Tata Motors - International Business Foray

8/14/2019 Tata Motors - International Business Foray

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TATA Motors: IconicInternational Drive

Disclaimer:ThiscasewaswrittenbyUdayKamath,asapartoftheindividual

projectforthesubject InternationalBusiness Iatabusinessschoolcourse,

thecasehasbeencompiledthroughfreelyavailableprintandonlinearticles,

whicharedulyacknowledged in the references, the interpretationof issues

facedbytheCompanyarehisownanalysiswithnodirectdomainknowledge

and is intended for use as a class project for discussion, rather than to

illustrateeithereffectiveorineffectivehandlingofamanagementsituation.

UdayKamatheEPSM020523/11/2009


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InternationalBusinessI aProjectReport 2

Index

Introduction.................................................................................................................................................3

Fords

Premier

Brands

on

Sale

........................................................................................................................

3

Tataonestepatatime...................................................................................................................................3

JaguarOkwithTatatakeover..........................................................................................................................4

Mr.MoneycomesupwithCarFinance6.........................................................................................................4

IndianMergersandAcquisitions:ThechangingfaceofIndianBusinessbrandIndia!.....................................5

MergersandAcquisitions ...............................................................................................................................7

ForTataMotors Howgoodadealisit?.......................................................................................................7

TheObviousBenefits......................................................................................................................................7

TheChallenges8..............................................................................................................................................7

NewMarkets8.................................................................................................................................................8

InvestorsDisappointed8 .................................................................................................................................8

TheRoadAhead8............................................................................................................................................9

JaguarLandRoverlaunchesinIndia.............................................................................................................9

LandRoverbadlyhit,butJaguarisabiggerproblem9..................................................................................10

GeneratingMediaAttention.........................................................................................................................10

Smallersizedcompetitor..............................................................................................................................11

Analysis.....................................................................................................................................................11

GrowthStrategyRisk....................................................................................................................................12

EconomicRisk...............................................................................................................................................12

Macroeconomicrisk.................................................................................................................................12

Foreignexchangerisk/Financialmanagementrisk...................................................................................12

Interestraterisk.......................................................................................................................................13

Manufacturing, TechnologyandIntegration.................................................................................................13

ProductOfferingportfoliomanagement....................................................................................................13

OperatingCosts............................................................................................................................................13

PolicyRisks...................................................................................................................................................14

TechnologyPolicy.....................................................................................................................................14

LabourPolicy............................................................................................................................................14

CultureRisk...................................................................................................................................................14

References:................................................................................................................................................14

Annexure...................................................................................................................................................15

JaguarLandRover11

......................................................................................................................................15

Financials20082009....................................................................................................................................16

Financials20072008....................................................................................................................................16

Graph1........................................................................................................................................................16

Graph2........................................................................................................................................................16


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Introduction

FordsPremierBrandsonSale

June2007newswasout1 thatFordhasappointedGoldmanSachs,MorganStanleyandHSBC to investigate

selling its British premium brands Jaguar and Land Rover. The move effectively signals the end of the Blue

Oval'sPAG

division#.

Officialshaverefusedtoconfirmordenythesale,buthaveoutlinedtoBritishMPsthedealwhichwillspinoff

JaguarandLandRover,butretainVolvointheFordfamily.FordsoldAstonMartin,PAG's#sportscarbrand,to

aprivateequitypartnershipearlierintheyear.NobiddersforJaguar/LandRoverwereconfirmedyet,butFiat

Autodenied itwas intheframe,andRenaultNissanhasalsodistanced itselffromreports itwas interested.

AlchemyPartners,theventurecapitalistswhonearlyboughtMGRoverbackin2000isalsoacontender.

Former Ford of Europe boss Martin Leach said he expected private equity companies as the most likely

bidders,whichraisesfearsoverthe15,000employeesintheUK.'Thetwobusinesseshavenotbeenprofitable

forsometime;thedealwillmostlikelyincludesomedownsizing,' hetoldtheBBC'sTodayprogramme.Fordis

desperatetomakeprogress in itsrecoveryprogrammeafter losing$12.7billion lastyear.TheAstonMartin

saleraised479millionandacombinedJag/AstonsalecouldswellFord'scoffersfurther.AlthoughLandRover

isin

ahealthier

financial

state

than

Jaguar,

it

is

seen

as

almost

impossible

to

separate

the

two

brands,

which

is

why Ford is considering bundling them together in a joint sale. The companies share many backoffice

functions,engineeringunitsandevenmanufacturing atthejointHalewoodplantinMerseyside.AlthoughFord

doesn'tbreakdowntheresultsofitsindividualbrands,thePremierAutomotiveGroupsufferedabiggerpre

taxlosslastyear,losing$327mcomparedwith$89min2005.SellingoffJaguar,LandRoverandAstonMartin

wouldeffectivelytriggertheendofPAG.

After6monthsofnegotiations2thebattleforLandRoverandJaguarhasbeenwhittleddowntothreeserious

bidders.Tata,fellowIndiancargroupMahindra,andAmericanbuyoutgroupOneEquity.Fordislikelytoname

Tataasitspreferredbidderinthenextcoupleofweeks.Tatawillpayintheregionof1billionfortheBritish

marqueesalthoughtheywillstillhavetonegotiateaseparatedealwithFordforthecontinuedsupplyoftheir

engines. A settlement will also need tobe negotiated with the pension trustees and with Unite the JLRs

workers union. The three UK factories are to remain safeguarding 15,000 UKjobs, although most felt that

production

will

be

slowly

shifted

to

India.

