What's ailing Tata Motors' domestic business

Moneycontrol Bureau

Tata Motors' consolidated profits have sky rocketed in recent years since the turnaround of its British luxury Jaguar Land Rover unit. However, its domestic business has been a drag this year and plunged to a wider-than-expected loss of Rs 458 crore in the third quarter.

The standalone operations account for a fraction of the India's largest truck and bus maker's overall earnings. However, the huge loss on the back of slow sales dragged down the consolidated profits by half in Oct-Dec.

To be fair, the overall commercial vehicle and passenger car industry in India is as such going through a slowdown, which has hurt many companies. India's second largest CV maker Ashok Leyland too reported a loss in the third quarter (excluding exceptional gain).

Medium and heavy truck sales in the country have slumped as fleet operators have postponed new truck purchases amid the overall macro-economic slowdown. Over April-January, CV sales fell 0.4 percent and M&HCV sales plunged 21 percent, according to Society of Indian Auto Manufacturers.

The sluggish demand for M&HCVs, coupled with increased competition, has led to heavy discounting by companies, which has further hurt margins.

Tata Motors sells more than half of total CVs sold in the country and so has been hit hard. The company's M&HCV sales over April-Jan fell 29 percent to 1,17,900 units.

In the passenger vehicles segment, Tata Motors has lagged behind the industry. Driven by utility vehicle demand, the PV industry has grown near 7 percent over April-Jan, according to SIAM data. But Tata Motors sales are down over 17 percent, amid slow demand for its Indica and Indigo range of cars. The world's cheapest car Nano too has had its ups and downs. 

Its Nano/Indica/Indigo range sales have declined 21 percent so far this financial year, while utility vehicle sales (Sumo/Safari/Aria/Venture range) fell 3 percent.

Karl Slym, Tata Motors' MD says several actions, including enhancing customer experience at dealerships, have been taken to boost passenger car sales. The company has also launched new variants like the Manza Club Class, and the Vista D90 in the last few months, with latest technology.

Its new refreshed Safari Storme SUV too has got a good response, say officials and new models/variants like the Nano CNG are slated to release in FY14. A sub-Rs 10 lakh variant of the Aria is also planned.

Sales of light commercial vehicles, led by the Ace, have been strong and are expected to clock good growth going ahead, helped by strong demand, new variant launches and the launch of the new Ultra LCV range.

However, there are no signs of a turnaround in its bread and butter M&HCV segment just yet.

The company will launch new variants in the Prima range, but it will take at least six months for M&HCV sales to revive if and when government initiates reforms and the economic activity picks up, said Slym.

Many analysts have so far remained bullish on Tata Motors, betting on JLR (accounts for 90% of profits) to drive growth going ahead. However, there are some like Deutsche Bank and UBS who advise investors "sell" the stock.

Tata Motors shares close up 0.4 percent Rs 305.80 on NSE. The stock has gained near 11 percent so far this financial year.

Nachiket Kelkar