principal amount. 7,313,842 ordinary shares were allotted during the period April 27, 2004 to March 31, 2008, consequent to conversion of 95,590 Notes with carrying value of Rs. 5,792 million. During the year ended March 31, 2009, 153,025 ordinary shares were allotted consequent to conversion of 2,000 Notes with carrying value, net of Rs. 0.1 million being stamp duty expenses on conversion, of Rs. 100 million (US$ 1.7 million). Further, 2,410 Notes with carrying value of Rs. 148.6 million (US$ 2.9 million) outstanding as at March 31, 2009 have been redeemed on maturity.
On April 27, 2004, Tata Motors also raised US$ 300 million by way of one percent Convertible Notes due for redemption on April 27, 2011. The note holders have an option to convert these Notes into ordinary shares / ADSs determined at an initial conversion price of Rs. 780.40 per share at a fixed rate of conversion of Rs. 43.85 per USD, from and including June 7, 2004 to and including March 28, 2011. The conversion price of the notes was reset to a price of Rs.737.29 per share at a fixed rate of conversion of Rs. 43.85 per USD, on account of our Rights Issue in fiscal 2009. The conversion price will be subject to certain adjustments. In the event of certain changes affecting taxation, Tata Motors has an option to redeem in whole but not in part, these Notes at any time. Unless previously converted, redeemed or purchased and cancelled, these Notes will be due for redemption on April 27, 2011 at 121.781% of the principal amount. There have been no conversions during the year ended March 31, 2009. Outstanding notes may at the option of the Note holders be converted into 17,842,482 ADSs or shares at any time upto March 28, 2011.
In March 2006, Tata Motors issued Yen 11,760 million (Rs. 4,500.3 million) Zero Coupon Convertible Notes due for redemption on March 21, 2011. The noteholders have an option to convert these Notes into ordinary shares or ADSs determined at an initial conversion price of Rs.1,001.39 per share with a fixed rate of exchange on conversion of Rs.1.00 per Yen 2.66, from and including May 2, 2006 to and including February 19, 2011. The conversion price of the notes was subsequently reset to a price of Rs.946.07 per share at a fixed rate of conversion of Rs.1.00 per Yen 2.66, on account of our Rights Issue in fiscal 2009. The conversion price will be subject to certain adjustments. Further, Tata Motors has a right to redeem in whole, or in part, these Notes at any time on or after March 20, 2009 but prior to February 8, 2011, subject to certain conditions. In the event of certain changes affecting taxation, Tata Motors has an option to redeem in whole but not in part, these Notes at any time. Unless previously converted, redeemed or purchased and cancelled, these Notes will be due for redemption on March 21, 2011, at 99.253% of the principal amount. During the year, the company bought back and cancelled 30 notes (Principal value of JPY 300 million). There has been no conversion during the year ended March 31, 2009. Further 1146 outstanding notes may at the option of the Note holders be converted into 4,553,878 ADSs or shares at any time upto February 19, 2011.
In July 2007, Tata Motors has raised funds aggregating US$ 490 million (Rs. 19,927.1 million at issue) by issue of Zero Coupon Convertible Alternative Reference Securities (CARS) due on July 12, 2012. The noteholders have an option, subject to the terms and conditions of the issue, to convert these notes into Qualified Securities or the Companys newly issued ordinary shares or ADSs. The conversion may be made by the noteholders from and including October 11, 2011 to and including June 12, 2012 at an initial conversion price of Rs. 960.96 per Share (equivalent to US$23.67 at a fixed rate of exchange on conversion of Rs. 40.59 = US$1.00) that is subject to adjustment in certain circumstances. The conversion price of the notes was reset to a price of Rs.907.87 per share at a fixed rate of conversion of Rs. 40.59 per USD, on account of our Rights Issue in fiscal 2009. The Company has a right to redeem in whole, but not in part, these notes at any time on or after October 11, 2011, subject to certain conditions. Unless previously converted, redeemed or purchased and cancelled as per the terms of issue, these will be redeemed on July 12, 2012 at 131.82% of the outstanding principal amount. During the year, the company bought back and cancelled 170 notes (Principal value of US$ 17 million).
On June 2, 2008, we completed the acquisition of Jaguar Land Rover from Ford Motor Company for a purchase consideration of US$ 2.5 billion in an all cash transaction from Ford Motor Company, which contributed about US$600 million to the Jaguar Land Rover pension plans. The purchase consideration of US$ 2.5 billion paid by JaguarLandRover Limited was financed through a capital contribution of US$ 500 million and a short term bridge loan of US$ 3,000 million from a group of lenders including the Bank of
Tokyo-Mitsubishi UFJ Limited, Citigroup Global Markets Asia Limited, ING Bank N.V., Singapore Branch, J.P. Morgan Securities (Asia Pacific) Limited, Mizuho Corporate Bank Limited, Standard Chartered Bank, State Bank of India and BNP Paribas, Singapore Branch. As on March 31, 2009 US $ 2,016 million of bridge loan is outstanding.
In October 2008, we raised an aggregate of Rs.41,393.3 million through a simultaneous but unlinked rights issue of ordinary shares and A ordinary shares of 64,276,164 ordinary shares of Rs.10 each at a premium of Rs.330/- per share aggregating Rs.21,854 million in the ratio of one Ordinary Share for every six ordinary shares; and 64,276,164 A ordinary shares of Rs.10 each at a premium of Rs.295/- per A ordinary share aggregating Rs.19,604 million in the ratio of one A ordinary share for every six ordinary shares. Proceeds of rights issue were used to prepay part of bridge loan availed by us for the acquisition of Jaguar Land Rover business.
Subsequent to March 31, 2009, in May 2009 we raised funds through secured non-convertible credit enhanced rupee debentures in four tranches, having tenors up to 7 years, aggregating Rs.42,000 million on a private placement basis. Proceeds were used to repay part of the short term bridge loan availed for acquisition of Jaguar Land Rover.
The following table sets forth our short-term and long-term debt position:
During fiscal 2009 and 2008, the effective weighted average interest rate on our long-term debt was 9.4% and 8.4% per annum, respectively.
As of March 31, 2009, approximately 68.7% of our long-term debt (including current portion) was denominated in rupees and the balance was denominated in dollars and other non-rupee currencies. During fiscal 2009, our effective cost of borrowing increased due to increase in interest rates in India and severe global credit crunch during the fiscal year.
The following table sets forth a summary of the maturity profile for our outstanding long-term debt obligations as of March 31, 2009
Some of the long-term debt agreements contain financial covenants that require us to satisfy and/or maintain financial ratios and other specified conditions on a non-consolidated basis under Indian GAAP, including debt service coverage ratio, long term debt to equity ratio, minimum net worth and external liabilities to net worth ratio level of capital expenditure, dividend payout and maintaining non-performing assets of less than 3% of finance receivables. The terms of certain of our long-term debt agreements require us to obtain prior consent for certain specified actions including amendment of our charter documents and for creation of any lien on our properties other than for specified purposes.
As a result of our increase in our long-term debt during fiscal 2009 as compared to fiscal 2008, the ratio of net debt to shareholders equity (total debt less cash and cash equivalents and liquid marketable securities divided by total shareholders equity) under IFRS increased from 1.68 as of March 31, 2008 to 10.64 as of March 31, 2009. Details of the calculation of this ratio are set forth in Exhibit 7.1 to this annual report.
On an ongoing basis, our legal department reviews pending cases, claims by third parties against us and other contingencies. For the purposes of financial reporting, we periodically classify these matters into gain contingencies and loss contingencies. Gain contingencies are not recognized until the contingency has been resolved and amounts are received or receivable. For loss contingencies that are considered probable, an estimated loss is recorded as an accrual in our accounts and, if the matter is material, the estimated loss is disclosed in our financial statements. We do not consider any of these matters to be individually sufficiently material to warrant disclosure in our financial statements. Loss contingencies that are considered reasonably possible are not provided for in our financial statements, but if we consider such contingencies to be material, individually or in the aggregate, they are disclosed in our financial statements. Most loss contingencies are classified as reasonably possible unless clearly frivolous, in which case they are classified as remote and are monitored by our legal department on an ongoing basis for possible deterioration. We do not disclose remote matters in our financial statements. See note 38 of our audited consolidated financial statements for additional information regarding our material claims and contingencies.
Since fiscal 1997, we have benefited from participation in the Export Promotion Capital Goods Scheme, or the EPCG Scheme, which permits us to import capital equipment under a special license at a substantially reduced customs duty, subject to us fulfilling an obligation to export goods manufactured or produced by the use of capital equipment imported under the EPCG Scheme to the value of a multiple of the cost insurance and freight value of these imports or customs duty saved, over a period of 8 or 12 years from the date of obtaining the special license. We currently hold 57 licenses that require us to export our products of a value of approximately Rs.105 million between 2002 and 2017 and we carefully monitor our progress in meeting our incremental milestones. After fulfilling some of the export obligations, the remaining obligation to exports products of value is Rs.17 million by March 2017. In the event that the export obligation under the EPCG Scheme is not fulfilled, we would have to pay the differential between the reduced and normal duty on the goods imported along with interest. In view of our past record of exceeding our export milestones, and our current plans with respect to our export markets, we do not currently foresee any impediments to meeting our export obligations in the required time frame.
