Tata Motors reducing non-core assets to pare debt – MD Butschek
NEW DELHI: Tata Motors Ltd (TML) is paring costs by removing non-core assets to deal with tough market conditions and rein in borrowings, the company’s top executive mentioned on Thursday.
“We’ve also been reducing our costs, including material costs, and have been working to enhance productivity,” Guenter Butschek, chief executive and managing director at Tata Motors added in an interview.
Tata Motors had Rs. 23,365.49 crore debt at its India business as of 30 September 2019, in accordance with Bloomberg. At the time, its consolidated debt, including that of UK luxury car unit Jaguar Land Rover (JLR), stood at Rs. 95,465 crores.
Butschek said the company has invested sufficiently in its ‘product library’ that has common vehicle architectures, transmissions, powertrains, and other shared technologies to reduce overall product development cost.
“In the approaching 2 years, you will see a really strong play as far as modularity is concerned across commercial and passenger vehicles. This provides us huge benefit,” he added, stressing that the company has done its ‘homework’ referring to its turnaround plans, investing in new technology platforms like CESS (connected, shared, electric and safe mobility) and tapping into the Tata Group companies’ strengths to make an electric vehicle (EV) ecosystem. Pertaining to the company’s efforts to strengthen its financials, Butschek said Tata Motors has turned cash accretive despite the collapse of the medium and heavy commercial vehicle (MHCV) segment, which contributes 47% of total commercial vehicle revenue that accounts for 65% of total domestic revenue.
“This means we’ve our house in order on the prices and cash management side. But so as to enhance our bottom line, the topline must shoot and this is largely dependent on the TIV or total industry volume,” he mentioned.
“Let the economy revive. The significantly upgraded products would do far better in terms of cost-based contribution to our margin base,” he added, adding the company’s current portfolio is much stronger than what it had been was when the economic slowdown began 2 years ago.
For the quarter ending December 2019, the company has delivered a free cash flow (FCF) of Rs. 2,400 crore in its domestic business. “We managed a positive FCF by correcting inventory and ensuring that the capital is kept really tight,” P.B. Balaji, group chief financial officer, Tata Motors had mentioned on 30 January.
The tight monitoring of funds by the highest level management also included roll-back of the planned Capex, which Balaji said would amount to Rs. 4,500 crore for FY20 for the standalone business as against a planned outlay of Rs. 5,000 crore. That apart, the company added that it has also managed system stock reduction of Rs. 3,800 crore so far while steering through the downturn.
“We now need volumes, which is essentially a matter of this transitional period involving BS-IV to BS-VI,” added Butschek. Representatives across the automotive industry unanimously agree that the primary 2 quarters of the succeeding fiscal would be difficult in terms of vehicle demand.
Besides Tata Motors, other major automakers including Hyundai Motor India, Mahindra & Mahindra Ltd and Bajaj Auto have already mentioned that they expect a recovery, not before the festive season in FY21.
Butschek said that customers would take a short time to absorb the upper cost of purchases under BS-VI emission norms, which would entail a product price increase of 10-15%.
“Let’s assume that this may take half-a-year as a further transition, the 2nd half of next fiscal is going to fire, if the economy gets back to growth. The TIV must grow,” he added.
As part of its turnaround plan, Tata Motors plans to launch 12-14 passenger vehicles over the next 3-5 years, besides at least 4 new electric vehicles over the next 18-24 months. It recently launched Nexon EV at a starting price of Rs. 13.99 lakh and plans to introduce the electrical variant of its premium hatchback Altroz in the next fiscal. At the auto expo, the company launched the BS-VI variant of its Harrier sport-utility vehicle, and also unveiled a 7-seater Gravitas SUV.
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