How JLR is making Tata Motors' India business irrelevant

The first quarter results of Tata Motors for 2014-15 show how irrelevant the domestic operations of the company have become to the company after the acquisition of Jaguar Land Rover (JLR). In a consolidated turnover of Rs 64,683 crore (net of excise) during the quarter ended 30 June 2014, the domestic operations accounted for less than 12 percent at Rs 7,705 crore. As for profits before tax, if you exclude the domestic operations, it would actually have been higher than the Rs 7,528 crore the company reported. The local ops are a drag on the global company.

Even since Tata acquired JLR from Ford Motor in 2008, the acquired company has done more for the mother company than vice versa. After the initial investment in JLR products and launches, it is the subsidiary that is bringing smiles to Tata Motors shareholders - especially over the last three years. But for dividends from JLR, Tata Motors’ own profits before tax would have been negative.

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Thanks to a weak showing in cars, with both the Indica-Indigo range and the Nano failing to make a dent in the market, and with the bottom falling out of the commercial vehicles market during an economic slowdown, Tata Motors saw sales decline to 1,10,612 units during the quarter (down 28.3 percent) from the corresponding quarter of 2013-14. In contrast, JLR’s sales volumes rose 27.1 percent at the wholesale level - rising to 1,15,156 units.

This is an unusual time when JLR has sold more vehicles than the mother unit - once again emphasising the growing importance of the international operations rather than the domestic one. And since JLR sells much, much higher value vehicles than Tata Motors, the irrelevance of the local performance looks all the greater.

While the domestic downturn in commercial vehicles is cyclical, the problem is Tata Motors’ sales drop seems more than proportionate. The Tata Motors press release says the “commercial vehicles industry declined in the quarter…..by around 10 percent in the cyclical medium and heavy commercial vehicles segment and around 26 percent in the LCV segment,” but things seem to be getting worse. The July sales numbers show that Tata Motors dropped sales by 28 percent in commercial vehicles. Mahindra and Mahindra and Ashok Leyland saw drops of only 9-10 percent and Eicher Motors actually saw a marginal rise of 1 percent in July.

It would appear that the company’s problems are more deep-rooted than the figures suggest. Tata Motors is now pinning its hopes on its new Ultra trucks, but we will have to wait a while to know if these are going to set the highways on fire.

As for cars, Tata Motors saw a 15 percent drop in July after the first quarter’s fairly poor performance. The company is short of exciting new wheels - with both the Nano and the Indica bombing of late. It is banking on its new Zest compact sedan launch to build up sales (due today, 12 August), but here it faces a tough market with the Maruti Swift DZire and the Honda Amaze already well-entrenched. Bringing back lost customers is not going to be easy for Tata Motors. The company, however, claims that the initial response of customers at test drives has been “extremely encouraging” with positive response from “all sections” of the media.

Auto journalists are not known to talk too negatively about yet-to-be-launched new cars - they gushed as much about the Nano when it was launched. We know where the Nano is now in terms of consumer preference.

This is not to dismiss the Zest launch but to emphasise that reviving the car business back home is not going to be easy after losing out to competition over the last five years. Lost customers are not easy to entice back.

Tata Motors badly needs a new platform and a completely new set of cars and trucks that will wow the market.

In contrast, JLR has been having a ball in world markets with its “refreshed” Jaguar and Land Rover lines - including the Range Rover, the Range Rover Sport, the Range Rover Evoque and the Jaguar F-Type, the company notes. Sales have surged to over 5.35 billion in the recent quarter, and profits are nearing the 1 billion mark (in the June quarter, JLR pre-tax profits were at 924 million).

This profit, when converted to declining Indian rupees at Rs 102.67 per British pound, is making the domestic operation look even punier.

Quite clearly, in the foreseeable future, it is JLR that is going to drive Tata Motors.