In fiscal 2009 and fiscal 2008, 31% and 34%, respectively, of our sales volumes were financed under loan contracts to our dealers customers. As of March 31, 2009 and 2008, our customer finance receivable portfolio was comprised 588,055 and 528,307 contracts, respectively, with gross finance receivable of approximately Rs.195,445 million, and Rs.196,640 million respectively. We follow specified internal procedures including quantitative guidelines for selection of our finance customers to assist in managing default and repayment risk in our portfolio. We originate all the contracts through our authorized dealers and direct marketing agents with whom we have agreements. All our marketing, sales and collection activities are undertaken through dealers or directly by us including our division known as Tata Motor finance and our subsidiary company Tata Motors Finance Limited.
We securitize or sell most of our finance receivables in the normal course of business. We undertake a sale of the receivables in respect of finance agreements due from pools of purchasers. The constitution of these pools is based on criteria that are decided by credit rating agencies and/or based on the advice that we receive as to the marketability of a pool. We undertake these securitizations of our receivables in either or both of the following forms:
We act as collection agent on behalf of the investors, representatives, special purpose vehicles or banks in whose favor the receivables have been assigned, for the purpose of collecting receivables from the purchasers on the terms and conditions contained in the applicable deeds of securitization in respect of which pass-through certificates are issued to investors in case of special purpose vehicles, or SPVs. We also secure the payments to be made by the purchasers of amounts constituting the receivables under the hire-purchase/loan agreements to the extent specified by rating agencies by any one or all of the following methods:
The following table sets forth details of the transfer of finance receivables undertaken by us as of the periods indicated:
See Note 40(c) of our audited consolidated financial statements for accounting of finance receivables.
New Product Launches
In April 2009, Jaguar Land Rover revealed the 2010 model year Range Rover, Range Rover Sport and Discovery 4 models which feature a range of powertrain changes together with exterior and interior modification. The new models are intended to go on sale in the second half of 2009 starting with the Range Rover in July 2009, with Discovery 4 and Range Rover Sport in September 2009.
In May 2009, we unveiled a new range of trucks, that we believe match the best in the world in performance at a lower life-cycle cost, termed as Prima, to be gradually introduced in South Korea, South Africa, the SAARC countries and the Middle East.
In May 2009, Jaguar Land Rover introduced the Freelander 2 TD4_e, with intelligent stop-start and effects a 7% improvement in CO2 emissions and giving up to a 20% improvement in fuel economy in real world test. The new Freelander 2 TD4_e is Land Rovers most fuel efficient to date featuring a new intelligent Stop/Start system, it is the first production vehicle to incorporate technologies from the companys programme of sustainable engineering initiatives, collectively named e TERRAIN TECHNOLOGIES.
Refinancing of Bridge Loan
In May 2009, we raised Rs. 42,000 million through issue of secured non-convertible rupee debentures. The debentures, issued in four tranches with maturities ranging from 23 to 83 months, carry a coupon of 2% and will be redeemed at varying premia on maturity. Proceeds of the debenture issue were used to prepay part of the bridge loan raised to finance Jaguar Land Rover acquisition. We also amended our original acquisition finance facility of US$3 billion via the amendment and restatement of acquisition facility arrangement of US$1 billion to be repaid in four tranches by December 2010. The facilities carry certain covenants in terms of certain financial ratios and minimum earnings levels as per Indian GAAP and limitations on capital expenditure and dividends.
We along with Jaguar Land Rover have been in discussions with commercial banks for Jaguar Land Rover funding facilities, Tata Motors and Jaguar Land Rover also expect that the long term loan from the European Investment Bank (EIB) of GBP 340 million, sanctioned to Jaguar Land Rover, can also be successfully secured through appropriate commercial arrangements. With the positive trend in the external environment in financial markets and improvement in general liquidity, these arrangements have been and are expected to be concluded without necessitating guarantees from the UK Government, for which discussions had been ongoing for some time.
Working Capital Lines
In August 2009, we increased our short term working capital limits from Rs.8,000 crores to Rs.12,000 crores from a consortium of 25 bankers. These limits are in the form of fund based and non fund based limits and as a market practice in India are uncommitted short tem lines which are renewed every year.
Board of Directors
Mr Ravi Kant superannuated as Managing Director on June 1, 2009 as per our Retirement Policy and the terms of his appointment. He has been appointed as the Non-Executive Vice-Chairman on the Board of Directors of the Company with effect from June 2, 2009. Mr P M Telang, Executive Director (Commercial Vehicles Business Unit) was appointed as the Managing Director-India Operations with effect from June 2, 2009.
C. Research and Development, Patents and Licenses, etc.
Please see Item 4.B of this annual report for the information required by this item.
D. Trend Information.
Please see Item 5.A of this annual report for the information required by this item.
E. Off-balance Sheet Arrangements
We have provided guarantees aggregating Rs 8,565.3 million as of March 31, 2009 to banks and others in respect of loans/credit facilities availed by our joint venture.
Tabular Disclosure of Contractual Obligations
Board of Directors.
Under our Articles of Association, the number of our Directors cannot be less than three nor more than fifteen. At present, there are twelve Directors, including a nominee Director of Tata Steel Limited, or Tata Steel. Our Board of Directors, or the Board, has the power to appoint Managing Directors and Executive Directors.
Our Articles of Association provide that the Board of Directors of Tata Steel, which, with its subsidiary, owns, as of March 31, 2009, 8.62% of our Ordinary shares and 8.63% of A Ordinary shares, has the right to nominate one Director (the Steel Director) to the Board. Dr. J.J. Irani is the current nominee Director of Tata Steel.
In addition, our Articles of Association provide that (a) our debenture holders have the right to nominate one Director (the Debenture Director) if the trust deeds relating to outstanding debentures require the holders to nominate a Director; and (b) Financial Institutions in India, have the right to nominate two Directors, (the Financial Institutions Director) to the Board pursuant to the terms of loan agreements. Currently, there is no Debenture Director or Financial Institutions Director on the Board.
The Directors may be appointed by the Board or by a General Meeting of the shareholders. The Board may appoint any person as an additional Director, but such a Director must retire at the next Annual General Meeting unless re-elected by the shareholders after complying with the provisions of the Companies Act. A casual vacancy caused on the Board due to death or resignation of a sitting member can be filled by the Board; but such a person can remain in office only for the unexpired term of the person in whose place he was appointed. On the expiry of the term, he will retire unless re-elected by the shareholders. The Board may appoint an Alternate Director in accordance with the provisions of the Companies Act to act for a Director during his absence, which period of absence shall not be less than three months.
Under the Companies Act, 1956 at least two-thirds of the total numbers of Directors on the Board are subject to retirement by rotation, and of these Directors, one third must retire every year. The Directors to retire are those who have been the longest in office. Our Directors are not required to hold any of our shares by way of qualification shares.
As of March 31, 2009, our Directors and Executive Officers, in their sole and joint names, beneficially held an aggregate of 2,00,391 Ordinary shares (approximately 0.04% of our issued share capital) and 24,212 A Ordinary shares (approximately 0.03% of our issued share capital). In addition, some of our Directors hold as trustees for various non-affiliated trusts, an aggregate of 354,976 shares (representing approximately 0.09% of our issued share capital).
The following table provides information about our current Directors, Executive Officers and Chief Financial Officer as at June 30, 2009:
Set forth below is a short biography of each of our Directors, Executive Officers and Chief Financial Officer:
Mr Ratan N Tata (Chairman), Mr Tata holds a B.Sc. (Architecture) degree with structural engineering from Cornell University, USA and has completed the Advanced Management Program at Harvard Business School, USA. He joined the Tata Group in 1962. As Chairman of Tata Industries Limited since 1981, he was responsible for transforming the company into a Group strategy think-tank and a promoter of new ventures in high technology businesses. In 1991, Mr Tata was appointed Chairman of Tata Sons Limited, the holding company of the Tata Entities and currently holds the chairmanships of major Tata companies. During his tenure, the Groups revenues have grown over ten-fold to annualized Group revenues of $70.8 billion
Mr Tata is on the Central Board of the Reserve Bank of India, a Member of the Prime Ministers Council on Trade and Industry besides being a member of various global councils. He is also the chairman of two of the largest private sector promoted philanthropic trusts in India. Mr Tata is associated with various organizations in India and abroad.