Tataonestepatatime

BylateJanuary20083,IndianautomakerTataMotorswasonestepclosertoacquiringJaguarandLandRover

from Ford after winning the support of the unions utilized by the British brands. A nonessential but still

importantvictoryforTata,theunions'shopstewardsvotedthat ifFordwere tosell the twomanufacturers

theyfeelTatawouldbethebestchoice.TheunionsstillseemtobelievethatFordkeepingJaguarandLand

Roverwouldbethebestsituationfortheworkforce.

Union leadership also met with rival bidders, One Equity Partners a division of J.P. Morgan Chase and

Mahindra&MahindraLtd.,anIndianautomaker. Tataapparentlywonovertheunionbysayingtheyhadno

intentionofmovingoroutsourcingworkerstoIndia,andtopexecutivesatJaguarandLandRoverwouldlikely

keeptheir

positions.

According to Automotive News4, quoting Ford of Europes Chairman Lewis Booth, the American group has

entered focused and detailed negotiations that aim to see Tata finally as the new boss in Coventry and

Gaydon,England.Taking intoaccountthisstatement, itisobviousthetwocompaniesarenowjustclarifying

the details of the deal. As a matter of fact Booths statement is the first time Ford names with certainty a

candidateforJaguarandLandRover.

Of course it is tooearly toconsiderTatadeal asa bargain,or any longtermnegative effects on theBritish

companies.However,Fordneedsimmediatecashtoovercomelosses,andTataseekstoplaytheglobalgame


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withJaguar/LandRoverunderitswings.Forsure,Fordislosingtwoofthebiggestbrandnamesinautohistory

thatironicallyarenowgrowingwithfreshproductssuchastheallnewJaguarXF,theXK,andtheLandRover

FreelanderII.

JaguarOkwithTatatakeover

Themanagement

of

luxury

carmaker

Jaguar

is

'entirely

relaxed'

5about

the

prospects

of

Indian

conglomerate

TataGrouptakingoverthebrandalongwithLandRover.

Earlier, inthemonth,FordhadnamedTataMotors,which ispartoftheTataGroup,asthepreferredbidder

foritsBritishmarquees JaguarandLandRover,butafinaldecisionforthesaleisyettobetaken."Wehave

shown Tata our new model lines and theplannedproduct cycle. The two national cultures appear tofit

togetherverywellandTataisbeingveryrespectfulaboutwhatwearedoing,"IanCallum,Directorofdesign

who is responsible for the Jaguar's new XF and XK model ranges told Financial Times. However, Callum

stoppedshortofacknowledgingTata'spurchaseofJaguarandLandRoverforanestimated$2Bnwasadone

dealbetweenTataandFord,thereportsaid.Jaguarsmanagement isentirelyrelaxedabouttheprospectof

the carmakers takeover by Tata group and believes that it would allow Jaguar and Land Rover to develop

unfettered,thefinancialdailyadded.

Manyof

the

problems

associated

with

Jaguar

cars,

which

have

persistently

failed

to

attract

enough

buyers

and

itsdescentintolossesthathitabout600milliondollarsseveralyearsago,laywithinJaguaritself,Callumwas

quotedassayinginthereport.Ithadfailedtomoveonandkeeppacewithitsmajorrivals,headded.

Mr.MoneycomesupwithCarFinance6

IntheweekofMar2008,theJaguarandLandRovermarqueeswererescuedfromcashpoorFordofAmerica

bycashrichTataofIndia.Hadthatnothappened,theprideofCoventryandSolihull'sfinestcouldhavebeen

snapped up by assetstrippers or, even worse, died a painful MG Roverstyle death. The new outfit will

officiallybeknownasJaguarLandRover butitisalreadybeingreferredtomerelyasJLR.

It's notknownexactlywhere JLRwill locate itsheadquarters,norhow its newcompany logowill lookand

whetheritstwofamousbadgeswillsomehowbemergedintoone.

About 13,500workers in Britain are employed directly by either Jaguar or Land Rover, and there are many

more UK citizens working for British suppliers, dealerships, transport companies and associated businesses.

HadFord not let Tatastep in, thousandsof Britsmighthavebeenjoining the dolequeue.Thesituation for

Jaguarand,toa lesserextent,LandRover is orwas critical.Inthepasttwodecades,JaguarhascostFord

billionsofdollars.AlthoughLandRoverisinbettershape,thefactisthatfirstBMW,andlaterFord,wereboth

keentodumpthe4x4specialistbecauseitcostagreatdealtorunbutdidn'tmakeagreatdealofprofit.

Thebigquestion is:whatcanTataMotorsdoforJaguarandLandRoverthatFord(andBMW)couldnotdo?

The IndiancompanymakesbusesandLorriesandhasalsochurnedoutafewdownmarketpassengercars,

someofwhich(theSafari4x4,forexample)rankamongtheworstmotorsonsaleinBritaininrecenttimes.So

what,apartfromcash,canthe Indiansbring to theparty?Withthebestwill in theworld, Ican't thinkofa

singlething.

