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Corporate Feb 15, 2013

Why is Tata Motors slipping in the domestic mkt?

By Sindhu Bhattacharya

New Delhi: Is Tata Motors losing focus on the domestic market, where it once had a place of pride alongside the trucks, buses and Indicas?

'Ok Tata' is still a ubiquitous message splashed across all old trucks, Indica continues to be the generic name for a small car taxi and Nano, the world's least expensive car, still invites comment on the road. But the Tata brand equity may well be slowly getting eroded in the domestic vehicle market.

Already, the domestic business accounts for less than 30% of Tata Motors or is less than a third of what the company does.The marque Jaguar Land Rover business is what drives the Tata brand in the world of vehicles now, accounting for almost 70% of the company's sales.

Tata sells trucks and buses besides cars in the domestic market and is still a substantial player to reckon with as far as market share considerations go - it is still the largest CV maker and the third-largest car company, behind Maruti Suzuki and Hyundai Motor India, in India.

But both the CV and passenger cars' businesses seem to be in trouble. In a report to clients this morning, Ashish Nigam and Saksham Kaushal of Antique Stock Broking have pointed out that "In hindsight, what we actually required was guidance on the domestic business where margins cracked to a 4-year low of 1.4% (our estimate 4.5%) leading to a loss of Rs 4.58 billion ( Rs 458 crore). It was a classic case of operating de-leverage and wouldn't be right to extrapolate the current murkiest phase of the domestic business cycle. Frankly, the poor show didn't break our heart because we fell out of love a long time ago".

The two analysts were reacting to Tata Motors' third quarter results which were announced yesterday. IIFL's Prayesh Jain and Naman Jain said in their report early this morning that Tata Motors standalone (which means outside of the JLR business) sales plummeted 20.3% year on year in the December quarter to Rs 103.6 billion, owing to sharp fall in Medium & Heavy Commercial Vehicle (M&HCV) volumes. The revenue decline in domestic business came on the back of 11.3% fall in volumes and 10.2% fall in realizations compared to the same quarter last year. "Volumes would have been further lower had it not been for continued robust growth in small LCV segment," the two IIFL analysts concluded.

The road ahead does not seem to be easy either. Tata Motors has itself sounded a note of caution, giving a continued weak outlook for M&HCV segment, while it expects the small LCV segment to see a sustained strong demand. As per the Antique analyst, more than half the domestic business now comprises LCVs (at 53%) with M&HCVs accounting for only 15% against 27% some years back. Since LCVs are low ticket items, the impact is there for everyone to see on the company's margins.

Cars account for a third of the domestic business where Nano accounts for only 7% and UVs another 6%. Sales of the Nano fell by a whopping 77% year on year in the December quarter to just 4004 units (17735 units) while passenger cars were down to 37,235 units (50,414 units).

Tata Motors has already lined up Rs 3000 crore capital expenditure for the domestic business and is planning new products to keep its brand equity intact.  Reuters

Tata Motors has already lined up Rs 3000 crore capital expenditure for the domestic business and is planning new products to keep its brand equity intact. Reuters

In a concall with analysts yesterday, the company said that recent market share loss in M&HCVs was due to inventory build up with competitors and inventory correction for Tata Motors. Additionally, regional imbalances worsened the market share loss as northern region was more impacted than rest of the country. In the passenger car segment, increasing competition has led to rise in marketing expenses for the company.

So what should Tata Motors do to regain lost glory in the domestic market?

It may say that marketing expenses for its cars are high right now but given a slump in the passenger car market right now, there is really no option for the company but to continue spending to sell cars.

Tata Motors has already lined up Rs 3000 crore capital expenditure for the domestic business and is planning new products to keep its brand equity intact.

A story in the Economic Times some days back spoke of the company readying a plan to develop a new premium small car with a one litre engine displacement; the company is also readying the diesel Nano which could be launched by the end of the calendar.

Deepesh Rathore, India Director at IHS Global Insight, says that in the CV business, Tata was far ahead of the curve when it launched the Prima range of large trucks about four years back. These are 25 tonners and above and the premise that Tata and its competitor Ashok Leyland made was the world is rapidly moving away from traditional 11-16 tonners towards larger trucks as roads and highways improved. Both companies miscalculated demand for large trucks and this has led to a sharp slide in the CV business. What Tata does to correct this in the coming quarters remains to be seen.

A report in Business Standard earlier this month quoted data from the Society of Indian Automobile Manufacturers (SIAM) to say that in September, Tata "experienced the ignominy of being overtaken by Mahindra and Mahindra in monthly auto sales, pushing it - albeit temporarily - from third place into fourth."

It went on to say that Tata has had no new products in two years and has launched just four cars - Vista, Indigo Manza, Nano and Aria - in the past 10. The irony of these slip-ups is Tata Motors should have been the king of Indian automobiles by now. Its Safari and Sumo vehicles paved the way for the rise of the sports utility vehicle. The Nano, as a concept, was nothing short of revolutionary. It had many firsts among which was India's first indigenous car (Indica) and its first micro truck (Ace). Perhaps there is still time for Tata Motors to gain back its domestic pride and market share.

by Sindhu Bhattacharya

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