The Government of India honored Mr Tata with its second highest civilian award, the Padma Vibhushan, in 2008. Mr Tata was conferred with NDTV Automotive Man of the Year 2008 award. He has also been conferred an honorary doctorate in business administration by the Ohio State University, an honorary doctorate in technology by the Asian Institute of Technology, Bangkok, an honorary doctorate in science by the University of Warwick, and an honorary fellowship by the London School of Economics. Mr Tata has been on the Companys Board since August 14, 1981 including 14 years in an executive capacity and is actively involved with product development and other business strategies pursued by the Company. One of his achievements include designing and developing an indigenous Indian car - Indica which besides creating a record of sorts, is one of the leading products in its category in the car market. The Nano-the fuel efficient, low-cost, eco-friendly peoples car envisioned by Mr Tata was commercially launched in March 2009 and deliveries have commenced in July 2009. The Company was also awarded the Wall Street Journal Technology Innovation Award for the Tata Nano, in the transportation sector.
Mr. Ravi Kant (Vice-Chairman): Mr. Ravi Kant holds a Bachelor of Technology degree from the Indian Institute of Technology, Kharagpur and a Masters in Science from the University of Aston, Birmingham, UK. Mr. Kant has wide and varied experience in the manufacturing and marketing field, particularly in the automobile industry. Prior to joining the Company, he was with Philips India Limited as director of Consumers Electronics business and prior to which with LML Limited as senior executive director (marketing) and Titan Watches Limited as vice president (sales & marketing). Mr. Kant was also employed with Kinetic Engineering Limited and Hawkins Cookers Limited. Mr. Kant has been with the Company since July 2000 as the executive director (commercial vehicle business unit) responsible for manufacturing & marketing of the Commercial Vehicle Business Unit and was appointed as the Managing Director on July 29, 2005. Mr Kant superannuated on June 1, 2009 as per the Companys Retirement Policy and the terms of his appointment. Taking into consideration, the contribution made by Mr Kant during his tenure and the critical phase through which the Company was passing, the Board decided to continue availing the benefit of Mr Kants counsel and have appointed him as the Non-Executive Vice-Chairman on the Board of Directors of the Company with effect from June 2, 2009.
Mr. N A Soonawala: Mr. N A Soonawala is a commerce graduate from the University of Bombay and a Chartered Accountant from the Institute of Chartered Accountants of India. He has wide exposure in the field of Finance, having worked with ICICI, the World Bank and the International Finance Corporation, Washington. He joined Tata Sons Limited in 1968 and is a director of various Tata Companies and committees. Mr. Soonawala has been on the Board of the Company since May 1989.
Dr. J J Irani: Dr. Jamshed Irani obtained a B.Sc. degree from Science College, Nagpur in 1956 with a Gold Medal in Geology and a M.Sc. (Geology) degree from the Nagpur University in 1958, both with first class. He also obtained M.Met. and Ph.D. degrees from the University of Sheffield, UK, in 1960 and 1963 respectively, with a Gold Medal for the Ph.D. Thesis. In 1993, the University of Sheffield conferred upon him the honorary degree of Doctor of Metallurgy. In 1996, the Royal Academy of Engineering, London elected him as a foreign member and he is amongst the five Indians who have been bestowed with this honour. Dr. Irani was conferred honorary knighthood in 1997 by the Queen of England for his contribution towards strengthening the Indo-British Partnership. He is also on the boards of various Tata Companies and has been on the Companys Board as a Tata Steel Nominee since June 1993.
Mr. R Gopalakrishnan: Mr. Gopalakrishnan holds a Bachelors degree in Science and a B.Tech (Electronics) degree from the IIT, Kharagpur. He is also an executive director of Tata Sons Limited and a member of the group executive office of Tata Sons Limited, besides being on the Boards of various Tata Companies. Prior to joining the Tata Group in August 1998, Mr. Gopalakrishnan was the vice chairman of Hindustan Lever Limited. Mr. Gopalakrishnan has been a non-executive Director on the Board of the Company since December 22, 1998.
Mr. Nusli N Wadia: Educated in the UK, Mr. Wadia is the chairman of Bombay Dyeing & Manufacturing Company Limited and heads the Wadia Group. He is also the chairman/trustee of various charitable institutions and non-profit organizations. Mr. Wadia has been on the Companys Board since December 22, 1998.
Mr. S M Palia: Mr S M Palia, a B.Com., LLB., CAIIB and AIB (London) is a Development Banker by profession. He was with IDBI from 1964-1989 during which period he held various responsible positions including that of an executive director. He has also acted as an advisor to Industrial Bank of Yeman, Saana (North Yeman) and Industrial Bank of Sudan, Khartoum (Sudan) under World Bank Assistance programmes. He was also the managing director of Kerala Industrial and Technical Consultancy Organisation Limited, set up to provide consultancy services to micro enterprises and small and medium enterprises. Mr. Palia is on the Boards of various companies in the industrial and financial service sectors and is also actively involved as a trustee in various NGOs and Trusts. He was appointed as a Director of the Company on May 19, 2006.
Dr. R A Mashelkar: Dr. Mashelkar is an eminent chemical engineering scientist and has recently retired from the post of director general from the Council of Scientific & Industrial Research. Dr. Mashelkar is the President of Indian National Science Academy, National Innovation Foundation, Institution of Chemical Engineers, UK and Global Research Alliance, a network of 60,000 scientists from five continents and has been honoured with honorary doctorates from 26 universities, including Universities of London, Salford, Pretoria, Wisconsin and Delhi. Dr. Mashelkar has also been elected as Fellow/Associate of Royal Society, London, National Academy of Science, USA, US National Academy of Engineering, Royal Academy of Engineering, U.K. and World Academy of Art & Science, USA. Dr. Mashelkar has won over 50 awards and medals at national and international levels, including the JRD Tata Corporate Leadership Award and the Stars of Asia Award (2005). Dr. Mashelkar through leadership of various organizations/ Government Committees has propagated innovation and intellectual property rights and Indias science and technology policies. He is a Padmashri (1991) and Padmabhushan (2000) winner. He was appointed as a Director of the Company on August 28, 2007.
Mr. Nasser Munjee: Mr. Munjee holds a Bachelors degree and a Masters degree from the London School of Economics, UK. His journey in financial sector began with HDFC where he served for over 20 years at various positions including as its executive director. He was the managing director of Infrastructure Development Finance Company Limited till March 2004. Presently he is the chairman of Development Credit Bank since June 2005 and is also on the board of directors of various multinational companies and trusts. Mr. Munjee is a technical advisor on the World Bank-Public Private Partnership Infrastructure and Advisory Fund. He is also associated with several public and private institutions as chairman and member of the board or trustee. He was appointed as a Director of the Company on July 25, 2008.
Mr. Subodh Bhargava: Mr. Subodh Bhargava holds a degree in Mechanical Engineering from the University of Roorkee and retired from Eicher Group of Companies as group chairman and chief executive in March 2000. He was the past president of the confederation of Indian Industry and the Association of Indian Automobile Manufacturers and the vice president of the Tractor Manufacturers Association. He was also a member of the Insurance Tariff Advisory Committee, the Economic Development Board of the government of Rajasthan. He has held various prominent positions on various Chambers/Associations in the field of research in engineering and technology and technical and management education and is currently associated as a director of several Indian corporates, including Tata Communications Limited and Tata Steel Limited. He was appointed as a Director of the Company on July 25, 2008.
Mr V K Jairath: Mr V K Jairath holds Bachelor of Arts Degree in Public Administration and Bachelor of Laws Degree, both, from the Punjab University, Masters in Economics from the University of Manchester, U K and joined Indian Administrative Service in 1982.Mr Jairath has over 25 years of experience in public administration, rural development, poverty alleviation, infrastructure, finance, industry, urban development, environmental Management and a touch of the private sector occupying various important positions in the Government of India and the State Government of Maharashtra. He has held various positions as the Managing Director of SICOM, Secretary to the Governor of Maharashtra, Municipal Commissioner of Kolhapur, Collector of Wardha, besides being an Independent Director on the Boards of Public Sector Companies and Banks. He is currently on the Boards of Maharashtra Airport Development Company and Avantha Power and Infrastructure Limited. He was appointed as a Director of the Company w.e.f. March 31, 2009.
Mr. P M Telang: Mr. Prakash Telang holds a Bachelors Degree in Mechanical Engineering and a MBA from IIM, Ahmedabad. Mr. Telang has over three decades of functional expertise in the automotive industry and machinery manufacturing. After spending the first three years of his career with M/s Larsen & Toubro, he joined the Tata Group through the Tata administrative service cadre. He is responsible for product development, manufacturing, sales and marketing functions of the strategic business unit of light & small commercial vehicles. Mr. Telang had been appointed as Executive Director (Commercial Vehicles) of the Company on May 18, 2007 and now has been appointed as the Managing Director India Operations with effect from June 2, 2009.
Mr. C. Ramakrishnan (Chief Financial Officer). Mr. C. Ramakrishnan, aged 52 years, joined Tata Motors Limited in 1980. He handled corporate treasury and accounting functions as well as management accounting. After a two- year company-wide IT project responsibility covering R&D, manufacturing, sourcing and sales & service, he had worked in the Chairmans Office. Mr. Ramakrishnan holds a B.Com. degree and is a qualified Chartered Accountant and Cost Accountant. Mr. Ramakrishnan was appointed as the Chief Financial Officer of Tata Motors with effect from September 18, 2007.
