The story of Tata Motors is also the story of two companies: Tata Motors India and Jaguar Land Rover (JLR). Its current state of affairs reflects in its financial performance.
Ralf Speth is the man leading the charge at JLR. During his tenure, the company has grown dramatically. In the 12 months to March 31, 2012, JLR generated profit after tax of £1.4 billion compared to £1 billion in the year ending March 31, 2011. The company’s revenue increased from £9.8 billion in March 2011 to £13.5 billion in March 2012. In 2012, the company sold 3,57,773 vehicles, up 30 percent over 2011. Today, almost 90 percent of Tata Motors’ profits and more than 70 percent of its turnover comes from JLR.
Now contrast JLR’s performance with Tata Motors’ Indian operations. While the company does not release separate numbers for its car and commercial vehicles business, Tata Motors’ net profit from its Indian operations has dropped by almost 40 percent in the last five years. The company reported a net profit (standalone) of Rs 1,242 crore in March 2012 compared to Rs 2,029 crore in March 2008. Its return on capital employed (ROCE) from its India (standalone) operations has dropped from 18.96 percent in March 2008 to 10.36 percent in March 2012. The company’s standalone net cash from operating activities has dropped from Rs 6,154 crore in March 2008 to Rs 3,653 crore in March 2012.
Jinesh Gandhi, equity research analyst at Motilal Oswal Securities, says, “Right now, the private vehicle [car] business is being funded by the commercial vehicles [trucks and buses] business and contributions from JLR. There are no restrictions in terms of movement of cash across divisions. But going forward it is not going to be that easy. The commercial vehicles business is going through a cyclical downturn which we hope will make some recovery next year. And JLR has its own investment commitments of about £2.5 billion next year and the year after that. So free cash flow will be curtailed.”
This is where Karl Slym’s million-dollar assignment comes in. Can he change the fortunes of this division of Tata Motors? He’s confident he can.
Losing Touch with the Market
But first, Tata Motors must get back in touch with the market. Let’s understand how it lost touch in the first place.
There’s the story of Safari18. In early 2006, the Safari18 project was initiated at the Engineering and Research Centre at the Tata Motors plant in Pune. The old Safari had been Tata’s workhorse in the sports utility vehicle (SUV) segment for over seven years and it urgently needed a refresh—the ‘18’ stood for 18 months. By industry standards, that’s a healthy target. Except that it was never achieved. Instead, it took Tata Motors six years to finally get the vehicle out and the new Safari Storme was launched only in October 2012. Total money spent: About Rs 400 crore.
In the automotive business and especially in a cut-throat market like India, a mistake like this can prove to be quite costly. In the last six years, sales of utility vehicles in India have skyrocketed. The market has grown by almost four times to more than 5,53,000 units per year. In this same period, utility vehicles manufacturer Mahindra & Mahindra launched three completely new vehicles (Xylo, XUV 500 and Quanto) while refreshing its existing portfolio (Bolero and Thar). Even India’s largest car maker Maruti Suzuki, which was primarily a small car manufacturer, launched a hugely successful UV from scratch called Ertiga. There’s also Renault’s big bang entry into the SUV space with Duster, which has captured the fancy of Indian customers. Who was caught napping? Tata Motors. In a segment in which it enjoyed pole position just a few years back.
Then there is another way to lose ground—a dramatic flux in the top management team. Come to think of it, Karl Slym, who joined office in October 2012, is the only CEO (for its car business) that Tata Motors has had in a long time.
It all started with the Nano debacle and the exit of Rajiv Dube as head of the passenger car business in May 2010. This was soon after Carl Peter Forster came in as the global CEO of the company. Forster brought in Ralf Speth to head JLR. Prakash Telang was elevated from head of commercial vehicles business to MD, India operations. R Ramakrishnan, the champion of Tata’s successful takeover of South Korea’s Daewoo Motors in the commercial vehicles business, was air-lifted to take over Dube’s role and began reporting to Telang.
Soon, it was head of car product group Nitin Seth’s turn to leave and join Ashok Leyland. Till date, Seth has poached about 34 people from his former employer. Seth was soon replaced by Niraj Srivastava, regional manager (west) of the commercial vehicles business. Around the time of Seth’s exit, SG Saxena, head of Tata’s utility vehicles business, also quit to join JCB. In May 2011, Forster quit Tata Motors citing personal reasons. Telang retired in 2012. Srivastava quit last year to join Audi India.
So, for about three years, Tata’s car business was run by people who had made their career in the commercial vehicles business. It is not a surprise then that consultants believe that Tata’s passenger vehicle business has been run just like its commercial vehicles business.
“Look at their product refresh cycles. While competition has added products one after the other, Tata Motors must have used all the alphabets in the English language to launch one version after another of their old cars. That’s how you sell trucks not cars,” says a senior automotive consultant who did not want to be quoted.