Tata Motors sets March 2019 target to be among top 3 car brands in India

Tata Motors has charted out a turnaround strategy with an aim to become a top three car brands in India by the end of March 2019. As part of the move, Tata Motors’ chief executive Guenter Butschek said the company will launch new cars across the segment besides overhauling its domestic supply chain, product portfolio and organisational structure as part of a three-year turnaround strategy.

The automaker is rationalising the number of suppliers and will eliminate those that do not meet its standards on quality, cost and timely delivery, Butschek said.

Tata Motors is making changes within the company as well by increasing accountability among employees, focusing on timely execution of decisions and encouraging more team work and communication.

“We have a very robust plan on how we take the company into the future,” said Butschek, a former Airbus Group executive brought in by Tata Motors in January to plug falling sales in India.

Butschek, who took charge early this year and spent 25 years at German automobile major Daimler, had said in April that Tata Motors may not be a top priority on everybody’s shopping list, but the company is working on it to overcome the issues. “We need to get back, and we can do it,” Times of India report had said quoting Butschek.

Highlighting some of the other issues, the CEO said working in isolation, lack of accountability and no clear definition for excellence has hurt the company’s overall performance.

“Its because of the functioning in silo approach, so sequential instead of simultaneous, its because of lack of accountability to a certain extent, it also due the fact that we had no clear definition as far as excellence is concerned,” a Mint report said quoting the CEO.

“We urgently require change in terms of leadership behaviour and attitude," the report said quoting the company CEO.

When asked if the company would look at phasing out some of its models which are not selling well, he added: “A study has been initiated (on review of phasing out of some models) …holistic view of Tata Motor’s state… We are also preparing same kind of review for the CV side for the very simple reason that I want get my agenda right”.

Profits at Tata Motors have for years been propped up by its British luxury unit Jaguar Land Rover (JLR) while its domestic operations suffered because of a slowing economy, that hit demand for its trucks, and as customers preferred other car brands.

In the last financial year (2015-16), Tata Motors’ dwindling domestic sales resulted in the company’s market share falling to 5.35 percent from 6.22 percent a year ago, while in the commercial vehicle category its share eroded to 44.37 percent from 47.22 percent.

On the other hand, truck sales are slowly recovering as the economy revives, and Tata Motors’ Indian business turned a profit in the last fiscal year, which ended on March 31. Butschek does not oversee JLR’s operations.

Tata Motors’ passenger vehicle sales fell 8 percent in an Indian market that grew 7 percent in the fiscal year to end-March, and is dominated by companies such as Maruti Suzuki India Ltd and Hyundai Motor Co.

It recovered during the first four months of the current fiscal year with sales in India rising 5 percent but still lags the 9 percent overall growth in passenger vehicle sales, industry data showed.

Not having a robust supplier base has cost the company in terms of production losses when parts did not reach factories on time or did not arrive at all, Butschek said.

Tata Motors has 1,300 suppliers and this number will reduce significantly but Butschek did not say by how many. To bolster its future product portfolio, the company has completed a study of its passenger vehicles business and will consider phasing out models that are not performing well, Butschek said, without revealing which ones would go.

Sales of Tata’s Nano small car, pitched as India’s cheapest car at its 2008 launch, have been falling for years despite several tweaks to the car and its brand position.

Between April and June, Nano’s sales more than halved to 3,138 units compared with the same period a year ago. Butschek said he will launch products with new technologies and a focus on safety, low emissions and fuel economy.

The company will also reduce the number of platforms - the architecture on which it builds cars - and follow a modular approach where it can build several vehicles on the same platform using more common parts to achieve economies of scale.

Surprisingly, investors are bullish on Tata Motors’s stock despite taking hit on its earnings for the quarter ended June 30.

Last week, the company reported a 57 percent decline in consolidated net profit at Rs 2,260.40 crore for the first quarter ended June 30, due to post Brexit adverse foreign exchange impacting its British arm JLR. Consolidated net sales in the first quarter were up 10 percent at Rs 66,101.27 crore as against Rs 60,093.79 crore in the year-ago period.

However, the company’s net profit met several of the analyst’ expectation as the steep drop in earnings was mainly on account of adverse foreign exchange fluctuations.

Among the foreign brokerages, CLSA raised Tata Motors’ target price to Rs 635 a share from Rs 545, while Macquarie upped the target price to Rs 600 over Rs 535 and Deutsche Bank raised it to Rs 500 from Rs 380. Domestic brokerage Kotak Institutional Equities recommended a buy rating on the stock with a higher target price of Rs 580 from Rs 520 earlier.

With inputs from agencies