There is no family relationship between any of our Directors, Executive officers or Chief Financial Officer.
The following table provides the annual compensation paid to our Directors and Executive Officers for fiscal 2009.
Apart from the above, the Managing Director is also eligible to receive special retirement benefits at the discretion of the Board on their retirement, which include housing, monthly pension and medical benefits. Mr. Ravi Kant our non-executive Vice Chairman retired as Managing Director w.e.f June 1, 2009 and is paid retiring benefits as per the Companys policy.
Our Managing Director is entitled to six months salary as severance fees upon termination of their contracts by us.
C. Board Practices.
The Board size of twelve directors is commensurate with our size and in line with the industry. The Board consists of executive, non-executive and independent directors. Appointments of new directors are considered by the full Board and our shareholders at each years Annual General Meeting.
The roles of the Chairman and the Chief Executive Officer are distinct and separate with appropriate powers being delegated to the Managing Director to perform the day to day activities of the Company.
The Board, along with its Committees, provides leadership and guidance to our management, in particular with respect to corporate governance, business strategies and growth plans, the identification of risks and their mitigation strategies, entry into new businesses, product launches, demand fulfillment and capital expenditure requirements, and the review of our plans and targets.
The Board has delegated powers to the Committees of the Board through written/stated terms of reference and oversees the functioning operations of the Committees through various circulars/minutes circulated to it. The Board also undertakes our subsidiaries oversight functions through review of their performance against their set targets, advises them on growth plans and, where necessary, gives strategic guidelines.
The Audit Committee comprises the following three independent directors: Mr. V. R. Mehta, Chairman (up to January 2009), Mr. S. M. Palia, Dr. R. A. Mashelkar and Mr. N Munjee, Chairman (with effect from March 26, 2009). The scope of the Audit Committee includes:
The Committee has also adopted policies for the approval of services to be rendered by our independent statutory auditor, based on a procedure for ensuring such auditors independence and objectivity, as well as for the oversight of audit work for streamlining the audit process across our subsidiaries.
The Remuneration Committee is empowered to review the remuneration of whole-time directors, retirement benefits to be paid to them and dealing with matters pertaining to Employees Stock Option Scheme.
We have not issued any stock options to our directors/employees. The Remuneration Committee comprises two independent and two non-executive directors, namely N.N. Wadia, Chairman, V.R. Mehta (part of the year), Ratan N. Tata, N.A. Soonawala and S.Bhargava (part of the year).
The Investor Grievance Committee oversees the redressing of investors complaints pertaining to securities transfers, interest/dividend payments, non-receipt of annual reports, issue of duplicate certificates and other miscellaneous complaints. Its scope also includes delegation of powers to the executives of the Company or the share transfer agents to process share transfers and other investor-related matters. The Investor Grievance Committee comprises R. Gopalakrishnan, S. M. Palia and Ravi Kant.
The Executive Committee of the Board is comprises Ratan N. Tata, Chairman, Ravi Kant, Vice Chairman Non Executive Director, N. A. Soonawala, J. J. Irani, R. Gopalakrishnan, N. N. Wadia, Directors, PM Telang Managing Director-India Operations. This Committee came into effect from July 25, 2006, upon the dissolution of the Finance Committee and the Committee of the Board. The Committee reviews revenue and capital expenditure budgets, long-term business strategy, the organizational structure, raising of finance, property related issues, review and sale of investments and the allotment of securities within established limits.
The Ethics and Compliance Committee sets forth policies relating to the implementation of the Tata Code of Conduct for Prevention of Insider Trading, and takes on record the monthly reports and dealings in securities by the Specified Persons. It also implements appropriate actions in respect of violations of the Tata Code of Conduct. The Ethics and Compliance Committee comprises S.M. Palia, Chairman and R. Gopalakrishnan. Mr. C. Ramakrishnan, our Chief Financial Officer, is the Compliance Officer under the said Code.
The Nominations Committee was constituted with the objective of identifying independent directors to be inducted on the Board from time to time to refresh its constitution. The Nominations Committee comprised N. N. Wadia, Chairman, Ratan N. Tata, N. A. Soonawala and S. M. Palia.
Apart from the Committees described above, the Board of Directors also constitutes committee(s) of directors with specific terms of reference as it may deem fit.
We consider our human capital as a critical factor to our success. Under the aegis of Tata Sons and the Tata Sons promoted entities, we have drawn up a comprehensive human resource strategy that addresses key aspects of human resource development such as:
In line with the Human Resource strategy, we, in turn, have recently implemented various initiatives in order to build better organizational capability that we believe will enable us to sustain competitiveness in the global market place. Our human resources focus is to attract talent, retain the better and advance the best.
Some of the initiatives to meet this objective include:
Other initiatives include:
Extensive brand building initiatives at university campuses to increase recruiting from premium universities
Introduction of an employee self service portal and employee help desk for the benefit of employees.
We employed approximately 36,364 and 49,473 (includes Jaguar Land Rover) permanent employees as of March 31, 2008 and 2009 respectively. The average number of temporary employees for the fiscal year ended March 31, 2009, was approximately 16,693.
The following table set forth a breakdown of persons employed by our business segments and by geographic location as of March 31, 2009.
Training and Development
We are committed to building the competences of our employees and improving their performance through training and development. Our focus is on identifying gaps in our employees competencies and preparing employees for changes in competitive environments, as well as to meet organizational challenges.
Some of the focus areas in training in the last year centered on leadership, innovation management and internationalization besides other training programmes to drive a change in our employees outlook as we continue to develop as a global competitor. Developmental initiatives for our senior leadership were undertaken through international programs at various premier institutions around the world. The entire senior leadership was also taken through cultural sensitivity programme conducted by world renowned faculty. Certain employees have also been selected for the Fulbright fellowships for leadership in management. In addition, in order to emphasize the sharing of skills across our locations and functions extensive technical training programs were organized in Pune, Jamshedpur and Lucknow. The technical exposure was enhanced further through international training and participation at international seminars.
At Jamshedpur, Pune and Lucknow in India, we have also established training divisions that impart basic skills in various trades like milling, grinding and welding to our young apprentices. We received the National Best Training Establishment award from the Government of India for the eighth time.
Union Wage Settlements
All our regular employees in India, other than management, are members of labor unions. We have generally enjoyed cordial relations with our employees at our factories and offices.
Employee wages are paid in accordance with wage agreements that have varying terms (typically three years) at different locations. The expiration dates of the wage agreements with respect to various locations are as follows:
A cordial industrial relations environment prevailed in all our manufacturing units.
The performance rating system, introduced for the first time, for the bargainable category in Mumbai and PCBU, has completed two full cycles and the feedback of the process received from all the quarters has been encouraging. Return-ability in wage settlements was built in by introducing quality linked payments based on a quality index as perceived by the customer.
Operatives support in the outsourcing low value added activities and in the implementation of other reforms that impact quality, cost cutting and productivity improvements across all locations.
E. Share Ownership.
The information required by this item is set forth in Item 6.A of this annual report.
A. Major Shareholders
We are a widely held, listed company with approximately 389,541 shareholders for Ordinary Shares and 7673 shareholders for A Ordinary Shares of record. To our knowledge, as of June 30, 2009, the following persons beneficially owned 1% or more of 449,832,659 Ordinary Shares and 64,175,655 outstanding at that time:
From March 31, 2006 to March 31, 2009, the holdings of our largest shareholder, Tata Sons Limited (together with its subsidiaries), have increased from 22.11% to 36.10%, in view of them subscribing to the Rights Issue 2008 including any subscribed portion thereto. Tata Steel Ltd. (together with its subsidiaries) has substantially increased its shareholdings by subscribing to its rights entitlement in the Rights Issue 2008, but its percentage shareholding has decreased marginally from 8.68% as of March 31, 2006 to 8.62% as of March 31, 2009. Daimler Chrysler AG has kept its shareholdings steady, but its percentage shareholding has declined from 6.69% to 4.98%. Citibank N.A. as depositary for our ADRs, has increased its shareholding from 8.02% to 11.46% because of the ADR holders utlising the headroom available under the two-way fungibility of Depositary Receipts and Ordinary Shares. Life Insurance Corporation of India Ltd. has increased its shareholding and has seen its shareholding percentage increase from 5.30% to 8.98%.
According to our register of shareholders and register of beneficial shareholders, as of July 24, 2009, there were 78 record holders of our shares with addresses in the United States, whose shareholdings represented approximately 0.03% of our outstanding Ordinary Shares on that date, excluding any of our shares held by United States residents in the form of depositary shares. Because some of these shares were held by brokers or other nominees, the number of record holders with addresses in the United States may be fewer than the number of beneficial owners in the United States.