For now, the 16,00013

JLR workers and most of the suppliers have little to worry about because Tata has

agreedtohonorafiveyearplan that'salready inplace.But that isonlyfor thenext fiveyears.Whatabout

fromyearsix?Britainhasthefourthhighestcostof living intheworldandemployersherefacesomeofthe

highest employment, social security and related costs around 14 an hour for a production worker. By

contrast, India, Tata'shome,boasts the fourth lowestcostof livingand theequivalent factoryworkercosts

pennies, not pounds. Surely, it will have occurred to Tata that it can save colossal amounts by shifting

production to itshomesoil?Afterall,Mercedes,ToyotaHonda,Hyundai,GM,Ford?SkodaandFiatalready

makecarsinIndia.


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ThenewlyacquiredsitesatCoventry,Solihull,CastleBromwich,Halewood,Gaydonandelsewherecouldbe

expertlyvaluedbyTata.IfsomeorallofthesecountlessacresofprimeEnglishlandgetplanningpermission

forresidential, retail,airportor leisuredevelopment,Tatacouldseebillionsrolling inthroughpropertysales

alone.

Meanwhile,it'snosurprisethatJaguarisdesperatetosellcarsatthemoment.Theofficialpricelistsaysthat

customerscannotbuyanXKunlesstheyspendmorethan60,000.Butat leastone independentdealerhas

beenoffering

this

model,

unused,

at

less

than

50,000.

Alternatively,

another

indie

dealer

has

been

slashing

upto6,321offhighspecXtypeJags,whicharenowdownto18,999unused.

CouldthatbeTataMotorsstrategy?Hugelydiscountedcarsbuiltandsoldinmuchgreaternumbersthanever

before?Perhapsthere'saneedforbusyfactoriesinboththeUKandIndia.

Indian Mergers and Acquisitions: Thechanging face

of Indian Business brand India!

Thegiant7positivestridesthatBrandIndiahastakeninlastfewyearsarenothinglessthanastonishing.Indian

Businessmen and Entrepreneurs are set out to revamp Indian image that will be boasting worlds biggest

corporations in near future. All the sectors, be it Steel, manufacturing, Information technology, Auto and

FMCGareallbuzzingwithMegaIndianacquisitions.

ThelatestandprobablythemosttalkedaboutafterL.N.MittalsbuyoutofsteelmajorArcelor,isJaguar Land

RoverbidbyTatagroup.

TosaythatJaguarandLandRoverareiconicbrandsinAmericaandEuropeisanunderstatement.Ifyousee

someonedrivingaJaguarorLandRover,thedefaultthoughtthatcomestoyourmindisthoseguysmustbe

filthyrich!

ThisTata

buy

out

of

these

two

brands

is

much

more

than

mere

acquisition

of

acompany.

It

is

amessage

that

TataissendingacrosstheglobeaboutIndiancompaniesandIndiaitself!NotwithoutareasonweretheJaguar

dealersinNorthernAmericamakingabighooplaaboutthisdeal.Somedealershavegonesofarastosuggest

thatconsumersintheUnitedStateswouldnotwanttobuyapremiumbrandsuchasJaguarifitwereowned

byacompanyinIndia.

Fromfinancialperspectivethough,peoplearenottoosurehowTataplanstomakeaturnaroundofbrands

likeJaguarthathavebeenonalosingstreaksincelast15yearsmakingmorethan$billionlossesyearonyear!

Until up to a couple of years back, the news that Indian companies having acquired AmericanEuropean

entities was very rare. However, this scenario has taken a sudden U turn. Nowadays, news of Indian

Companies acquiring foreign businesses is more common than other way round. Buoyant Indian Economy,

extracashwithIndiancorporate,GovernmentpoliciesandnewlyfounddynamisminIndianbusinessmenhave

allcontributed

to

this

new

acquisition

trend.

Indian

companies

are

now

aggressively

looking

at

North

American

andEuropeanmarketstospreadtheirwingsandbecometheglobalplayers.

TheIndianITandITEScompaniesalreadyhaveastrongpresence inforeignmarkets;however,othersectors

arealsonowgrowingrapidly.TheincreasingengagementoftheIndiancompaniesintheworldmarkets,and

particularlyintheUS,isnotonlyanindicationofthematurityreachedbyIndianIndustrybutalsotheextentof

theirparticipationintheoverallglobalizationprocess.


6/19


Herearethetop10acquisitionsmadebyIndiancompaniesworldwide:

Acquirer TargetCompanyCountry

targeted

Dealvalue($

ml)Industry

TataSteel CorusGroupplc UK 12,000 Steel

Hindalco Novelis Canada 5,982 Steel

VideoconDaewoo Electronics

Corp.Korea 729 Electronics

Dr.ReddysLabs Betapharm Germany 597 Pharmaceutical

SuzlonEnergy HansenGroup Belgium 565 Energy

HPCLKenya Petroleum

RefineryLtd.Kenya 500 OilandGas

RanbaxyLabs TerapiaSA Romania 324 Pharmaceutical

TataSteel Natsteel Singapore 293 Steel

Videocon ThomsonSA France 290 Electronics

VSNL Teleglobe Canada 239 Telecom

Ifyoucalculatetop10deals itaccountfornearlyUS$21,500million.This ismorethandoubletheamount

involvedinUScompaniesacquisitionofIndiancounterparts.

GraphicalrepresentationofIndianoutbounddealssince2000.

