Tata Motors may be over the hump

The millstone around Tata Motors’ neck could shed some unwanted weight soon.

The premium car business of Jaguar and Land Rover (JLR) appears to be finally on the road to recovery, with global inventories down to manageable levels and product discounting also receding in the UK market.

The turnaround, if it happens, would come just when Tata Motors has appointed Carl-Peter Forster as group chief executive officer who will be responsible for overseas business (besides Indian operations) including the Jaguar and Land Rover (JLR) brands.

Late last month, JLR CEO David Smith stepped down amid falling sales and a concern over the brand’s performance at a global level.

Speaking to DNA Money on Tuesday, Terry Hill, global direct sales director for Land Rover, said, “The business is recovering in UK in general so product demand is positive. We have reduced inventories around the world because of some tough decisions on the product side through last year.”

Though he declined to put a number to the current inventory levels, Hill said that the business is turning around. To a question on when will this business begin making any profit, he said, “We will see something positive in 2010.”

According to Jamshed Dadabhoy, analysts with Citigroup Global Markets, the decline of discounting for premium cars in the US should help JLR since 15-20% volumes for this brand come from the US market.

He said sensitivity to incentives is very high (in case of JLR vehicles) since a 500 pound per vehicle reduction in incentives could result in Ebidta increasing by 25 million pounds (on a base of 50,000 units).

The company sold over 56,000 units in the December quarter and 16,269 units in January. Dadabhoy said that target of 11,000 units per month for February and March is “easily achievable, given the current run rate of about 16,000 units per month for the current quarter.”

In India, the JLR marquee is currently present only in Mumbai through a corporate showroom where cars are imported and sold. Rohit Suri, head of the premium car division for Tata Motors, said that showrooms would be opened across 5-6 top cities including Delhi, Ludhiana, Hyderabad, Bangalore, Chennai and Kolkata during 2010.

To a question on whether some Tata Motors’ dealers were interested in also becoming JLR dealers, he said at present only a corporate showroom is operational in Mumbai and a retail model for the remaining cities was yet to be worked out.

Suri declined to provide the number of units sold since JLR was launched in India.