The total permitted holding of Foreign Institutional Investors, or FIIs, in our paid up share capital has been increased to 35% by a resolution passed by our shareholders on January 22, 2004. The holding of FIIs in us as of June 30, 2009, was approximately 7.62%. See Item 10.D Exchange Controls for further details.
None of our shares of common stock entitles the holder to any preferential voting rights.
Under the Takeover Regulations of India, any person who acquires more than 5%, 10% , 14%, 54% or 74% of our shares or who is entitled to exercise voting rights with respect to more than 5%, 10%, 14%, 54% or 74% of our shares must file a report concerning the shareholding or the voting rights with us and the stock exchanges on which our ordinary shares are traded. Please see Item 9.A The Offer and Listing Markets for information with respect to these stock exchanges. Similar disclosures would be applicable under the Insider Trading Regulations of India with respect to any person who acquires more than 5% of our shares or voting rights with respect to the shares. Any increases or decreases by 2% or more in the shareholding by such persons must also be disclosed. Furthermore, under our listing agreement with the stock exchanges where our shares are listed, we are required to periodically
disclose to such stock exchanges the name and percentage of shares held by persons or entities that hold more than 1% of our Ordinary Shares. For the purposes of the above, reporting and takeover requirements under our listing agreements, shares withdrawn from our ADS facility will be included as part of a persons shareholding in us.
To our knowledge, we are not, directly or indirectly, owned or controlled by any other corporation or by any government or by any other natural or legal persons severally or jointly. We are not aware of any arrangements the operation of which may at a later time result in our change of control.
For details regarding voting rights, please refer to Item 10.B Memorandum and Articles of Association Voting Rights.
We purchase materials, supplies, assets and services from numerous suppliers throughout the world in the ordinary course of business, including from our affiliates and firms with which certain members of our board of directors are interested. We purchased materials, supplies, fixed assets and services from these entities in the amount of Rs.30,703 million and Rs.29,500 million in fiscals 2009 and 2008, respectively. We also sell our products, assets and services to our affiliates and firms with which certain members of our board of directors are interested. We sold products, assets and services to these entities in the amount of Rs.3,290 million and Rs.2,320 million in fiscals 2009 and 2008, respectively. In fiscal 2008, we sold equity interest in subsidiaries (15% holding in both HVAL and HVTL) for a consideration of Rs 1,643 million and recorded a gain of Rs.1,100 million. In fiscal 2008 we sold certain finance receivables for a consideration of Rs 10,226 million and recorded a gain of Rs.924 million.
See note 42 of our audited consolidated financial statements for additional information regarding our related party transactions with our affiliates and other related parties. The foregoing do not include transactions with and among our consolidated subsidiaries, the amounts of which are eliminated upon consolidation when preparing our financial statements.
We regularly have trade accounts and other receivables payable by, and accounts payable to, our affiliates and firms with which certain members of our board of directors are interested. We had outstanding trade accounts and other receivables by these entities in the amount of Rs.1,437 million and Rs.629 million as of March 31, 2009 and 2008, respectively. We had accounts payable to these entities in the amount of Rs.3,148 million and Rs.2,134 million as of March 31, 2009 and 2008, respectively.
From time to time, we provide short to medium-term loans to our affiliates, as well as loans under a loan program established by us and our affiliates to assist executives and directors with the purchase of housing. We believe that each of these loans was entered into in the ordinary course of business. As of March 31, 2009, the total amount receivable by us in respect of outstanding related party loans was Rs. 2,937 million. We had amounts payable for medium term loans taken from our affiliates to the tune of Rs.2,850 million and Rs.Nil as at March 31, 2009 and 2008, respectively. The interest rates for these loans range from 11% to 19%.
From time to time, we also provide security deposits to the lessors of residential properties that we lease for our employees, including our Executive Directors. No extension of credit has been made, arranged or renewed by us, directly or indirectly, in the form of a personal loan to or for any of our directors or executive officers, nor has there been any material modification to any term of any such extension of credit or any renewal of any such extension of credit on or after July 30, 2002.
Item 8. Financial Information.
A. Consolidated Statements and Other Financial Information. Financial Statements.
The information required by this item is set forth beginning on page F-1 of this annual report.
Legal or Arbitration Proceedings.
The information on legal or arbitration proceedings required by this item is set forth in Item 4.B of this annual report.
Based on the net income available for appropriation, dividends are recommended by the Board of Directors for approval by the shareholders at our Annual General Meeting. Further, the Board of Directors may also pay an interim dividend at its discretion. Since fiscal year 1956, we have had an uninterrupted dividend distribution except for the fiscal years 2001 and 2002. We returned to dividend distribution in fiscal 2003. In view of our profitable performance, we declared dividends (excluding dividend tax) totaling Rs5,781 million and Rs.5,784 million for fiscal 2008 and 2009 to the shareholders.
B. Significant Changes.
Other than as set forth in this annual report, no significant change has occurred with respect to us since the date of our audited consolidated IFRS financial statements included elsewhere in this annual report.
Item 9. The Offer and Listing
A. Offer and Listing Details.
There has been no SEC-registered offering of our shares in the United States.
The details on our share and ADS price history are included in Item 9.C Markets below.
Our ADSs have been listed on the New York Stock Exchange or NYSE, since September 27, 2004. Each ADS represents one ordinary share. Our shares are listed on The Bombay Stock Exchange Limited, which is also referred to as the Bombay Stock Exchange, Mumbai or the BSE, and the National Stock Exchange of India, or NSE. The following table shows closing price and trading volume data for our ordinary shares on the NSE and BSE and for our ADSs on the NYSE:
On October 06, 2009, the reported closing price of our shares on the BSE and the NSE was Rs.558.35 per share and Rs.558 per share, respectively. On October 06, 2009, the ADS closing price on the NYSE was $12.81 per ADS.
A. Share Capital
Our Authorized Share Capital is Rs.39,000,000,000 divided into 700,000,000 Ordinary Shares of Rs.10/- each, 200,000,000 A Ordinary Shares of Rs.10/- each (The Ordinary Shares and the A Ordinary Shares are hereinafter together referred to as Ordinary Shares or shares unless otherwise specifically mentioned to the contrary) and 300,000,000 Convertible Cumulative Preference Shares of Rs.100/- each.
Under the Companies Act, as well as our Articles of Association, if our share capital is divided into different classes of shares, all or any of the rights or privileges attached to each class of shares may be varied, modified or abrogated with the consent in writing of the holders of not less than three-fourths of the issued shares of that class, or with the sanction of a special resolution passed at a separate meeting of the holders of the issued shares of that class. Our Articles of Association further provide that the rights conferred upon the holders of the shares of any class issued with preferential or other rights shall not, unless otherwise expressly prohibited by the terms of the issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu thereto.
In accordance with the Articles and under the Companies Act, we may issue Ordinary Shares with differential rights as to voting and/or dividend (A Ordinary Shares) up to an amount not exceeding 25% of the total issued Ordinary Share Capital of the Company or such other limit as may be prescribed by applicable laws/regulations.
Objects and Purposes
Our principal objects, as provided by Clause 3 of our Memorandum of Association, include:
Under the Companies Act, as well as our Articles of Association, each of our Directors, who is in any way directly or indirectly concerned or interested in a contract or arrangement or proposed contract or arrangement entered into or to be entered into by or on our behalf is required to disclose the nature of his interest at a meeting of the first meeting of the Board held after the Director becomes concerned. Under the Companies Act, as well as the Articles of Association, an interested Director is not allowed to take part in the discussion of, or vote on, any contract, arrangement or proposal in which the Director is interested.
Under the Companies Act and our Articles of Association, we are restricted from making loans to Directors and the prior approval of the Central Government is required before we can make any loans, directly or indirectly, to any Director or provide, directly or indirectly, any guarantees or security in connection with any loan made by a third party to a Director.
Under our Articles of Association, a director is not required to hold any qualification shares. Our Articles of Association do not prescribe an age limit for the retirement of the Directors. As per the policy adopted by our Board, executive directors retire at the age of 65 and non-executive directors retire at the age of 75.
Under our Articles of Association, the number of our Directors cannot be less than three nor more than fifteen.
Under the Companies Act, unless the Board recommends the payment of a dividend, the shareholders at a general meeting have no power to declare any dividend. Subject to certain conditions laid down by Section 205 of the Companies Act, no dividend can be declared or paid by a company for any fiscal year except out of the profits of the company calculated in accordance with the provisions of the Companies Act or out of the profits of the company for any previous fiscal year(s) calculated pursuant to the provisions of the Companies Act.
Under our Articles of Association, the shareholders at a general meeting may declare a lower, but not higher, dividend than that recommended by the Board. Dividends are generally declared as a percentage of the par value. The dividend recommended by the Board and approved by the shareholders at a general meeting is distributed and paid to shareholders in proportion to the paid-up value of their shares as on the record date for which such dividend is payable. In addition, the Board may declare and pay interim dividends. The shares to be issued upon the conversion of the ADSs will be fully paid-up when delivered as provided herein. Under the Companies Act, dividends can only be paid in cash to shareholders listed on the register of shareholders on the date which is specified as the record date or book closure date. No shareholder is entitled to a dividend while any lien in respect of unpaid calls on any of their shares is outstanding.
