Tata Motors | Can the Indian elephant dance again?

Chennai: Talk of Tata Motors Ltd and what comes to mind is its only cash cow, Jaguar Land Rover Ltd (JLR), the UK subsidiary that rolls out luxury cars for global markets.

Unfortunately and perhaps coincidentally, since JLR’s acquisition, the standalone entity that was the clear supremo in the commercial vehicle (CV) market in India has run into rough weather. The behemoth’s market share has been steadily going downhill across segments from fiscal year 2010 (FY10) to FY17. If in medium and heavy CVs, it fell from 63.3% to 49.2%, in light CVs where it had a clear head start against competitors, the share contracted from 58.5% to 38.1%. Even in passenger vehicles, its share has slipped from 14.6% to 5.7%.

This becomes hard to digest especially after its humongous $2.3 billion bet on acquiring JLR, in spite of apprehensive investors, helped spew enough cash to keep Tata Motors’ consolidated profit and loss accounts glitzy.

What went wrong then on home ground where it was sitting pretty till even a decade ago? Perhaps, a lack of stable leadership since FY09? Four CEOs in a span of eight years or maybe the power struggle at the helm that took the focus away from the firm’s strategic vision to grow. Following the exit of Ravi Kant in 2009, under whose term as managing director the truck maker grew fast, Carl Peter Foster took charge of the domestic operations. For two years, until 2011, the firm’s sales grew in line with industry and stand-alone revenue too rose considerably. However, his untimely exit followed by a brief stint by Karl Slym as CEO shook a stable ship.

Worse, the lack of stable leadership at the helm coincided with incumbents like Ashok Leyland Ltd and Eicher Motors Ltd getting their act together to improve market share and new entrants like Mercedes Benz drawing up plans to invade the Indian truck market. As a result, Tata Motors’ market share slipped and annual sales growth was weaker than that of industry.

Further, when the CV industry recovered from FY15, Tata Motors under the stewardship of Cyrus Mistry was scouting the globe for a fit leader. Sales growth continued to lag the industry even before the Tata-Mistry battle broke out to worsen matters.

Analysts also reckon that lack of vision reflects weak leadership. The company fell short of product range when the No.2 contender Ashok Leyland geared up to fill the gaps in the CV market, catering to even niche segments.

All this brought pressure on operating cash flows that also steadily went downhill from Rs6,400 crore in FY10 to Rs2,214 crore in FY15. Guenter Buschek, the managing director at the helm of affairs now, has an onerous task. Operating cash flow did turn positive but has reduced in the last year.

Analysts are concerned that the company is not well-equipped with products to meet the BS-IV emission norms, which could take a toll on sales in the near term.

Fortunately, until FY15, investors have been rewarded as the market capitalization zoomed on the strength of JLR’s turnaround and galloping success. However, this too has taken a dip in the last 18 months as problems of slowdown in sales and unfavourable forex hedges loom over its financials.

From the stand-alone entity’s perspective, the progress over the last eight years is hard to fathom. Referring to this, a report by Credit Suisse points out that if Tata Motors can stem the market share loss in its CV segment, it can improve the growth trends in its business. It also adds that the company could do well by limiting the large losses booked by its subsidiary Tata Motors Finance Ltd.

What stood the test of time for several decades and on whose strength the billion- dollar acquisition of JLR was rolled out, is today bleeding. Is it too late or will the elephant dance again?