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| Edited By: Swati Khandelwal |Source: Zee Business |Updated: Nov 08, 2018, 06:30 AM IST
Tata Motors Group CFO P B Balaji, in an interview with Swati Khandelwal of Zee Business, talks about the company's plans, pressures on Jaguar Land Rover (JLR), bounce back in the business and Project Charge.
The magnitude of fall in the market of China is something that any OEM had planned for and almost each of them is coming up with a warning or the other on that. It has been a sharp fall. Interestingly, we have been able to meet the internal budget targets (we had for the year) in rest of our markets including the UK. China's performance is a disappointing one but we realised that the market conditions are quite challenging at present due to diesel prices, diesel taxes, Brexit, trade war and consumer confidence in China, among others. The existing challenges indicate that the demand is going to be muted and that is why we came up with three points to meet the turnaround. The first points is, in a low demand environment, keep the focus on innovation and grow continuing what may come on the way. We did the same in passenger vehicles even in India and have decided to launch four products in six weeks. The festive season of the month is not a great one but we will grow 11%. The second is, cost and cash. Actually, cost outs happen in the business. We save money, reduce the cash burn in the business to ensure that we conserve cash that will come. The third is that this crisis is an excellent time to go and fix the fundamental issues and capabilities so that we turn out stronger from the crisis. We have experimented these three points in commercial vehicles (CVs) and then will apply the same in passenger vehicles (PV) and Jaguar Land Rover (JLR).
We operate in five regions - the US, the UK, Europe, China and the rest of the world. We have equal exposure in all these regions, i.e, 20% each. Thus, we are not overexposed to China from the revenue perspective. But profitability wise, China is far more profitable than any other part of the business. Therefore, the dependency on China is better. With Project Charge, we are stepping on the profitability of the entire organisation and ensure that we are not overdependent on China. But it is a very important market for us. It even pays disproportionate profit to us.
New products will be launched with an electric power steering system (EPS), which has the potential for huge success. Besides, Evoque will be relaunched. This means we will have a tight intensive pipeline of products going into China; that is what made JLR what it is today. Thus, exciting products and fabulous innovation, top-notch technology are certain areas where we will continue to invest in China. Our second priority is related to the profitability of the dealers, which has gone down due to the fall in growth. To support them, we have reduced our investment leading to a fall in inventory at the dealers' place, which is good for them as they will get back to return on investment which is better. Thirdly, as for their challenges in terms of profitability, discounting in the market will be helped by our transaction prices, which is going up. In fact, we are moving more towards a pull system in China instead of the push system in line which a premium OEM should be. The last thing is related to the health of our brands. We are paying special attention to it. This is our plan for China and we are confident that we will get growth coming back in the country winning on our partners over there. All these things were priority number one on the turnaround.
The best part is that we are not touching any product all. It is being done outside of the product in different places like testing facility, infrastructure investments, among others. In fact, everything that is extracurricular is out as we just want to focus on the curriculum. This exercise will help us to conserve cash. We have seen the next five-year plan and know about the kind of investments that will be made. We are comfortable over there and it will get 16 nameplates compared to 12 nameplates that we have today.
We have to do three things - We should be clear on strategy, which we are; we should communicate our strategy and we have done and we have to deliver on our strategy and the market will turn. So when the market will start believing what we are saying is for the market to decide. I can just show track-record. We did it in the CV (commercial vehicles) segment, PV (passenger vehicles) segment, and now we are saying that for JLR. So I can only deliver and talk. This means it is on them to decide the share price, not for me.
It is related to the inventory corrections that we have executed. We have done it all at once and we are not going to bring this news ahead. Because our fundamental focus in this scenario is to leave growth aside and focus on the hygiene factors like how to increase the profitability of the dealer, process to increase transaction price and improvement in brand health. Keep the focus on this. If you try to focus on growth, then you won't get this right, particularly when you have no idea about the depth of the challenge.
Today China is about 22% of total turnover. Overseas is a huge area if you have a look at our shares in each of our markets barring the UK and a little bit of Europe from a set up of a relative share perspective. I think the headroom to grow in these markets is very, very large. Take the US, which is coming quite strongly for us. We are a small player over there and that's why the headroom for growth is phenomenal.
It is more than our expectations. I will be unfair to my team if I say that it met our expectations. But I think there is still a long way to go. The strategy is clear as far as CV is concerned, we decisively want to win on it. I want almost everything in the segment - shares, profitability, cash-flow. I am greedy so we want everything there. This is the brief for CV as it is a very cash lucrative and profitable business. It is such an exciting business from so many aspects and we can actually change the livelihood of people. Thus, it has a brilliant purpose and this is why it is a sweetheart of the business in terms of what we have in our portfolio. Passenger vehicles is a business that is turning on very fast. It is an exciting business. When I said I will split the financial results of CV and PV, the only question I faced was related to the losses and how to tackle with them. Interestingly, we reached Ebitda (earnings before interest, taxes, depreciation and amortisation) break even. However, Ebitda is not good enough and there is a need to go more on Ebit breakeven; take on our dealers in a good way. We have about 11 products coming in. In fact, Harrier is the best product in the group and we need to launch it very well. So we have a very exciting agenda in PV and we have grown ahead of the market in 33 months in a row now, which is quite something in this kind of market situation. Take this month, the festive season that has not gone very well, but we have grown 11% because we went with four products and gave zero per cent discounts on them. We were placed in second positions in JD Power's rankings in terms of customer service, which is great. So I think everything started coming together for the business. And this is something that happened in CVs a year back as the team put its mind together and this is what we are going to see in JLR starting now.
The intensity of competition will always be there. We have pricing ahead of the market and have managed to win very effectively and have ensured that we are actually driving value in the business by taking up profitability. And then comes fix car operating leverage. That is how the profitability has come with a fair amount of focus. If I take Ebitda in CVs in an environment of depreciating rupee, huge inflation in steel, we were able to handle Ebitda steady for three quarters in a row. That tells you that this is not a discounting game that we are playing, it is far richer than that.
Total cash available for JLR and Tata Motors's domestic business is around £45.3 billion (about Rs 50,000 crore) and Rs 4,800 crore, respectively. There is sufficient cash in the business and there is no concern at all. We just refinanced our bond in JLR and took an additional standalone loan of about a billion dollars. So the availability of money is the least issue for a Tata company. What we are saying is that we need to generate our own cash as borrowing is more for sudden trouble that occurs. Business has to stand alone and that's why we called it consistent competitive cash accretive growth that is a strategy. As far as cash is concerned, at Tata Motors domestic we generated about Rs 700 crore of free cash flows in this quarter and as far as the year is concerned, we will be able to generate positive cash flows. Tata Motors business is now steady in its loan of about Rs 20,000 crore, which is too high and that is the reason that we said that we will sell the non-core businesses to pay down the debt and we are on the mission to get that debt down as soon as possible because we are paying a fair amount of interest. As far as JLR is concerned, I think they were cash accretive till last year. Last year was the first time when they went cash negative but now they will have to move into the cash positivity as soon as possible.
It is a huge market for us and is growing strongly; we grew around 38%. Depreciating rupee makes it even more attractive, so it is a key focus area for us but we want to play to our strength rather than spreading all over.