Shares issued upon conversion of ADSs will rank pari passu with our existing Ordinary Shares of Rs. 10/- each in all respects including entitlement of the dividend declared.
Dividends must be paid within 30 days from the date of the declaration and any dividend which remains unpaid or unclaimed after that period must be transferred within seven days to a special unpaid dividend account held at a scheduled bank. Any money which remains unpaid or unclaimed for seven years from the date of such transfer must be transferred by us to the Investor Education and Protection Fund established by the Government pursuant to which no claim shall lie against us or the said Fund.
Under the Companies Act, we may only pay a dividend in excess of 10% of paid-up capital in respect of any year out of the profits of that year after we have transferred to our reserves a percentage of our non consolidated Indian GAAP profits for that year ranging between 2.5% to 10% depending on the rate of dividend proposed to be declared in that year. The Companies Act further provides that if the profit for a year is insufficient, the dividend for that year may be declared out of the non consolidated Indian GAAP accumulated profits earned in previous years and transferred to reserves, subject to the following conditions: (i) the rate of dividend to be declared may not exceed the lesser of the average of the rates at which dividends were declared in the five years immediately preceding the year, or 10% of paid-up capital; (ii) the total amount to be drawn from the accumulated profits from previous years may not exceed an amount equivalent to 10% of paid-up capital and free reserves and the amount so drawn is first to be used to set off the losses incurred in the financial year before any dividends in respect of preference or equity shares; and (iii) the balance of reserves after withdrawals must not be below 15% of paid-up capital.
A Ordinary shareholders will receive dividend for any financial year at five percentage points more than the aggregate rate of dividend declared on Ordinary Shares for that financial year.
Capitalization of Reserves and Issue of Bonus Shares
Our Articles of Association permit us by a resolution of our shareholders in a general meeting to resolve that amounts standing to the credit of reserves or securities premium can be capitalized by the issue of fully paid bonus shares (also referred to as a stock dividend) or by crediting shares not fully paid-up with the whole or part of any sum outstanding. Bonus shares must be issued pro rata to the amount of capital paid-up on existing shareholdings. Any issue of bonus shares would be subject to the guidelines issued by SEBI in this regard.
Calls on Shares, Pre-Emptive Rights and Alteration of Share Capital
Under the Companies Act, as well as our Articles of Association, the Board of Directors may from time to time make such calls as they think fit upon the members of the Company in respect of all moneys unpaid on the shares held by them respectively and each member is required to pay the amount of every call so made on him to the Company.
Subject to the provisions of the Companies Act, we may increase our share capital by issuing new shares on such terms and with such rights as we, by action of shareholders in a general meeting, determine. These new shares will be offered to existing shareholders listed on the members register on the record date in proportion to the amount paid-up on these shares at that date. The offer will be made by notice specifying the number of shares offered and the date (being not less than 15 days from the date of the offer) after which the offer, if not accepted, will be deemed to have been declined. After this date, the Board may dispose of the shares offered in respect of which no acceptance has been received, in such manner as the Board thinks most beneficial to us. The offer is deemed to include a right exercisable by the person concerned to renounce the shares offered to such person in favor of any other person provided that the person in whose favor these shares have been renounced is approved by the Board in their absolute discretion.
Under the Companies Act, new shares may be offered to any persons whether or not those persons include existing shareholders, if a special resolution to that effect is passed by the shareholders of the company in a general meeting. The issuance of shares upon
conversion of our outstanding Convertible Notes has been duly approved by a special resolution of our shareholders and our shareholders have waived their pre-emptive rights with respect to these shares.
The Company can also alter its share capital by way of a reduction of capital or by undertaking a buy-back of shares under the prescribed SEBI guidelines.
Our Articles of Association provide that, by a special resolution passed at the general meeting, we may consolidate or sub- divide our share capital, convert all or any of our fully paid-up shares into stock and re-convert that stock into fully paid-up shares or cancel shares which have not been taken up by any person. The Company may also from time to time by special resolution reduce its capital.
General Meetings of Shareholders
We must hold our Annual General Meeting each year within 15 months of the previous Annual General Meeting and in any event not later than six months after the end of each accounting year, unless extended by the Registrar of Companies at our request for any special reason. Our Board of Directors may convene an Extraordinary General Meeting of shareholders when necessary or at the request of a shareholder or shareholders holding in the aggregate not less than 10% of our capital. Written notices convening a meeting setting out the date, place and agenda of the meeting must be given to members at least 21 days prior to the date of the proposed meeting. A general meeting may be called after giving shorter notice if consent is received from all shareholders in the case of an Annual General Meeting, and from shareholders holding not less than 95% of our paid-up capital in the case of any other general meeting. Currently, we give written notices to all members and, in addition, give public notice of general meetings of shareholders in a daily newspaper of general circulation in Mumbai. General meetings are generally held at some place in Mumbai. The quorum for a general meeting of the company is five shareholders personally present.
A company intending to pass a resolution relating to matters such as, but not limited to, amendment in the objects clause of the memorandum, buy back of shares under the Companies Act, giving loans or extending guarantee in excess of limits prescribed under the Companies Act, and guidelines issued thereunder, is required to obtain the resolution passed by means of a postal ballot instead of transacting the business in the general meeting of the company. A notice to all the shareholders shall be sent along with a draft resolution explaining the reasons therefore and requesting them to send their assent or dissent in writing on a postal ballot within a period of 30 days from the date of posting the letter. Postal ballot voting also allows shareholders to cast their votes by electronic means.
At a general meeting upon a show of hands, every member holding shares and entitled to vote and present in person has one vote. Upon a poll, the voting rights of each shareholder entitled to vote and present in person or by proxy is in the same proportion as the capital paid-up on each share held by such holder bears to the total paid-up capital. Voting is by show of hands, unless a poll is ordered by the Chairman of the meeting or demanded by shareholder or shareholders holding at least 10% of the voting rights in respect of the resolution or by those holding paid-up capital of at least Rs.50,000. The Chairman of the meeting has a casting vote.
Holders of ADSs may exercise voting rights with respect to the Ordinary Shares represented by ADSs only in accordance with the provisions of our ADS deposit agreement and Indian law. Holders of ADSs are not entitled to attend or vote at shareholders meetings. A holder of ADSs may withdraw from the ADS facility the related underlying shares and vote as a direct shareholder, but there may not be sufficient time to do so after the announcement of an upcoming vote. If requested by us, the depositary will notify holders of ADSs of upcoming votes and arrange to deliver our voting materials to holders of ADSs. The materials will describe the matters to be voted on and explain how holders of ADSs on a record date specified by the depositary may instruct the depositary to vote on the deposited securities underlying the ADSs as directed by the holders of ADSs. For the instructions to be valid, the depositary must receive them in writing on or before a date specified by the depositary. The depositary will try, insofar as practicable, subject to Indian laws and the provisions of our Articles of Association, to vote or have its agents vote the deposited securities as instructed. The depositary will only vote as instructed and is not entitled to exercise any voting discretion. If the depositary timely receives voting instructions from a holder of ADSs and which fails to specify the manner in which the depositary is to vote the shares underlying such holders ADSs, such holder will be deemed to have instructed the depositary to vote in favor of the items set forth in such voting instructions. If the depositary does not receive timely instructions from a holder of ADSs, the holder shall be deemed to have instructed the depositary to give a discretionary proxy to a person designated by us, subject to the conditions set forth in the deposit agreement. If requested by us, the depositary is required to represent all shares underlying the outstanding ADSs, regardless whether timely instructions have been received from the holders of such ADSs, for the sole purpose of establishing a quorum at a meeting of shareholders.
Ordinary resolutions may be passed by simple majority of those shareholders present and voting at the meeting. Special resolutions require that the votes cast in favor of the resolution must be at least three times the votes cast against the resolution. The Companies Act provides that in order to amend the Articles of Association, a special resolution is required to be passed in a general meeting. Dissolutions, mergers or consolidations, transfers of the whole or a significant part of our business to another company or taking over the whole of the business of any other company and, in any case where shareholding of public financial institutions and banks exceeds 25%, appointment of statutory auditors, each require a special resolution. Our Articles of Association do not permit cumulative voting for the election of our directors.
A shareholder may exercise his voting rights by proxy to be given in the form required by our Articles of Association. The instrument appointing a proxy is required to be lodged with the company at least 48 hours before the time of the meeting. A shareholder may, by a single power of attorney, grant a general power of representation regarding several general meetings of shareholders. Any of our shareholders may appoint a proxy. A corporate shareholder is also entitled to nominate a representative to attend and vote on its behalf at general meetings. A proxy may not vote except on a poll and does not have a right to speak at meetings. A shareholder which is a legal entity may appoint an authorized representative who can vote in all respects as if a shareholder both on a show of hands and a poll.
