DMUO - Teaching Notes

8/13/2019 DMUO - Teaching Notes

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Program & Batch: PGDM 2013-15Term: 2Course Name: DMUOName of the faculty: Dr. Gunjan MalhotraTopic/ Title : Tata Motors Acquires Jaguar Land Rover

(Teaching Notes)

Originalor Revised Write-up:

Original

Group Number: 02

Contact No. and emailof Group Coordinator:

Pankaj [email protected]

+919810877822Group Members: S.No. Roll No. Name

1 1301-014 Akshay Nangia2 1301-087 Harman singh Pannu3 1301-089 Ishita Das5 1301-374 Pankaj Syal6 1301-396 Rohan Sachar7 1301-562 Ruchinit Kaur
mailto:[email protected]:[email protected]


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Brief Description of the Project:

In June 2008, Tata Motors completed the biggest buy-out in theIndian automobile space buy acquiring Jaguar and Land Rover fromFord. This deal was undertaken amidst a global slowdown and hencehad widespread skepticism whether it worth taking the risk toundergo this venture at $2.3 billion at the time when Tata Motorshad already spent a fortune by virtue of capital expenditures on thedevelopment and launch of Tata Nano. This further made theinvestment look mistimed.

Things, however, turned out to be just the opposite for Tata Motors.Through this project we are going to get to light, how a mistimed dealactually changed the fortunes for the company. JLR turned profitableduring December 2009 with a net profit $90.6 million. JLR boostedthe global sales for the company by 26% while 80 % of thecompanys profit came from the JLR unit alone. This acquisition,inevitably, led Tata to set its footprints in the global market.

Hence, through this project we plan to study the decision-makingtechnique used by Tata Motors to acquire Jaguar-Land Rover. Wefurther analyze the cost and revenue synergies involved in thedecision-making model and provide an insight into the advantagesand disadvantages this deal brought for Tata Motors.

Student Assignment

Students are expected to answer following questions to clearlyunderstand the decision making in this case.

Examine Tata Motors' growth strategy. Was acquisition of JLR by TATA a case of incorrect strategy or

timing? Examine the reason why Tata Motors' acquired Jaguar and

Land Rover. Considering the current scenario, examine the position of the

acquired entities by TATA.

Explain whether the decision to acquire JLR was a success ora mere fiasco.


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Analysis

Q1) Examine Tata Motors' growth strategy

Foresight While others perceived JLR to be a failing business withlittle potential for recovery by developing a new product line for thebrand that targeted new markets previously untapped by JLR, TataMotors saw an opportunity to rebuild the brand and return it to itsformer glory. They had the vision to see not just what JLR was, butwhat it could become. This long-term approach from an establishedmanufacturer, albeit of commercial vehicles, differed markedly fromother, mainly private equity, bidders who saw JLR as a short terminvestment.

Diversification Whether driven by conventional business wisdomor investor pressure, many companies in mature markets havebecome increasingly focused on a single-industry strategy forgrowth. But, as a group, Tata has proved that it can effectively andexpansively diversify. And within that group, Tata Motors hasfollowed suit, by applying its core skills to evolve from a bus andtruck company into a leading producer of buses, trucks, luxury carsand the worlds lowest p riced production car the Nano.

Tatas skill in managing such a wide diversity of products - fromtea to steel - may indeed be a key factor in its ability to weathereconomic turmoil more effectively than many other businesses.Although it suffered along with most other businesses during theglobal crisis Tata Motors alone losing 25 billion rupees (390million) in 2009 diversification may have saved them froma worse fate.

Long-term commitment There is an understanding that theinvestment doesnt end with the purchase it isnt just about thedeal: a mistake that has led to many failed acquisitions. In the shortterm, Tatas takeover of JLR appeared rocky, and manycommentators forecast disaster, but Tatas vision was long term andinvolved both financial investment, the allocation of sufficient skilledresources, and fresh new designs to make JLR a long-term success.The validity of that commitment is borne out by Tata Motors recentannouncement of a more than threefold growth in profits for thefiscal year ending March 2011.


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Q2) Examine the reason why Tata Motors' acquired Jaguar andLand Rover.

Tata Motors had several major international acquisitions to its credit.It already had Tetley, Daewoo Motors commercial vehicle unit, andSteel maker Corus in its portfolio. Integrating its position in thedomestic Indian market whilst expanding its global footmark byleveraging on in- house capabilities and products was Tata Motorslong-term strategy.

The acquisition would let the company make a mark in the

high-end luxury segment of the global automobile market. Thisgave Tata the opportunity to own both the ends of the globalautomotive industry. The cheapest offering Nano - on onehand the luxury marquees like Jaguar and Land Rover on theother.

Tata also gained access to two advance design studios andtechnology as a part of the deal. This gave Tata Motors accessto the latest technology that would also allow Tata to further

enhance their core products in the Indian markets. It provided Tata with instant recognition and integrity across

the globe, which otherwise would have taken fairly long.

It stood to gain a competitive advantage in its costing due toCorus being the main supplier of high-grade automotive steel.This would have indoctrinated a synergy for TATA Group on awhole. See Exhibit 1.4 for the detailed analysis.

Land Rover provides a natural fit above TMLs UtilityVehicles/SUV/Crossover offerings for the 4x4 premiumcategory

Sharing of best practices between Jaguar, Land Rover and TataMotors in the future

Long-term benefits from component sourcing, low cost

engineering and design services.


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Q3) Was acquisition of JLR by TATA a case of incorrect strategyor timing?