(Source:http://ibef.org)

Indianoutbounddeals,whichwerevaluedatUS$0.7billion in200001,increasedtoUS$4.3billionin2005,andfurthercrossedUS$15billionmarkin2006.Infact,2006willberememberedinIndiascorporatehistory

as a year when Indian companies covered a lot of new ground. They went shopping across the globe and

acquiredanumberofstrategicallysignificantcompanies.Thiscomprised60percentofthetotalmergersand

acquisitions (M&A) activity in India in 2006. And almost 99 per cent of acquisitions were made with cash

payments.


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MergersandAcquisitions

ThetotalM&AdealsfortheyearduringJanuaryMay2007havebeen287withavalueofUS$47.37billion.Of

these, the totaloutboundcross border deals have been102witha valueof US$28.19 billion,representing

59.5percentofthetotalM&AactivityinIndia.

ThetotalM&AdealsfortheperiodJanuaryFebruary2007havebeen102withavalueofUS$36.8billion.Of

these,thetotaloutboundcrossborderdealshavebeen40withavalueofUS$21billion.

Therewere111M&AdealswithatotalvalueofaboutUS$6.12billioninMarchandApril2007.Ofthese,the

numberofoutboundcrossborderdealswas32withavalueofUS$3.41billion.

Therewere74M&AdealswithatotalvalueofaboutUS$4.37billioninMay2007.Ofthese,thenumberof

outboundcrossborderdealswas30withavalueofUS$3.79billion.

The sectors attracting investments by Corporate India include metals, pharmaceuticals, industrial goods,

automotive components, beverages, cosmetics and energy in manufacturing; and mobile communications,

software and financial services in services, with pharmaceuticals, IT and energy being the prominent ones

amongthese.

For Tata Motors How good a deal is it?

SoonaftertheannouncementbyTataMotorsofitstakeoveroftheBritishautoiconsJaguarandLandRover

fromFordMotorCompanymuchoftheautoworldandthemedia8wereagogwithexcitementbutforMr.Ravi

Kant,ManagingDirectorofTataMotors,itwasbusinessasusual.Askedbythemediahowhewasplanningto

runtheacquisition,hereplied,withoutanyfuss,thatTataMotorswouldleavethedaytodayrunningofJLRto

itsexistingmanagement.

Thisshortreplywas largely ignoredbythemainstream Indianmedia,but itansweredthequestionthathad

consumedanalystsandeditorialwritersworldwidesinceFordchoseTataMotorsasthepreferredbidderin

January2008.Intheretrospectitwasreallynofussatall,thishasbeentheapproachbyTataGroupwithallits

bigticket

acquisitions

in

the

recent

past,

all

of

which

was

overseas

from

Tetley

to

Corus

to

Daewoo

heavy

commercialunits.

InfactinapressstatementtheTataGroupChairmanRatanTatahadsaidWehaveenormousrespectforthe

twobrandsandwillendeavortopreserveandbuildontheirheritageandcompetitiveness,keepingtheirBritish

identitiesintact

TheObviousBenefits

The JLRdealwillgiveTataMotorsacritical footprint inEurope,which accounts for over threefifthof JLRs

total sales volumes. Then, Jaguar and Land Rover will also expand the companys product portfolio, which

comprises of the Indica, Indigo, Sumo, Safari and the new baby Nano. Ford will continue to provide

engineeringand

back

office

support

for

an

unspecified

period.

And

the

US

companys

finance

arm

will

also

finance JLRs dealers and customers for one year. These could prove invaluable for Tata during the initial

monthsofitsstewardship.

TheChallenges8

ButthebigquestioniscanTataMotorssucceedwhereFordMotorsfailed?

Despitetheiriconicbrandimage,

JaguarandLandRoverfaceformidablechallenges.Jaguar,whichsold130,000carsin2002,closedyear2007

withsalesoflessthanhalfthatnumber.BMW,whichtargetsthesamecustomers,produces20timesasmany

cars.Then,overthelastthreedecades,ithasbeenplaguedbyqualityandreliabilityissues.This,expertssay,


8/19


hada lottodowithFordsmanagementmantra.Inordertocutcosts, itbuilttheJaguarXtypeontheFord

Mondeoplatform.ThisdilutedJaguarspremiumbrandimageandensuredalukewarmresponsefrombuyers.

Butaslewofnew launchesandplatformsamong themthenewXFmodel,andalsotheXKandXJcould

reversethistrendandtakevolumespastthe100,000markthisyear.WewillallowtheJLRmanagementto

strengthenthecompanysbrandpersonality.ThenewJaguarXKhasprovedtobeasuccessfulmodel.Thenew

XFsedanhasreceivedgreatreviewsatautoshowsand15,000bookingshavealreadybeenreceived.Ibelieve

thenewproductlineisverygood,RaviKantMDTataMotorssaidinarecentinterview.Thecompanyexpects

tosell

up

to

50,000

units

of

this

model

this

year.

LandRoversproblemsareverydifferentfromJaguars.Itproducedalittlemorethan225,000SUVslastyear

and isprofitable.But, inaworld turning greenerby theday,LandRoverstill,producessturdygasguzzlers

thatarefastgoingoutoffashion.Buthere,too,theTatasmaybesteppinginatthecuspofgoodtimes.The

newLandRoverLRXconceptcar,whichwasunveiledattheDetroitAutoShowinJanuary2008,isfuelefficient

andhascarbondioxideemissionsofabout120g/km,wellwithinEUnorms.