The Companies Act allows for a company to issue shares with differential rights as to dividend, voting or otherwise subject to other conditions prescribed under applicable law. In this regard, the laws require that for a company to issue shares with differential voting rights the company must have had distributable profits in terms of the Companies Act for a period of three financial years, the company has not defaulted in filing annual accounts and annual returns for the immediately preceding three years, the articles of association of such company must allow for the issuance of such shares with differential voting rights and such other conditions set forth in the Companies (Issue of Share Capital with Differential Voting Rights) Rules, 2001 must be fulfilled.
In the case where a resolution is put to vote on a poll, such voting entitlement (excluding fractions, if any), will be applicable to holders of A Ordinary Shares. As per the terms of issue, the outstanding A Ordinary Shares shall be entitled to one vote for every ten A Ordinary Shares held.
In the case where a resolution is put to vote in the meeting and is to be decided on a show of hands, the holders of A Ordinary Shares shall be entitled to the same number of votes as available to holders of Ordinary Shares.
We may issue from time to time debt instruments that are partly and fully convertible into shares and/or warrants to purchase shares.
Register of Shareholders and Record Dates
We are obliged to maintain a register of shareholders at our registered office in Mumbai or at some other place in the same city. The register and index of our beneficial owners maintained by a depository under the Depositories Act, 1996 is deemed to be a part of the index of members and register of shareholders. We recognize as shareholders only those persons who appear on our register of shareholders and we cannot recognize any person holding any Share or part of it upon any trust, express, implied or constructive, except as permitted by law. In the case of shares held in physical form, we register transfers of shares on the register of shareholders upon lodgment of the share transfer form duly complete in all respects accompanied by a share certificate or if there is no certificate, the letter of allotment in respect of shares transferred together with duly stamped transfer forms. In respect of electronic transfers, the depository transfers shares by entering the name of the purchaser in its books as the beneficial owner of the shares. In turn, we enter the name of the depository in our records as the registered owner of the shares. The beneficial owner is entitled to all the rights and benefits as well as the liabilities with respect to the shares that are held by the depository.
For the purpose of determining the shareholders, the register may be closed for periods not exceeding 45 days in any one year or 30 days at any one time. In order to determine the shareholders entitled to dividends, we keep the register of shareholders closed for approximately 21 days, generally in June or July of each year. Under the listing regulations of the stock exchanges on which our outstanding shares are listed, we may, upon at least 15 days advance notice to these stock exchanges, set a record date and/or close the register of shareholders in order to ascertain the identity of shareholders entitled to the dividend. The trading of shares and the delivery of certificates in respect thereof may continue while the register of shareholders is closed.
Annual Report and Financial Results
Our Indian GAAP audited financial statements for the relevant fiscal year, the directors report and the auditors report, (collectively the Annual Report), must be laid before the Annual General Meeting. These also include other financial information, a corporate governance section and managements discussion and analysis report and general shareholders information and are also made available for inspection at our registered office during normal working hours for 21 days prior to our annual general meeting.
Under the Companies Act, we must file the Annual Report with the Registrar of Companies within seven months from the close of the accounting year or within 30 days from the date of the annual general meeting, whichever is earlier. As required under listing agreements with the applicable stock exchanges, copies are required to be simultaneously sent to all the stock exchanges on which our shares are listed. We must also publish our financial results in at least one English language daily newspaper circulating in the whole or substantially the whole of India and also in a newspaper published in the language of the region where our registered office is situated.
We submit information, including our Annual Report, half yearly financial statements, report on corporate governance and the shareholding pattern statement, in accordance with the requirements of the listing agreement with the Singapore Stock Exchange.
Transfer of Shares
Shares held through depositories are transferred in book-entry form or in electronic form in accordance with the regulations laid down by the SEBI. These regulations provide the regime for the functioning of the depositories and the participants and set out the manner in which the records are to be kept and maintained and the safeguards to be followed in this system. Transfers of beneficial ownership of shares held through a depository are exempt from stamp duty. We have entered into an agreement for these depository services with National Securities Depository Limited and the Central Depository Services (India) Limited.
The SEBI requires that all investors hold our shares in book-entry form for trading and settlement purposes, except for transactions that are not made on a stock exchange and transactions that are not required to be reported to the stock exchange.
The requirement to hold shares in book-entry form will apply to ADS holders when the shares are withdrawn from the depositary facility upon surrender of the ADSs. In order to trade in our shares in the Indian market, the withdrawing ADS holder will be required to comply with the procedures above.
Our ordinary shares are freely transferable, subject only to the provisions of the Companies Act under which, if a transfer of shares contravenes the SEBI provisions or the regulations issued under it or any other law for the time being in force or the Sick Industrial Companies (Special Provisions) Act, 1985, or SICA, or any other similar law, the Indian Company Law Board may, on an application made by the company, a depository incorporated in India, an investor, the SEBI or other parties, direct a rectification of the register of records. If a company without sufficient cause refuses to register a transfer of shares within two months from the date on which the instrument of transfer is delivered to the company, the transferee may appeal to the Indian Company Law Board seeking to register the transfer of equity shares. The Indian Company Law Board may in its discretion, issue an interim order suspending the voting rights attached to the relevant equity shares before completing its investigation of the alleged contravention. Under the Companies (Second Amendment) Act, 2002, the operative provisions of which are yet to come into force, the Indian Company Law Board is proposed to be replaced with the National Company Law Tribunal. Further, under the Sick Industrial Companies (Special Provisions) Repeal Act, 2003, the SICA is sought to be repealed and the Board of Industrial and Financial Reconstruction, as constituted under the SICA, is to be replaced with the National Company Law Tribunal.
Pursuant to the Listing Agreement, in the event we have not effected the transfer of shares within one month or where the Issuer has failed to communicate to the transferee any valid objection to the transfer within the stipulated time period of one month, the Issuer is required to compensate the aggrieved party for the opportunity loss caused during the period of the delay.
The Companies Act provides that the shares or debentures of the public listed company (like the Issuer) shall be freely transferable. Our Articles of Association provide for restrictions on the transfer of shares, including granting power to the board of directors in certain circumstances to refuse to register or acknowledge transfer of shares or other securities issued by us. However, under the Companies Act the enforceability of these transfer restrictions is unclear.
Acquisition of Our Own Shares
The Company is prohibited from acquiring its own shares unless the consequent reduction of capital is effected by an approval of at least 75% of its shareholders voting on the matter in accordance with the Companies Act, 1956 and is also sanctioned by a High Court of competent jurisdiction. Moreover, subject to certain conditions, a company is prohibited from giving, whether directly or indirectly and whether by means of a loan, guarantee, the provision of security or otherwise, any financial assistance for the purpose of or in connection with a purchase or subscription made or to be made by any person of or for any shares in the company or its holding company. However, pursuant to amendments to the Companies Act, a company has been empowered to purchase its own shares or other specified securities out of its free reserves, or the securities premium account or the proceeds of any shares or other specified securities (other than the kind of shares or other specified securities proposed to be bought back) subject to the following conditions:
The condition mentioned above in (ii) would not be applicable if the buy-back is for less than 10% of the total paid-up equity capital and free reserves of the company and provided that this buy-back has been authorized by the board of directors of the company. A company buying back its securities is required to extinguish and physically destroy the securities so bought back within seven days of the last date of completion of the buy-back. Further, a company buying back its securities is not permitted to buy-back any securities for a period of one year from the buy-back and to issue securities for six months. The aforesaid restriction relating to the one year period does not apply to a buyback authorized by a special resolution of the shareholders in general meeting. Every buy- back has to be completed within a period of one year from the date of passing of the special resolution or resolution of the Board, as the case may be.
A company is also prohibited from purchasing its own shares or specified securities through any subsidiary company including its own subsidiary companies or through any investment company (other than a purchase of shares in accordance with a scheme for the purchase of shares by trustees of or for shares to be held by or for the benefit of employees of the company) or if the company is defaulting on the repayment of deposit or interest, redemption of debentures or preference shares or payment of dividend to a shareholder or repayment of any term loan or interest payable thereon to any financial institution or bank, or in the event of non- compliance with other provisions of the Companies Act.
Subject to the rights of creditors, workmen and of the holders of any other shares entitled by their terms of issue to preferential repayment over the shares, in the event of our winding up, the holders of our shares are entitled to be repaid the amounts of capital paid-up or credited as paid-up on these shares, or in case of shortfall, proportionately. All surplus assets after payments due to workmen, the holders of any preference shares and other creditors belong to the holders of the equity shares in proportion to the amount paid up or credited as paid-up on these shares respectively at the commencement of the winding-up.
C. Material Contracts.
Except as given below, neither Tata Motors Limited nor any of its consolidated subsidiaries or associated companies is a party to any material contract other than contracts entered into in the ordinary course of business:
Prior to June 1, 2000, foreign investment in Indian securities, including the acquisition, sale and transfer of securities of Indian companies, was regulated by the Foreign Exchange Regulation Act, 1973, or FERA, and the notifications issued by the Reserve Bank of India or RBI thereunder.
