Record Loss Looms at Tata as Buyers Shun Nano; “Tata is no longer an aspirational brand and in India, cars are an aspirational purchase”

Record Loss Looms at Tata as Buyers Shun Nano: Corporate India

Tata Motors Ltd. (TTMT) may report a record loss at its Indian operations in the quarter ended March as sluggish sales of its cars, including the world’s cheapest, drags down earnings for the group that owns Jaguar Land Rover.

The loss at the local business may result in group profit at India’s biggest automaker dropping 57 percent, the largest decline since former Chairman Ratan Tata acquired the luxury units from Ford Motor Co. in 2008, according to a median estimate of 40 analysts compiled by Bloomberg. The marquee British brands accounted for 72 percent of the Mumbai-based company’s revenue in the three months ended Dec. 31.

Promotions such as offering to buy back Manza sedans and allowing customers to purchase the Nano using their credit cards failed to lure buyers because their products are dated, driving clients to rivals including Maruti Suzuki India Ltd. (MSIL), according to Mohit Arora, executive director at J.D. Power Asia Pacific. Tata Motors’ passenger vehicle sales in India fell 15 percent in the year to March, while industrywide deliveries increased 2.2 percent.“Tata is no longer an aspirational brand and in India, cars are an aspirational purchase,” said Singapore-based Arora. “They seem to be trying to do something about this but those models are some time away, so the big challenge is how do you hold on while the new models come in.”Group net income probably fell to 26.5 billion rupees in the three months ended March 31 from 62.3 billion rupees, according to the analysts’ estimates. The India unit may report a loss of 5.2 billion rupees, according to a median forecast of six analysts. The company reports earnings today.

Share Performance

Deliveries at the luxury unit increased 19 percent to 116,340 vehicles in the three months ended March 31. In comparison, sales at the local business plummeted 29 percent to 184,942 units, as customers in India held off purchases on expensive loans and slowing economic growth.

Tata Motor’s shares have dropped 5.4 percent this year, while Maruti has risen 11 percent making it the best performing stock on the 10-company S&P BSE Auto index. Tata Motors rose 0.4 percent to 295.80 rupees in Mumbai yesterday.

The company led by Chairman Cyrus Mistry said in March it would buy back Manza sedans, offering customers 60 percent of the purchase price after three years to entice clients after its passenger vehicle sales plunged 70 percent in February to the lowest in a decade.

The offer failed to lure buyers. Tata Motors sold 54 Manza cars a month later, compared with 2,445 the previous year, and 77 in April versus 750 a year earlier.

Card Purchase

Tata Motors in March also allowed customers to purchase the Nano using their credit cards. It sold 948 Nanos in April, compared with 8,028 a year earlier.

“The domestic business will remain under pressure for a while,” said Mahantesh Sabarad, an analyst at Fortune Financial Services India Ltd. (FFSI) in Mumbai. “Volume growth is going to slow down at JLR going forward, and what everyone will be focusing on is free cash flow.”

The Gaydon, England-based unit said in January that it may report negative free cash flow in the year started April 1 as it raises annual capital spending to 2.75 billion pounds ($4.1 billion) from 2 billion pounds to develop models and build a factory in China.

Lower priced models such as the Jaguar XF, Land Rover Freelander and the best-selling Evoque accounted for more than 50 percent of the luxury units’ sales in the quarter, affecting profit margins, according to company data. These models had an average selling price of about 30,000 pounds compared with the 42,000-pound mean for its other models, Vijay Somaiya, head of treasury at Tata Motors, said in a briefing on Jan. 24.

Emerging Markets

The automaker began deliveries of its two-seat F-Type model, that starts from $69,000, this month. Jaguar expects the U.S. to be the largest market for the model, accounting for almost half its sales, the company said in a statement on May 9.

Jaguar Land Rover is turning to emerging markets such as China, Russia and South Africa to pursue growth. Global retail sales in the year ended March 31 rose 22 percent to 374,669 vehicles, with those in China surging 48 percent to 77,075 units, according to company data. China was the company’s largest market, it said in January.

The luxury unit, together with Chery Automobile Co., is investing 10.9 billion yuan ($1.8 billion) to build a manufacturing plant in eastern China and is also studying the feasibility for a plant in Saudi Arabia, it said in December. The company said last year it’s expanding Jaguar Land Rover assembly at the automaker’s factory in Pune, located in the western state of Maharashtra in India.

Bottom Ranked

Tata’s success with Jaguar and Land Rover isn’t helping its brands in India. Tata Motors has sold 230,105 Nanos since deliveries began in July 2009. In comparison Land Rover sold 173,684 Evoques since the model went on sale in September 2011.

The problems extend to its other models as well. Tata’s Indica Vista hatchback, Indigo sedan and Safari sport utility vehicle ranked near the bottom of J.D. Power’s 2012 India Initial Quality Study. The company sold 12 Aria and Xenon utility vehicles in April, versus 69 a year earlier, and sales of Indica Vista dropped 20 percent to 7,893 in the month.

“The company needs to introduce new passenger car models for the Indian market,” said Taina Erajuuri, a Helsinki-based fund manager at FIM Asset Management Ltd. “I remain cautious at the moment with the stock. I prefer Maruti.”

To contact the reporter on this story: Siddharth Philip in Mumbai at

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (, the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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