Financial investment planner PN Vijay has pointed out yet another boo-boo in the Economic Times, which stinks to high heaven. In his weekly jottings, which he mails to select clients, he says, “ET ran a front page lead, which stated that Tata Motors was defaulting big time on its vendor payments. This generally drew the inference that Tata Motors was in a financial jam. As expected, the share fell sharply that morning. The very next day, ET carried a clarification from the management that things weren’t as bad as had been painted in the story. And though things were tough, they were under control. The bears covered their position and the share price climbed back. Many of us pine for the old days when ET stories could be taken as the gospel truth.”
Yet another case of mischievious journalism, maybe even connivance with bear operators. There is no substantive evidence for me to highlight this, but I am conjecturing on the basis of the scenario that Vijay has mentioned. The circumstantial evidence though is weighed in the favour of the bear cartel using ET to punt on the stock. Agreed that most large companies are in a spot of strife. In fact, all is not kosher at some of the A list Indian companies, which have made big ticket acquisitions in the recent past. I decided to check the facts myself about the state of Tata Motors financial health. And while the numbers don’t make a pretty picture, the company has shown in the past that it has the necessary wherewithal, resilience and expertise to rebound. It has done so in the past.
Credit squeeze and spike in interest rates has seen the company’s sales decelerate alarmingly, particularly on the light, medium and heavy commercial vehicle front. I decided to ask Ravi Kant, Managing Director, Tata Motors, for some answers. And he was sincere in his responses. He said, “Liquidity for consumers and corporates has to be made available at cheaper rates post haste. The withdrawal of credit has acted as the biggest impediment. Economic activity has come to a standstill across many sectors – cement, sand and steel for starters – and this is proving to be infrastructure’s bugbear. The downward spiral in demand had become most acute and there came a time recently when big trucks were down 70 per cent, M & LCVs 35 per cent and the smaller commercial vehicles as much as 20 to 25 per cent. This was scary.”
New product launches have worked wonders for the passenger car segment, the i10 for Hyundai, SX4 and A-Star for Maruti, Vista for Tata Motors and even the Linea for Fiat. Over the last month or so, sharp cuts in petro product prices and downturn in the interest rate cycle is allowing some breathing space, but demand destruction was so severe that it will take a couple of months for the uptick to begin. In this environment, all eyes are now on Tata Motors and its wonder car, Nano’s, launch. After all the problems at Singur in West Bengal, the plant’s move to Sanad in Gujarat has the world watching every move. The world’s cheapest car is the cynosure of all eyes. Ravi Kant explained the imperatives going forward, “It will take over a year for the new plant to get started. We have made an interim arrangement in Uttarakhand and we will expose the Nano to the consumer in the first half of 2009 from that plant. But we will be able to launch a smaller number only, enough to whet the appetite, but not satisfy the hunger of the customers. The world is watching and we have to deliver.”
With domestic demand drying up, Tata Motors’ problems got accentuated with its $2.1 billion acquisition of the fabled Jaguar Land Rover brands. The world was confounded – how can the manufacturer of cheap diesel cars hope to run marquee names like Jag and Land Rover – was a question doing the rounds. But that was then and this is now. The world economic environment has altered so dramatically over the last 6-8 months that all the companies which had made leveraged buyouts using high cost debt have had to scurry for cover. Tata Motors being one of them. So, how does one manage the contradiction of owning a low cost diesel car, as also the cheapest car in the world and at the same time own luxe brands like the Jag and Land Rover?
Apparently, the Jaguar XF launch has received a good response and while Jag is growing, Land Rover sales are down. Ravi Kant added, “The new variant, XFR, was launched at the Detroit Motor Show. This calendar year we are looking at launching the Jag in India. We have done a market survey and once the inputs are in, we will decide which model. The Jag management will have a say in it.” Interestingly, Ravi Kant realises the onerous responsibility that rests on Tata Motors’ shoulders. He says, “It weighs heavily, we have to do well on both fronts – Tata Motors in India with Nano and JagLR in the West. Ratan Tata is a man who constantly challenges himself and his organisation. He is leading the intent.” Ratan Tata created a brand out of nothing, he made the transition from a commercial vehicle to a passenger car manufacturer. Next stop in this journey was the acquisition of big auto brand names JLR. Now it is time to step up to the plate again.
At the same time, Tata Motors is also readying to unveil its new premium sedan and wants to make the Sumo Grande realise its potential. Priority is to put together funding requirements for JLR at this juncture. Ravi Kant says, “So far, we have arranged funds on a week to week basis, but now JLR is taking steps to tighten its belt, adapt to new realities and Tata Motors is assisting them in this endeavour. Management is trying its best to trim the sails wherever it can. We are exposing one to the other (Tata Motors to JLR), transposing learnings, looking at IT availability, purchasing requirements and looking at different elements in the food chain.”
While the two companies continue to be run as separate businesses, back end processes and methodologies are being synthesised for better returns. This is the mantra at Tata Motors as it begins to pick up the pieces, revives itself from the somnolescence of a brutal economic headwind.
(Sandeep Bamzai is a well-known journalist who started his career with The Statesman in Kolkata in 1984. He has held senior editorial positions in some of the biggest media houses in three different cities - Kolkata, Mumbai and New Delhi - with The Indian Express, Illustrated Weekly, Sunday Observer, Dalal Street Journal, Plus Channel where he ran India's first morning business show on Doordarshan, The Times of India Group, Business India, Hindustan Times and Reliance Big Entertainment. Starting his career as a cricket writer, he graduated to becoming a man for all seasons under Pritish Nandy, who he considers as the premier influence on his career. Since he studied economics at Calcutta University, Bamzai decided in 1993 to branch out into business and financial journalism. Familiar with all three media, he is the author of three different books on cricket and Kashmir.)