With effect from June 1, 2000, foreign investment in Indian securities is regulated by the Foreign Exchange Management Act 1999, or FEMA (as amended from time to time), and the rules, regulations and notifications made under FEMA. A person resident outside India can transfer any security of an Indian company or any other security to an Indian resident only under the terms and conditions specified in FEMA and the rules and regulations made thereunder or as permitted by the RBI.
The RBI issued the Foreign Exchange Management (Transfer or issue of Security by a Person Resident Outside India) Regulations 2000, or the Regulations, to regulate the issue of Indian securities including American depository receipts to persons resident outside India and the transfer of Indian securities by or to persons resident outside India.
The Regulations provide that an Indian entity may issue securities to a person resident outside India or record in its books any transfer of security from or to such person only in the manner set forth in FEMA and the rules and regulations made thereunder or as permitted by the RBI.
Foreign Direct Investment
The Government of India, pursuant to its liberalization policy, set up the Foreign Investment Promotion Board, or the FIPB, to regulate all foreign direct investment into India. Foreign Direct Investment, means investment by way of subscription and/or purchase of securities of an Indian company by a non resident investor. FIPB approval is required for investment in some sectors, including housing, petroleum (other than refining), defense and strategic industries. Also, the following investments would require the prior permission of the FIPB:
Subject to certain exceptions, Foreign Direct Investment and investment by individuals of Indian nationality or origin residing outside India, or Non-Resident Indians, in Indian companies does not require the prior approval of the FIPB or the RBI. The Government has indicated that in all cases where Foreign Direct Investment is allowed on an automatic basis without FIPB approval the RBI would continue to be the primary agency for the purposes of monitoring and regulating foreign investment. In cases where FIPB approval is obtained, no approval of the RBI is required, although a declaration in the prescribed form, detailing the foreign investment, must be filed with the RBI once the foreign investment is made in the Indian company. The foregoing description applies only to an issuance of shares by, and not to a transfer of shares of, Indian companies.
The Government has set up the Foreign Investment Implementation Authority, or the FIIA in the Ministry of Commerce and Industry. The FIIA has been mandated to (i) translate foreign direct investment approvals into implementation, (ii) provide a proactive one-stop after-care service to foreign investors by helping them obtain necessary approvals, (iii) sort out operational problems and (iv) meet with various Government agencies to find solutions to foreign investment problems and maximize opportunities through a co-operative approach.
The price of shares of a listed Indian company issued to non-residents under the foreign direct investment scheme on an automatic basis cannot be less than the price worked out in accordance with the guidelines issued by the SEBI for the preferential
allotment of shares where the shares of such company are listed. Where an Indian company is not listed on any recognized stock exchange in India the minimum issue price of the shares would be based on a fair valuation of shares done by a chartered accountant as per the guidelines issued by the erstwhile Controller of Capital Issues.
Every Indian company issuing shares or convertible debentures in accordance with the Regulations is required to submit a report to the RBI within 30 days of receipt of the consideration and another report within 30 days from the date of issue of the shares to the non-resident purchaser. The above description applies only to an initial issue of shares or convertible debentures by an Indian company.
The above description applies only to a fresh issue of shares or convertible debentures by an Indian company.
Portfolio Investment by Foreign Institutional Investors
In September 1992, the Government issued guidelines that enable foreign institutional investors, including institutions such as pension funds, investment trusts, asset management companies, nominee companies and incorporated/institutional portfolio managers referred to as Foreign Institutional Investors, or FIIs, to make portfolio investments in all securities of listed and unlisted companies in India. Investments by registered Foreign Institutional Investors or Non-Resident Indians made through a stock exchange are known as Portfolio Investments. Foreign investors wishing to invest and trade in Indian securities in India under these guidelines are required to register with the SEBI and obtain a general permission from the RBI under the Foreign Exchange Management Act, 1999. However, since the SEBI provides a single window clearance, a single application must be made to the SEBI. Foreign investors are not necessarily required to register with the SEBI under the Securities and Exchange Board of India (Foreign Institutional Investors) Regulations 1995 (the Foreign Institutional Investor Regulations) as Foreign Institutional Investors and may invest in securities of Indian companies pursuant to the Foreign Direct Investment route discussed above.
Foreign Institutional Investors who are registered with the SEBI are required to comply with the provisions of the Securities and Exchange Board of India (Foreign Institutional Investors) Regulations, 1995, or Foreign Institutional Investor Regulations. A registered foreign institutional investor may buy, subject to the ownership restrictions discussed below, and sell freely securities issued by any Indian company, realize capital gains on investments made through the initial amount invested in India, subscribe to or renounce rights offerings for shares, appoint a domestic custodian for custody of investments made and repatriate the capital, capital gains, dividends, income received by way of interest and any compensation received towards sale or renunciation of rights offerings of shares. A Foreign Institutional Investor may not hold more than 10% of the total issued capital of a company in its own name; a corporate/individual sub-account of the Foreign Institutional Investor may not hold more than 5% of the total issued capital of a company, and a broad based sub-account may not hold more than 10% of the total issued capital of a company. The total holding of all Foreign Institutional Investors in a company is subject to a cap of 24% of the total paid up capital of a company, which can be increased to the relevant sectoral cap/ceiling applicable to the said company under the Foreign Direct Investment Regime with the passing of a special resolution by the shareholders of the company in a general meeting.
FIIs are permitted to purchase shares and convertible debentures, subject to the FII limits, of an Indian company either through:
Registered FIIs are generally subject to tax under Section 115AD of the Income Tax Act of 1961. There is uncertainty under Indian law as to the tax regime applicable to FIIs that hold and trade in ADSs and Shares. See Item 10.E Taxation Taxation of Capital Gains and Losses Indian Taxation.
Portfolio Investment by Non-Resident Indians
A variety of methods for investing in shares of Indian companies are available to Non-Resident Indians. These methods allow Non-Resident Indians to make Portfolio Investments in shares and other securities of Indian companies on a basis not generally available to other foreign investors. In addition to Portfolio Investments in Indian companies, non-resident Indians may also make foreign direct investments in Indian companies pursuant to the Foreign Direct Investment route discussed above.
Transfer of shares and convertible debentures of an Indian company by a person resident outside India
The sale of shares of an Indian company from a non-resident to a resident required RBI approval, unless the sale was made on a stock exchange at the market price. The Government has granted general permission to persons residing outside India to transfer shares and convertible debentures held by them to an Indian resident, subject to compliance with certain terms and conditions and reporting requirements. A resident who wishes to purchase shares from a non-resident must, pursuant to the relevant notice requirements, file a declaration with an authorised dealer in the prescribed Form FC-TRS, together with the relevant documents and file an acknowledgment thereof with the Indian company to effect transfer of the shares to his name. However, in such cases, the
person to whom the shares are being transferred is required to obtain the prior permission of the Central Government of India to acquire the shares if such person has an existing venture in the same field as at January 12, 2005 (subject to the exceptions set out above). Further, a non-resident may transfer any security held by such resident to a person resident in India by way of gift.
Moreover, the transfer of shares between an Indian resident and a non-resident (except NRI) does not require the prior approval of the Government or RBI, provided that: (i) the activities of the investee company are under the automatic route pursuant to FDI Policy and the transfer is not subject to regulations under the Indian Takeover Code; (ii) the non-resident shareholding complies with sector limits under the FDI policy; and (iii) the pricing is in accordance with the guidelines prescribed by SEBI and RBI.
Indirect Foreign Investment
In February 2009, the Indian Government issued three press notes setting out guidelines for foreign investment in India. Press Note 2 of 2009 prescribes the guidelines for the calculation of total indirect foreign investment in Indian companies. Press Note 3 of 2009 prescribes the guidelines for transfer of ownership or control of Indian companies in sectors with caps from resident Indian citizens to non-resident entities. Additionally, Press Note 4 of 2009 issued on 25 February 2009 clarifies the guidelines on downstream investments by Indian companies. Pursuant to Press Note 2 of 2009 for the purposes of computation of indirect foreign investment in an Indian company, foreign investments in its parent company, by FIIs (holding as on 31 March), NRIs, ADRs, GDRs, FCCBs, FDI, convertible preference shares and convertible currency debentures are required to be taken together.
Sponsored ADR Schemes
By notification dated November 23, 2002, the RBI has permitted existing shareholders of Indian companies to sell their shares through the issuance of ADRs against the block of existing shares of the Indian company, subject to the following conditions:
Transfer of ADRs by Non-residents
The Ministry of Finance, Government of India, has granted general permission for the transfer of ADRs outside India and also permitted non-resident holders of ADRs to surrender ADRs in exchange for the underlying shares. Pursuant to the terms of the Deposit Agreement an investor who surrenders ADRs and withdraws shares is permitted to re-deposit such shares subject to the total issued ADRs and obtain ADRs at a later time.