Like theXF, this smarthybrid, whichwillbe positioned as a smallSUV for urban consumers, is expected to

restoreLandRoversoldglory.

DespiteTataMotorshavingnoobvioussynergieswithJLR,anddespitehavingnopresenceorexpertisein its

marketsegment, itmayjustbegetting inatatimewhen thetide is turning.JagdishKhattar,formerMDof

Maruti Udyog (now MarutiSuzuki India) says The challengewill lie in selling cars in competitivemarkets,

whichare

not

growing.

This

is

where

the

Tata

Groups

unique

management

philosophy

can

help

it

come

up

trumps.

TheTelegraph,London,quotedPeterCooke,KPMGProfessorofAutomotiveManagementattheUniversityof

Buckingham, oneof the worlds foremost authorities on autocompanies,assayingTatahasperfected the

delicateartofarmslengthmanagement. Tata Motors is expected to follow the Corus model at JLR. That

means,itwillprobablyformanintegrationcommitteecomprisingseniorexecutivesfromTataMotorsandJLR,

set milestone and longterm goals and, as Kant has said, let the local management run the company.

NewMarkets8

Iftheresoneflyintheointment,itisthatEuropeandtheUS,JLRsmainmarkets,areslowingdown.Thismay

delayitsrecovery.TheTatasareexpectedtocounterthisbyexploringnewmarketsinRussia,China,Indiaand

otherpartsofAsia.ButwillitalsomoveproductiontoalowcostlocationlikeIndia?TheUK,afterall,hasone

of the highestwagerates in the world, and one way of cutting costs will be to move at least a part of the

manufacturing somewherecheaper.

Tata Motors has signed an agreement with Unite, JLRs labour union, to safeguardjobs for three years (till

2011).RogerMaddison,NationalOfficerfortheAutomobileIndustryatUnite,saysthedealaugurswellforthe

UKautomotiveindustryandforthepeopleworkingforJLR.Unitehassecuredwrittenguaranteesforallthe

plantsonstaffinglevels,employeetermsandconditions,includingpensions,andsourcingagreements.

TataMotorshasnotrespondedon thissensitivesubject,but theTelegraphhassaid that JLRs threeplants,

whichproducea littleoveraquartermillioncarsandSUVs,maybetwoplants toomany,andspeculated

thatLandRoverwouldbepushinganopendoor if itclosed itsSolihullplant,asthe land issoughtafterfor

housing and an extension to Birmingham airport. If such speculation does turn to fact, then there is a

possibilityoftheTataMotorsmovingat leastsomeproduction lines to Indiaafterthethreeyearno layoffsagreementrunsitscourse.

InvestorsDisappointed8

TheIndianpressgreetedtheTataJLRdealwithlotsofcheer,butinvestorsgaveitthumbsdown.SinceJanuary

3,2008whenFordannouncedTataMotorsasthepreferredbidder,theTataMotorsstockhasmoveddown


9/19


fromRs794.25toRs679.4,whenthedealwasannounced. Inthetwodayssince then, ithas lostafurther

4.92%toRs645.95.

A partof this isundoubtedly due to theoverallcrash in thestockmarket,but it isa fact that investorsare

nervousabout the impact of the $3billion (Rs 12,000crore) debt that Tata Motors is taking on its balance

sheettofinancethisdeal.SaysTataMotorsCFOC.RamakrishnanThisisabridgeloanfacilityextendedbya

syndicateofbanksandwillbe replacedbyacombinationofa longtermdebtandequityatanappropriate

time.A

report

by

global

investment

bank

UBS

says:

This

(the

debt)

could

increase

Tata

Motors

interest

costs

byRs650700croreperannumandreducetheearningspersharefor200809byRs1213,or1920percent.

Investors are particularly worried because this comes at a time when the company is in the midst of an Rs

12,000croreexpansionprogramme.InJanuarythisyear,globalratingagencyStandard&PoorsplacedTata

Motorsundercreditwatch.

The Road Ahead8

AutocarIndiaEditorHormazdSorabjeesaystheshorttermwillbeallaboutnewmodelsliketheXFsaloon.I

donot think there isaproblemasfaras thebrandpositioning isconcerned.Theseare topendmodelsand

there isnooverlapwithTataMotorsexisting lineup. Agrees Harish Bijoor, CEO, Harish Bijoor Consults, a

brandconsultancy,whothinksitispossibleforacompanytohaveaplethoraofbrands.Havingacarpriced

atRs1lakhandanotheratRs1croreishardlyanissue,hesays.Thismeans,effectively,thatTataMotorswill

be

competing

at

the

top

end

and

the

bottom

of

the

market,

where

competition

is

the

least

intense,

and

not

in

thecutthroatmiddlesegmentwherethemainglobalcompetitionlies.

Jaguar Land Rover launches in India

TataMotorsofficiallylaunchedtheJaguarandLandRoverintheIndianmarketon28June,2009.RatanTata,

Chairman,TataSonsandTataMotorssaidwhen launchingthebrandsinMumbaiWeareextremelypleased

andproudtointroducetheJaguarLandRover(JLR)brandsintheIndianmarketandgivethediscerningIndian

customerdirectaccesstotheseprestigiousbrands,accompaniedbyapartsandservicenetwork.Wehopethat

theywilldelightcustomersinIndia,justastheyhavedoneinmarketstheworldover.

