Tata Motors to invest Rs1,500 crore in commercial vehicles business, focus on cost cutting

Mumbai: Tata Motors Ltd Monday said it will invest Rs1,500 crore in its commercial vehicle business (CV) as it seeks to regain lost ground and return to profitability this fiscal year. The car and truck maker is also focusing on cost cutting which will save it at least Rs1,500 crore this fiscal, said Guenter Butschek, chief executive officer (CEO) and managing director.

“Our responsiveness to market volatility was not enough,” Butschek said at a press meeting in Mumbai on Monday. The company has realized the need to shift focus and get the “back bone” right, he added. The CV business is Tata Motors’ cash cow, fetching more than seven out of every ten rupees of its India revenues.

Tata Motors has lost market share across trucks, buses and cars. In the past seven fiscal years, its share of medium and heavy CV sales fell 14 percentage points to 49%; in light CVs, market share contracted 20 percentage points to 38%.

The fall in market share and gaps in product portfolios prompted the company’s board to emphasize the need for a turnaround plan in May.

The pillars of the turnaround strategy include a focus on top line—increasing market share through new product introductions, managing costs and improving quality.

The board, under the leadership of chairman N. Chandrasekaran, is closely involved in turning around the domestic operation and has been reviewing the projects on a monthly basis, said Butschek.

He said he was not resigning and shared a good working relationship with the chairman and the board.

“Am anywhere but close to resigning. It would be a huge miss in the professional career not being part of this professional journey,” he said.

Butschek has had a rough ride since he took over in February 2016. Tata Motors has made a loss in the India business for the last four quarters.

C. Ramakrishnan, chief financial officer at the company said that besides gaining operating leverage from increase in sales, the savings will also come from a host of other initiatives including exiting from non-core businesses and material cost reduction.

Nitesh Sharma, analyst at Phillip Capital said that while the target on cost savings is achievable, the goal of being back in black by fiscal end might not be that easy owing to the high interest and depreciation costs.

“We do believe, with headwinds in the form of demonetisation and the transition to the new emission norms being out of the way, the worst is over for the company’s medium and heavy commercial vehicles business,” said Sharma. He expects the firm to turn profitable only by the end of 2018-19.