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JLR weighs on Tata Motors; costs being cut

JLR weighs on Tata Motors; costs being cut
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First Published: Tue, Sep 01 2009. 12 09 AM IST
Updated: Tue, Sep 01 2009. 12 09 AM IST
Mumbai: Tata Motors Ltd vice-chairman Ravi Kant on Monday said a “cost trimming” exercise at its troubled Jaguar Land Rover (JLR) unit will come in handy and hasten a turnaround when demand picks up in the developed markets. He was speaking at a conference to announce the first quarter (Q1) results of Tata Motors.
Kant, who was recently promoted from managing director to vice-chairman, is understood to be personally spearheading the restructuring at JLR. Alluding to a “lot of action” that is currently under way at JLR, he said: “There are number of changes happening internally. Cross functional teams have been formed and reviews are conducted regularly.”
“We need a little bit of help from markets. Volumes are low (now),” Kant said after India’s largest auto maker in sales revenues announced a loss of Rs328.78 crore for Q1 ended June against a year-ago profit of Rs719.69 crore, dragged down by JLR.
C.R. Ramakrishnan, chief financial officer at Tata Motors, during a conference call with analysts said, “The company is aiming to break even at lower volumes rather than higher volumes. We are looking at lower volumes, but still being profitable.” JLR volumes are lower by 52% year-on-year for the June quarter and on a sequential quarter they have increased by 10%.
In a 25 August report, JP Morgan India Pvt. Ltd’s analysts Aditya Makharia and Bharat Iyer wrote, “While the global environment has started to show signs of an improvement, a pick up in the luxury car segment is expected only over 2010-11. Management’s near-term focus would be on cutting costs and improving profitability at Jaguar Land Rover.”
Recently, the company hired KPMG and Roland Berger Strategy Consultants, a leading German management consulting firm, to advise it on cutting costs and managing cash flow at JLR, which reported a net loss of $673 million (Rs3,290 crore) in the UK. “Early gains have been recorded and will get reflected quarter-on-quarter,” said Kant, without elaborating. “The requirement for funds has reduced drastically.”
Kant took off from where chairman Ratan Tata left off at the firm’s annual general meeting earlier this month, when he reiterated to Tata Motors shareholders that the JLR buy was good.
Tata Motors will require capital. Its plan last year to divest some investments did not take off because some of its subsidiaries underperformed. Yet, the firm had sold some shares of Tata Steel Ltd and recently pledged more Tata Steel shares in the market to raise loans to pay off loans Tata Motors took to buy JLR in 2007. The company is expected to raise capital at an “appropriate time”, said Ramakrishnan.
“While the operating margins at 3.6% is much below than what we had expected, interest rate charges are higher than our estimates,” said Mahantesh Sabarad, an analyst at Centrum Broking Ltd.
Ramakrishnan said Q1 has shown significant improvement over the preceding quarter on the back of reduction in overhead costs and marketing expenses, and raw material prices. JLR, he added, has annual contracts with aluminium and steel suppliers. The annual cycle commences in April.
satish.j@livemint.com
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First Published: Tue, Sep 01 2009. 12 09 AM IST