A year after the Tata group took over the two of Britains most iconic

automobile brands, Jaguar and Land Rover, it is faced with newer andbigger challenges than it would have expected when it paid $2.3billion to Ford for the acquisitions on March 26, 2008. In FY 2008-09, Tata Motors Ltd posted its first annual loss in at least eight yearsafter sales at the luxury units, Jaguar and Land Rover plunged amidthe global recession. The consolidated net loss was Rs 2,500 crore inthe year ended 31 March, 2009 compared with a net income of Rs2,200 crore billion a year ago. Ratan Tata is slashing investments byas much as 38% in the year to March on slow economic growth.

At the time of acquisition of JLR by TATA Motors, there were somewho called for caution. They pointed out that buying into anautomobile major when the market for automobiles was set for adownturn might not reflect good business sense. Moreover, postacquisition, debt at the level of both parent and the United Kingdomsubsidiaries in the TATA group was slated to rise sharply.

Unfortunately for Tatas, the worst fear of the skeptics has come topass. Within months of the acquisition, the world witnessed the onset

of a financial crisis that triggered a credit crunch and precipitated areal economy recession. Industries such as steel and automobileswere among the worst affected. This had two implications. First, thesales and revenues of JLR were far short of expectations, making itdifficult for Tatas to meet commitment on their debt and reduce thedegree of leverage. Second, with much of this debt being of a bridgeloan kind, loans that mature and cannot be repaid have to berefinanced and rolled over to prevent default. Given the currentcircumstances, this is difficult, as Tatas discovered this May, when

the $3 bn it had borrowed to finance acquisition of JLR was due forrefinancing.

Hence, it was now upto to Tatas to get Jaguar- Land Rover on theright track.


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Q4) Considering the current scenario, examine the position ofthe acquired entities by TATA and also explain whether thedecision to acquire JLR was a success or a mere fiasco.

Jaguar land rover sales continued their upward trend sincelaunch in June 2009.

During the quarter ended June 2010 JLR generated a profit ofRs 1613 crore. Tata motors had never ventured into luxury carsegment before acquiring JLR, hence the inefficiency inhandling such segment hampered Tata motors operationalefficiency for quite some time.

Jaguar Land Rover is now a strong, profitable and innovativecompetitor in the premium car industry.

JAGUAR LANDROVER global sales in July 2010 were 19,386vehicles, higher by 30%. Jaguar sales for the month were 5,676,higher by 26%, while Land Rover sales were 13,710, higher by31%.

Recently TATA MOTORS drove past Reliance Industries to topthe 2010edition of Indias Most Valuable Brands survey with avaluation of $8.45billion.


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Jaguar Land Rover Automotive has today reported pre-tax profits of404m for the three months to the end of December 2012. For fiscalyear to date, Jaguar Land Rover reported pre-tax profits of 1.2bn, up20% compared to the same period last year. The third quarter results

reflect a 14% increase in retail sales volumes (88,658 vehicles intotal) globally. The company generated revenues of over 3.8bnduring the quarter and 10.7bn in the fiscal year to date (an increaseof 1.4bn).

Jaguar Land Rover, the UKs leading manufacturer of premiumluxury vehicles, last month sold 27,852 vehicles its best ever August sales performance with an increase of 28% versus thesame period last year. During the first eight months of the year,

Jaguar Land Rover sold 269,653 vehicles, up 16%.

Jaguar In August, Jaguar sold 5,405 vehicles, up 92% reflecting strongdemand for all XF derivatives. Together the XF sedan and Sportbrakewere up 91% with the XF sedan accounting for almost 50% of allJaguar sales in August. The Jaguar XJ has also delivered another verystrong month, up 50% with sales growth in almost all major regions.

Land Rover In August, Land Rover sold 22,447 vehicles, up 18%. Strongperformances were seen across the new and refreshed line up withparticularly solid performances from Evoque and Freelander up 34%and 23% respectively.

Profit before tax of 404m and increased revenues of 3.8bnfor the quarter

88,658 vehicles sold in the quarter (up 14%)

Profit before tax of 1.2bn for the 9 months ended 31stDecember (up 20%)

Continued investment in new products and technologies

Successful new $500m 10 year bond issue in January 2013


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Exhibits

Exhibit 1.1

Exhibit 1.2

Exhibit 1.3


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Exhibit 1.4

Exhibit 1.5

Provides services likesupplier programs,consulting services andglobal outsourcing.

Customers includeChrysler, Ford, GM etc.

Provides engineeringdesign, manufacturingsolutions and sourcingservices.

Major customer includeChrysler, Ford , GM etc.

Leader in the automativegrade steel.

16% of revenue fron autosteel division.

TAMO's flagship ancillarybiz.

Customers inc. Ford,Daimler, FIAT etc.

TACO TATACORUS

INCATTCS

STANDALONE

Particular FY07 FY08

GrossRevenue 3,18,194.80 3,30,939.30Net Revenue 2,74,700.30 2,87,308.20EBITDA 33,123.70 30.923.2EBITDA Margin 12.06% 10.76%PBT 25,731.80 25,764.70PAT 19,134.60 20.289.2Basic EPS 49.76 52.64

CONSOLIDATED

Particular FY07 FY08

Gross Revenue 3,69,214.90 4,03,407.90NetRevenue 3,23,600.80 3,56,514.80EBITDA 41,147.20 44,108.50EBITDA Margin 12.72% 12.37%PBT 30,880 30,863PAT 21,699.90 21,677Basic EPS 56.43 56.24

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DMUO - Teaching Notes