A revival in the demand for commercial vehicles as the economy sees an upturn, a stronger presence for Jaguar Land Rover (JLR) in markets such as China and an encouraging response for its new cars, launched under the Horizonext theme, have led to hopes Tata Motors could regain a lot of lost ground over the next couple of years.
Although the stand-alone business of the salt-to-software Tata Group remained in the red in the December quarter—the loss was of the order of R773 crore which includes a provision for Singur—the sales data, for both passenger and commercial vehicles, has been encouraging over the last few months, showing signs of an uptick. “We believe the demand environment remains encouraging at JLR, driven by new model rollouts,” JP Morgan wrote in a recent report. “The India business environment is expected to improve into the new year and Tata Motors has an aggressive product launch pipeline,” the report added.
That pipeline together with a pick-up in activity in the mining and infrastructure sectors, as the economy starts to improve should give the medium and heavy commercial vehicle (M&HCV) segment a fillip. As a consequence, truck fleet utilisation which is currently at a relatively low 60-70% is expected to go up to 90% and fleet operators are expected to add more trucks to their fleets.
Ravindra Pisharody, executive director—commercial vehicles business, Tata Motors said growth in the M&HCV segment should pick up in the next two to three years. “The growth we are seeing today is replacement buying where fleet owners are discarding older trucks that have been fully paid for and are buying new ones,” he explained.
In February, Tata Motors sold a total of 40,314 units, registering a year-on-year increase of 14%. The company’s M&HCV sales rose 34% in the same period. Though Tata Motors’ light commercial vehicles sales (LCV) business continues to decline in line with the rest of the segment, it is expected to start recovering in the second half of FY16. Analysts expect LCV sales to grow by 10% next fiscal and Tata Motors being the largest player in the segment will significantly benefit if this happens. To gear up for increased demand for LCVs next year, Tata Motors has launched a new range of LCVs called Tata Super Ace Mint to cater to the market. While Tata Motors has an over 50% share in the M&HCV and LCV segments, it has an only 12% market share in the pick-up segment. The auto firm wants to ramp up its presence in this space and hopes to do so with the launch of new products like Super Ace Mint, along with existing offerings like Xenon.
R Ramakrishnan, senior vice president, commercial vehicles at Tata Motors said Tata Motors needs to have more products in the pick-up segment in order to gain market share. “Super Ace Mint will help us as it is compliant with BS4 norms and can be driven in all cities. We are taking initiatives to cover the gap between the two and three-tonne segments and next year we will launch a couple of more products, which will occupy the space between Super Ace Mint and Xenon,” Ramakrishnan said.
Tata Motors has also won contracts to supply buses to the government of India under the Jawaharlal Nehru National Urban Renewal Mission, which will provide additional boost to its M&HCV segment. India’s largest CV manufacturer is also planning to enter the luxury bus segment with its new Magna series in the second half of FY16. According to Pisharody, though the bus segment is not very big for Tata Motors in terms of volumes, it is important for building the brand since these buses are visible across cities.
But it may still be a while before the initiatives that the company has put in place translate into improved profitability. In order to generate profits, Tata Motors will have to improve the utilisation rate of its domestic manufacturing units, more than the current levels of the 30% for passenger vehicles and 50-60% for commercial vehicles, say analysts.
Meanwhile, passenger vehicles sales for February rose 31% year on year to 11,805 units on the back of strong demand for the Zest (an entry-level sedan) and Bolt (hatchback). Mayank Parekh, executive director, passenger cars, said at a recent press conference the Zest had sold around 20,000 units till January. The constant outperformer among Tata Motors’ various businesses has been the iconic British carmaker that it acquired in 2008, Jaguar Land Rover. A joint venture production plant in China with Cherry Automobiles, with a capacity of 75,000 units per year, will commence operations in by the end of FY15. The company will produce its Range Rover Evoque SUV from this plant first, followed by other models subsequently.