WithpricesrangingfromRs.63LakhstoRs.1.0Crores,thefivepremiummodelsfromtheJLRrangetheXF

(competeswith

Mercedes

EClass)

and

the

XK

sports

coupe

and

convertible,

plus

the

Discovery,

the

Range

RoverSportandtheflagshipRangeRover.

Jaguarscurrentmodelrangeconsistsof4carstheslowsellingolderXtype,XFwhichwaslaunchedin2008

andtheonemodelwhich isholdingoutforJaguar,theXYsportsandconvertiblethat issellingdecentlyand

theflagshipXJ.LandRoverconsistsof4modelstootheFreelander,theDefender,theRangeRoverSportand

theflagshipRangeRover

InIndiaallthiswillatbestsellonlyinhundreds.ButthenumberswillbesignificantforTataMotorsasitishit

hardbytheeconomicmeltdown,sufferinganetlossofRs.2,505Crores($521.5Million) in20082009,mainly

onaccountofJLRacquisitioninMarch2008.JLRmadeanaftertaxlossof306Million($501.5Million)inthe

tenmonthstoendofMarch2008.SalesofLandRovercrashed40%to120,000carsduringJune08to

March09,whileJaguarsalesdeclinedby4%to47,000cars.InthefirsthalfJLRsEuropeansalesweredown

39%

to

41,907

cars

according

to

the

European

Automobiles

Manufactures

Association,

ACEA.

DecliningsaleshaveforcedTataMotorstocut2,000JLRjobs.InbeginningofAugust2009Tataannounced300

morepostswouldbecutalongwiththeproductionofXtypeattheJLRsHalewoodfacilityinnorthEngland.

TheautomakeralsoaskedforanUKgovernmentguaranteefora340Million($561.9Million) loansanctioned

bytheEuropeanInvestmentBankforJLR.Asthescenarioforglobalautomobiledemandremainsweakitlooks

likeJLRmayaxemorejobs.Sheddingjobsandshuttingplantsareshorttermanswerstostemthebleedingof

thetwobrandsthatpushedTataMotorstoitsfirstlossin8years.Thecrashofthecommercialvehiclemarket

in Indiaalsocontributedtothewoes.Butwhat isrequired isastrategythat integratesJLR intoTataMotors


10/19


moreeffectively,takingadvantageofthecostbenefitsthatTatacouldbringtothemanufacturingprocess.At

thesametimethereisalotthatTataMotorscanlearnfromJLR.

LandRoverbadlyhit,butJaguarisabiggerproblem9

Land Rover which hasbeen doing well till the mid2008 has beenbadly hit like all the SUVs, the Defender

whichistheoldestmodelintherangehasbeenhitthemost.InfacttechnologicallytheDefenderisverymuch

likethe

Tata

Safari.

A

chassis

on

frame

design

the

dimensions

are

similar,

the

weigh

is

very

much

the

same

just

thatthe2.2litreTatadieselenginedevelopsmoretorque(140bhpand320Nm)thantheDefenders2.5litre

units (122bhp and 300Nm). The Defender is much more capable offroad, but then it does not have air

conditioning,central lockingandfewextrasthatsomeversionsofSafarihas.TheSafarisellsforbetweenRs.

8.0Lakhs and Rs. 13.0Lakhs in India while the smaller, short wheelbase, 3door Defender starts at 23,680

(Rs.18.7Lakhs)intheUK.Thisis43%to133%morethantheSafari.

The Defender is overpriced, which probably explains whyjust 23,154 units (a little over 10% of total Land

Roversales)weresoldin2007.But,ifitispossibletobringdownthecostsandimprovequality,thepotential

forthisgoanywherevehicleinmarketsacrossAfrica,AsiaandLatinAmericawhichisoutsideofitstraditional

marketsUKandEuropecouldbehuge.Asitispossibletosharethechassisandotherunderpinnings, asimple

robust4x4thatcouldbothbethenextgenLandRoverandTataSafaricouldadduptohundredsofthousands

ofunits.TheDefenderhasbeenassembledunder license inseveral locationsworldwide, includingBraziland

Turkeyand

ifthe

last

generation

was

made

in

Spain

then

India

is

the

next

logical

step

and

in

future

models

like

theFreelanderandtheLRX(project1.513plannedfor2011rollout)couldalsobemadeinIndiafortheAsian

andtheAfricanmarkets.TheLRXoranewnameproposedwillbethesignificantnewmodelinthenewTata

ownershipofLandRoverstage.ThismodelhasthepotentialforseeingmajorsuccessinEuropeandtheUSA.

TheessentialBritishnessofaDefenderoraFreelanderoranLRXwillprobablybelessofanissuecompared

totheRangeRover,RangeRoverSportandtheDiscovery.Forthesemodelstokeeponsucceeding,itwouldbe

essentialtocarryoutwithproduction(orfinalassembly)atUK.WithacostcompetitiveDefender,Freelander

andLRXapartfromthecivilianmarketstherearemarketswithpoliceandarmedforcestoo.WereTataMotors

to push lowercost robust vehicles, there could be large, institutional markets inAfrica, the former CIS and

LatinAmerica.Infact,thepotentialvolumeofLandRoverworldwidecouldeasilydoubletoaround400,000a

year.

OtherthantheDefender,LandRoversproductplanningisclear:theLRXfor2011,anallnewRangeRoverin

2013(Project

L405)

and

an

all

new

Range

Rover

Sport

(Project

L494)

for

2014.

