Tata Motors reducing non-core assets to pare debt, says MD Butschek3 min read . Updated: 06 Feb 2020, 11:54 PM IST
- Tata Motors plans to launch 12-14 PVs over the next 3-5 years, besides at least four new EVs over the next 18-24 months
- Tata Motors has invested sufficiently in its ‘product library’ that includes common vehicle architectures and other shared tech to reduce product development cost, says Butschek
NEW DELHI : Tata Motors Ltd (TML) is paring costs by removing non-core assets to cope with tough market conditions and rein in borrowings, the company’s top executive said on Thursday.
“We have 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 said in an interview.
Tata Motors had ₹23,365.49 crore debt at its India business as of 30 September 2019, according to Bloomberg. At the time, its consolidated debt, including that of UK luxury car unit Jaguar Land Rover (JLR), stood at ₹95,465 crore.
Butschek said the company has invested sufficiently in its ‘product library’ that includes common vehicle architectures, powertrains, transmissions, and other shared technologies to reduce overall product development cost.
“In the coming two years, you will see a very strong play as far as modularity is concerned across commercial and passenger vehicles. This gives us huge benefit," he said, stressing that the company has done its ‘homework’ pertaining to its turnaround plans, investing in new technology platforms such as CESS (connected, electric, shared and safe mobility) and tapping into the Tata Group companies’ strengths to build an electric vehicle (EV) ecosystem. Referring 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 have our house in order on the costs and cash management side. But in order to improve our bottomline, the topline needs to shoot and this is largely dependent on the TIV or total industry volume," he said.
“Let the economy revive. The significantly upgraded products would do much better in terms of cost-based contribution to our margin base," he said, adding the company’s current portfolio is much stronger than what it was when the economic slowdown began two years ago.
For the quarter ending December 2019, the company has delivered a free cash flow (FCF) of ₹2,400 crore in its domestic business. “We managed a positive FCF by correcting inventory and ensuring that the working capital is kept really tight," P.B. Balaji, group chief financial officer, Tata Motors had told Mint on 30 January.
The tight monitoring of funds by the top management also included roll-back of the planned capex, which Balaji said would amount to ₹4,500 crore for FY20 for the standalone business as against a planned outlay of ₹5,000 crore. That apart, the company said that it has also managed system stock reduction of ₹3,800 crore so far while steering through the downturn.
“We now need volumes, which is largely a question of this transitional period involving BS-IV to BS-VI," said Butschek. Representatives across the automotive industry unanimously agree that the first two quarters of the next 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 said that they expect a recovery no sooner than the festive season in FY21.
Butschek said that customers would take a while to absorb the higher cost of purchases under BS-VI emission norms, which would entail a product price increase of 10-15%.
“Let’s assume that this will take half-a-year as a further transition, (we expect) the second half of next fiscal is going to fire, if the economy gets back to growth. The TIV needs to grow," he said.
As part of its turnaround plan, Tata Motors plans to launch 12-14 passenger vehicles over the next three to five years, besides at least four new electric vehicles over the next 18-24 months. It recently launched Nexon EV at a starting price of ₹13.99 lakh and plans to introduce the electric 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 seven-seater Gravitas SUV.