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Business News/ Companies / News/  Tata Motors goes for voluntary retirement scheme again to cut costs
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Tata Motors goes for voluntary retirement scheme again to cut costs

Scheme is aimed at those at the assistant general manager-level and above, and the plan is to pare at least 10% of the workforce in the executive cadre

In the quarter ended 31 March, Tata Motors’ domestic operations incurred a loss of `1164.25 crore compared with a loss of `816.61 crore a year ago. Photo: AFPPremium
In the quarter ended 31 March, Tata Motors’ domestic operations incurred a loss of `1164.25 crore compared with a loss of `816.61 crore a year ago. Photo: AFP

Mumbai: Tata Motors Ltd is in the midst of a voluntary retirement scheme (VRS), its second in five months, as it seeks to cut costs and return to profitability, said three people aware of the company’s plans who asked not to be identified.

In an e-mail, the company’s spokesperson confirmed this and said the scheme was launched on 12 May and would run up to 12 June. She added that the scheme is a a continuation of a programme announced in February “to respond to an increasingly competitive business environment and macroeconomic pressures that have resulted in depressed growth of the commercial vehicle and passenger car businesses in India".

The scheme is aimed at those at the assistant general manager-level and above, and the plan is to pare at least 10% of the workforce in the executive cadre, said one of the three people cited above. India’s largest automaker by revenue, employs close to 1,000 people at the executive level, he added.

Referred to as the early retirement offer (ERO) the benefit for the second round of VRS includes one year of salary plus medical benefits for up to 10 years. Only those above the age of 50 are eligible for it, said the second person.

An analyst at a domestic brokerage who did not wish to identified said the move would help the company in the long term by enhancing productivity. It would be negative in the short term as the payouts will translate into a one-time hit, this person added.

Only blue-collar workers above the age of 40 were eligible to opt for the scheme announced on 27 February. Since the announcement, around 700 workmen have opted for the scheme said the third person mentioned above. The firm has 16,000 such employees, more than half its workforce. The package included a monthly payout that begins on the date of separation till the employee turns 60 years of age, thus ensuring an assured monthly income as opposed to just a one-time payment. Tata Motors had a total of 30,334 employees in March 2014, according to the latest data available from the company.

Tata Motors’ efforts to reduce headcount seem to be paying off. In the year ended 31 March, the company’s employee costs as a percentage to net sales came down to 9.83% from 9.37% a year ago. In absolute terms, the employee costs continue to rise, albeit at a slower pace. They rose 18.7% in fiscal 2014-15 as compared to 30% the previous year.

In the quarter ended 31 March, Tata Motors’ domestic operations incurred a loss of 1164.25 crore compared with a loss of 816.61 crore a year ago. Thanks to improving truck and bus sales, net sales rose 26.5% from a year ago to 10,676.19 crore. During the quarter, the Indian business turned profitable in terms of operating profit for the first time in five quarters.

In his presentation on 2014-15, Vijay Somaiya, vice-president and head of treasury and investor relations at Tata Motors, attributed the improvement in the profitability of the India operations to cost control and an improvement in productivity.

Shares of Tata Motors fell 1.56% to 435.70 on Monday on BSE, while benchmark Sensex shed 0.92% to 26,523.09 points.

Spooked by slowdown fears in China which accounts for a fourth of sales for the firm’s UK unit Jaguar Land Rover Automotive Plc, the firm’s stock has underperformed the broader market for the past seven trading sessions.

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Published: 09 Jun 2015, 01:17 AM IST
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