And

there

can

be

considerable

synergyforthenextDefender(projectedfora2014rollout).LandRovercouldthen,inthelongterm,beareal

winnerforTataMotors.

Clearly,thebiggerproblemisJaguar:salesaredowndespitethesuccessofthenewXFanditstheonelosing

moneymorethantheothers.Intheshortterm, itsproductplanningisquiteclear,butthereareconcerns in

thelongerterm.AndisthereanypotentialsynergyforTatawhichtheycouldleverage?

GeneratingMediaAttention

Ontheproductfront,theXFhasbeendoingwell,asistheXK,bothofwhichhavebeenlaunchedinIndia.Their

high performance siblings, the XFR and the XKR, have been garnering much media attention and some

(profitable)numbers.ThesetwoarealsoonofferinIndia.Andby2014,thenextgenerationXF(ProjectX260)

willrollout.Thatsthegoodnews.

ThebadnewsistheslowsellingXJandolderXtype.ButtheXJwillshortlybereplacedbythenewXJ,which

was unveiled in July 2009,and will goon sale in early 2010. As Ravi Kant now elevated to the postof Vice

Chairman of Tata Motors (Mr. P.M Telang is the Managing Director of India Operations) points out, theXJ

goesonsaleinearly2010,whenitwillbeavailableinIndiaaswell.Specificationsandpriceswillbesharedin

duecourseoftime. Thestylingofthenewcar,whichhasbeeninspiredbytheXF,isamodernrepackagingof

thecurrentcar,andthatshouldmakeagoodcarthatsmuchmoreappealingthantheolderXJwhosestyling


11/19


unfortunately harkedbacktotheoriginalXJ6from1968.Initialreactionfromthespecializedpresshavebeen

promising,butonlyby2010willweknowhowcustomerstaketoit.

2010 will also see the phasing out of the Xtype. And there are no plans to replace it. Instead, Jaguar is

planningontwomorenicheproducts:TheFTypeandtheXFCoupe.Jaguarhasalwayswantedtodoasmall

sports car torivalMercedesSLKand in2000,showed theFTypeconcept. Apparently,RatanTata likes the

ideaandisallfora$50,000(Rs20lakh)roadster(thebasenewXKretailsfor98,000,thatsRs73Lakhsplus).

Ifgiven

the

go

ahead

(to

Project

X700),

an

inexpensive

two

seater

convertible

could

be

on

sale

by

2012.

The

otheridea,aCoupederivedfromtheXF(ProjectX252),isanobviousrangeextensionand isexpectedtoroll

outby2013.

BoththeFTypeandtheXFCoupewillbegoodforJaguarsimageandhavethepotentialtobeprofitable.But

inthenumbersgame,theywillbemarginalatbest.Forinstance,TheSLKandtheCLClassdolessthan5%and

1%ofMercedesworldwidesaleof1.26millioncarssold in2008.Butthe issueiswillallthese initiativesget

Jaguarto200,000pluscarseveryyear,thevolumethatisrequiredtomakeJLRprofitable,assumingthatLand

Rovergetstoatleast300,000?Whicharenotalot,giventhatAudisoldoveramillioncarsin2008andBMW

did1.4millioncars(includingtheMini)inthesameperiod.

Smaller-sizedcompetitor

LongertermwhatJaguarreallyneedsistomakeasmallersized,largervolumecaracarthatcanbeaworthy

competitortothesmallerAudis,MercedesandBMWs.TheslowsellingXTypehasconvincedmany industry

punditsthatJaguarsimagecannotworkwithasmallcar.ButJaguarreallyoughttodevelopareplacementfor

theXType,andmakeaYTypeandZType.Thenumbersarethere:AudissmallerA4andA3makeupmore

thanthreefifthsofAudisglobalsales;forBMW,the1and3Seriesrepresentsome71%ofallBMWssold;

andforMercedestheClassandtheA/BClassesadduptomorethanhalfofDaimlersworldwidesales.

For inspiration,theyhaveaconceptalready:TheJaguarRD6from2001.Whatsmore,thiscarthatcould

perhapsstraddlethetwosegments inbeingahatchbackandasalooncouldsharea lotwithabiggerTata

flagship car. And that car could very well be the Tata Prima, a concept of which was unveiled at the last

GenevaMotorShow.ThePininfarinadesignedPrima, incidentally,hasstrikinglysimilardimensionstotheX

Type.

Andthough

Tata

may

be

bringing

the

Prima

to

Jaguar,

it

may

be

better

sense

to

get

Jaguar

to

actually

design

anddeveloptheplatform.ToallowJaguartodowhatForddidntdo,that is,designaJaguar(andnotaFord

Mondeo derivative, which the XType actually is) that alone could share for cost benefits its

platform/underpinnings withthePrima,yetretain itsquintessential Britishness. Makingtheaggregatesand

platforminIndiacanbringcostsdown,andatthesametimeTatacouldgainfromthetechnologythatJaguar

(andLandRover)couldbringtothetable.

So,canthetakeoveryielddividendsforTataMotors?Itwontbeeasy,andRatanTataandhisteamwillhave

toovercomeseveralhurdlesbeforetheycanturnJLRaround.ButasitdidwithDaewooHeavyVehicles,Tetley

and,toalesserextent,Corus,TeamTatamayyetsurprisethedoomsayers.

