New Delhi: Tata Motors Ltd’s plan to outsource distribution to a newly created unit may help it keep some costs off its books and make money from through contracts with other manufacturers, analysts say.
On a roll: A file photo of Ratan Tata with the Tata Nano. Photograph: Ramesh Pathania / Mint
India’s largest auto maker is planning to outsource the logistics and distribution part of its business to a fully owned unit, TML Distribution Co. Ltd, which was incorporated on 28 March, according to the company’s latest annual report. The unit has not yet started operations. The Times of India reported Tata Motors’ plan to outsource distribution on Thursday.
“Distribution is no longer a core operation for them,” said an analyst at a Mumbai-based brokerage, who didn’t want to be identified because he is not authorized to talk to the media. “This will let them get some value through contracts from other manufacturers, although it will take time.”
Tata Motors already has a distribution alliance with Italian car maker Fiat SpA under which it sells Fiat cars through Tata dealerships. Tata Motors and Fiat are also jointly building a factory in Ranjangaon in Maharashtra that will build automobiles made by both the companies.
Tata Motors’ distribution plan is not new in the Indian automobiles business. Rival Mahindra and Mahindra Ltd, India’s largest utility vehicle maker, has a unit called Mahindra Logistics, which manages the logistics business for the entire Mahindra Group and also for other manufacturers.
A Tata Motors spokesman wouldn’t say if the new logistics firm would do business with other auto makers too. “As a focused entity, it will have even greater flexibility to deliver the right product at the right time at the right place, thereby making delivery and inventory management even more efficient,” he said in an emailed statement.
“They are looking to cut cost in every car,” said S. Ramnath, vice-president at IDFC SSKI Securities Ltd. “Today logistics for them is a mix and match given their multiple locations. ” He couldn’t say how much Tata Motors will be able to save. Logistic costs account for about 1% of expenses for auto firms, analysts estimate.
Tata Motors manufactures buses, trucks, cars and utility vehicles from varied locations across the country such as Pune and Dharwar in the west, Jamshedpur in the east, and Lucknow and Pantnagar in the north. It is also building a factory in Singur, West Bengal, to manufacture the Tata Nano, billed as the world’s cheapest car, which it hopes to sell at Rs 1 lakh plus taxes. Tata Motors sold 585,000 vehicles in the last fiscal and had revenues of Rs 33, 094 crore.