Over the last couple of years, the performance of Tata Motors has been almost driven by the performance of Jaguar Land Rover, more so after the launch of Evoque, a runaway hit. So, even when volumes in the domestic market started floundering in FY12, the company’s profitability did not suffer. Till the last quarter, this did not bother anyone as long as the company delivered on its quarterly numbers. But its Q3 numbers have brought home a realisation that domestic operations do matter.
Here’s why it matters: the company’s standalone business reported a loss of Rs 458 crore compared to a net profit of Rs 170 crore in the corresponding quarter last year. Operating margins too, have slid to a decade low of 1.4 per cent. Mitul Shah of Karvy Stock Broking believes the deterioration in its passenger and commercial vehicle segments has continued to affect the company. In the domestic market, its market share has declined across segments and the worst hit is the passenger vehicles segment. In January 2011, the share of passenger cars in the overall product mix stood at 38 per cent, down to 18 per cent in January 2013. Though the share of utility vehicles has increased in the same period, analysts believe the company has missed the opportunity that competition saw in this segment.
In the last 10 years, the company has not launched any new products, except the Tata Aria and the Nano, though there have been some refreshments. Increased competition and a slowdown in the passenger vehicle segment have impacted the company’s standalone business. Jigar Shah, head of research at Kim Eng Securities, expects losses in India business to continue for a few quarters as the company’s CV business is struggling with volumes plummeting nearly 50 per cent. He adds: “The company needs a breakthrough product like Renault’s Duster or M&M’s XUV 500 in the utility vehicle segment, too.”
The medium and heavy commercial vehicle business can be highly profitable but has been struggling for the last several quarters. Though no change is imminent in the next couple of quarters, analysts expect the CV business to look up closer to the elections. As interest rates fall and construction activity picks up, analysts expect H2FY14 to be better for Tata Motors’ India business. However, no new products are expected in the passenger segment over the next one year, apart from a mini SUV and a diesel Nano being planned for launch.