Tata Motors is travelling down an expressway with a fast and a slow lane.
Whereas the Indian group’s overseas operations – the jewels of which are iconic British brands Jaguar and Land Rover - are ringing in the profits, its domestic business is stalling.
At home, Tata Motors is battling flagging sales and its domestic business posted an operating loss during the first quarter. Meanwhile, the macro-economic environment is deteriorating, with India's rupee depreciating and rates rising.
Tata Motors also faces stiff competition from foreign auto makers encroaching on its turf in India.
"The competition became much more intense and we did not suitably bring out successive model enhancements,” said Tata Motors' chief financial officer C Ramakrishnan in an interview with FinanceAsia in Mumbai, explaining the loss of market share in passenger cars.
The Indian group has seen its domestic market share for passenger cars slide from 15% five years ago to 9%, as Japanese and German car makers have aggressively unrolled new compact cars in India.
According to Ramakrishnan, about 95% of the commercial vehicle sales require financing, while that percentage is slightly lower at 75% for passenger cars. “Most auto sales are sold on financing and auto loans have become costlier. It will have dampening effect on demand,” he added.
The slowdown is already being felt. During the first quarter ended June, Tata Motors’ sales of commercial and passenger vehicles in India slumped 19% compared to the same quarter a year ago, and analysts are not predicting a turnaround in the Indian auto industry anytime soon.
However, despite the gloomy backdrop, the unflappable Ramakrishnan remains optimistic about the long-term prospects for the car industry in India. “India is an undersold market. The auto penetration rate is less than half that of many Asian markets and much lower compared to developed nations. Ultimately, growth has to come back to this market,” he added.
Tata Motors is struggling at home, but its subsidiary Jaguar Land Rover is running full throttle. When Tata Motors bought the troubled Jaguar Land Rover from Ford back in 2008, the auto industry was in a slump and the acquisition was widely criticized. There were plenty of doubts over whether Tata Motors --which made trucks and budget cars --could steer the luxury brand back into the black.
Compared to any other Indian conglomerate, the Tata Group has probably been the most ambitious in its overseas acquisitions. And for Tata Motors, its bet has paid off handsomely.
See the upcoming issue of FinanceAsia magazine for the full version of this interview.
