Mistry email fallout: Tata Motors clarifies on Nano, NPAs in finance arm

Mumbai: Tata Motors Ltd, replying to a clarification sought by stock exchanges on a letter written by Cyrus Mistry to the directors of Tata Sons Ltd, has defended and clarified credit and accounting practices related to the Nano car and Tata Motors Finance, its vehicle finance arm.

Mistry, the ousted chairman of Tata Sons, wrote in the leaked letter, “Before 2013, in order to shore up sales and market share, Tata Motors Finance extended credit with lax risk assessment. As a result, NPAs mounted in excess of Rs4,000 crore.”

NPAs is short for non-performing assets.

In its response, Tata Motors clarified that the credit predominantly comprised financing for the entry-level vehicle segment and first-time users.

The segment had been hurt by a business and macro economic downturn in the previous years, which aggravated the risk profile of the portfolio. The company said it had made provisions in line with the current assessment of future losses.

In response to Mistry’s point on the company using aggressive accounting to capitalise a substantial portion of product development expenses, creating a future liability, Tata Motors said its policies are in compliance with accounting practices and regularly reviewed. In his letter, Mistry also questioned the development cost of the Nano and its price, pointing out that the product had consistently lost money, the loss peaking at Rs1,000 crore. He suggested that the production of the Nano be shut down to make the passenger vehicle business profitable.

Defending the Nano project, Tata Motors said the small car had received Indian and global attention for its path-breaking concept, but the car did not take off due to a combination of several factors, including delays in the commencement of the project and the perception that it was a low-end car. Tata Motors conceded that the Nano was a loss-making product, as the sales volumes that had been envisaged were far higher than the actual demand. Tata Motors created capacity to make 250,000 cars a year, but the demand is far lower.

The company said the Nano factory is being used to make other models like the Tiago. It also said most of the costs have been significantly written off over the last several years.

Commenting on the challenge associated with shutting down the Nano, Mistry said the move would stop the supply of Nano gliders to an entity that makes electric cars and in which Ratan Tata,who became interim chairman after his ouster, has a stake.

Tata Motors said in the response that the matter was in a preliminary and exploratory stage and no arrangement for supply of gliders had been concluded.