A sustained progress on the market share front is needed for Tata Motors to acquire scale in India
Its key subsidiary Jaguar Land Rover also faces an uphill task of recovering market share
Shares of Tata Motors Ltd continue to trail the benchmark Nifty Auto index, though the company is seeing a meaningful recovery in sales. Domestic sales grew 21.6% year-on-year last month led by the passenger vehicle segment, a notable improvement after the 81.9% fall in the June quarter.
Monthly figures of its key subsidiary Jaguar Land Rover (JLR) are not readily available for comparison. However, analysts said a recovery is underway in China, North America and the UK, and indications are the company will see notable improvement, after a 42% fall in retail sales last quarter. JLR is seeing traction for its newly launched Evoque and Defender vehicles, Motilal Oswal Financial Services Ltd pointed out.
Moreover, Tata Motors is rightsizing costs and curtailing capex. It aims to turn free cash flow positive in one-two years and a near-zero net debt company thereafter. The June quarter results show the benefits of these measures, especially at JLR.
However, the stock is still 28% lower than its highs in January. Besides, the recovery in commercial vehicles, a large business for Tata Motors in India, is expected to pick-up pace only after a year or so.
There are also concerns whether the company will continue to see recovery in sales. The passenger vehicles business of Tata Motors in India saw good success with new models, helping the company increase its market share to 9.5% last quarter. Still, a sustained improvement in market share is required for Tata Motors to acquire scale in the Indian passenger vehicle market. This will be tough, given the fierce competition, said analysts.
JLR also faces an uphill task of market share recovery. The company lost market share, even as global automobile sales came under pressure.
The market share loss is perceptible in the fast growing China market, where excess inventories at dealers led to discounts. JLR’s reorganization efforts are beginning to yield results in China. However, regaining lost ground will be tough. Also the growing preference for electric vehicles is a hindrance for traditional automobile vehicle manufacturers, who are lagging in development of new generation vehicles.
“Rising share of electric vehicles (EVs) and new players such as Tesla are likely to put added pressure on the market share of traditional original equipment manufacturers. Concurrent investment in internal combustion engines and EV product development is likely to put pressure on cash flows in the foreseeable future," analysts at Macquarie Research said in a note.
To manage costs better and withstand competition, Tata Motors is transferring its India passenger vehicle business into a separate unit and is looking for partnerships. JLR and BMW have already announced a collaboration. A strategic partner for the India business and lasting success of new products will reassure investors.