Analysis

Tata Motors brilliant and bold international foray has come after years of market periphery entry in many

countries through the Tata Motors exports division of their own cars and commercial vehicles. They had

gainedsufficientexperienceandnowwantedtofuelthemainmarketentryforbenefiting froma longterm

potentialoftheGlobalmarket.Theyknewthattheyneededsomethingmajorintermsofofferingandquality

products for this international markets entry. They acted fast and confidently to grab the iconic brands in

JaguarandLandRover.ThetwoenterpriseswereformallytransferredonJune2,2008atasigningceremony

attheJaguarandLandRoverheadquartersinWestMidlands,whenhistorywasmadeandthesetwoglobally

renownedbrandsbecameIndianowned


12/19


Whataretheinternationalbusinessrisksandhowaretheyplanningtotackleorhowtheyshouldaddressthe

risks.

GrowthStrategyRisk

TataMotorsundertheastute leadershipteam ledbyMr.RatanTatahastakenaverybigstep intheGlobal

Automobilemarket.

With,

the

purchase

of

JLR,

Tata

Motors

almost

tripled

in

size,

with

the

groups

turnover

goinguptoRs70,938.85crore.Thingshavenotgonetoowell,butifthenewcarNanogetsgoing,TataMotors

couldmeavolumesellerwithmorethanamillionvehiclesby2010.Thatswouldtakethemtothebigleague:

No.16th

intheworld.Andthatshouldntbedifficult.

Jaguarhasbeenaprestigiousmakerofhighperformancepassengercarswitharacinghistory,andLandRover

hasalwaysbeentheGoldStandardforoffroadvehicles.

JaguarandLandRover(JLR)areinthebusinessofdevelopment,manufactureandsaleofhighendluxurycars

andSUVsrespectively. JLRhas3manufacturingplants,1componentmanufacturing facilityand2stateofthe

artdesignandengineeringcentersintheUK,with16,000employeesacrosstheworld,salesinmorethan100

countriesandhaveover2,200dealers.Theircombinedvolumeforthecalendaryear2007wasaround288,000

vehicles.

TheDealwillgiveTataMotorsacriticalpresenceintheEuropeanmarketandcombinedwithitspresence in

marketslikeKoreaandSpainitwillincreasetheirGlobalfootprint,theriskisthattheseentryhavecomeata

stiffpricetag12

.

The passenger car and utility vehicle segments have been particularly hard hit and almost all automobile

companieshavebeenfacingoperatinglosses.Themostvisibledisruptionintheindustrywas,withoutdoubt,

the collapseof two of the threemajor U.S.car makers that filed for bankruptcyandhaveemergedasnew

companieswithsizeableFederalfundsandwithsubstantialequityheldeitherbytheU.S.governmentorthe

unions. Worldwide car sales are down 5% as compared to the previous year. The automobile industry the

world over is rationalizing production facilities, reducing costs wherever possible, consolidating brands and

droppingmodellinesanddeferringR&Dprojectstoconservefunds.Thecrisisgoesbeyondthecarmakersin

bothdirections upstream, itaffectssteelproducersanddownstream, itaffects thousandsofsuppliersand

smalltechnologycompanies.Countlessjobswillhavebeen lostthisyearandmajorprojectswillprobablybe

puton

hold,

awaiting

better

times.

The

worst

hit

are

automobile

companies

in

the

U.S,

Europe

and

Japan,

where salesof new cars have declined by 16% in the second halfof the year and where stimulus packages

designed torekindledemandhaveonlybeenpartiallysuccessful.Russiahasalsoseenmajordeclines in the

demandforcars.Thus,oneofthemajorfoundationsofthesenations'industrialbasehasbeendeestablished.

EconomicRisk.

MacroeconomicriskThe Tata Motors entry comes at a time when the economic fundamentals in Europe and USA are

weak.

These

2

markets

account

for

over

88%

10

of

the

JLRs

sales.

Credit unavailability further tightening of liquidity position and reduction in exposure to vehicle

financingbybanks/NBFCswouldhaveanadverse impactontheautomotive industry, itwouldbea

challengefortheCompanytofullyoffsetthedecreaseincreditavailabilityfromoutsidesources.

Foreignexchangerisk/FinancialmanagementriskTata Motors has issued a Corporate Guarantee in favour of its said UK SPV for this purpose. The

repayment of the said facility is proposed to be undertaken through a long term funding plan


13/19


involving,amongstothers,aright issueofequity/equityrelated instrument to itsshareholders,and

issueofsecuritiesintheinternational markettheseneedstobemanagedwellfortheoverallfinancial

healthofthecompany.

The Company has large foreign currency borrowings in the form of foreign currency convertible

securities. Movements in exchange rates and volatility in the foreign exchange markets could

significantlyimpactprofits.

InterestrateriskThestiffpricetag

12willincreasetheinterestburdenontheTataMotorsbalancesheet.

PosttheJLRannouncementandsubsequently,theCompanysratingforforeigncurrencyborrowings

wasrevisedbyStandard&PoorfromBB+/StabletoBB/NegativeandbyMoodysfromBa1toBa2.

ForborrowinginlocalcurrencytheratingwasrevisedfromAA+/StabletoAANegative/Stable byCrisil

andfromLAA+/StabletoLAA/NegativebyICRA.

Interestrateshardeningandotherinflationarytrends furtherhardeningofconsumerinterestrates

could have an adverse impact on the automotive industry. Increase in inflation could also have a

negativeimpactonautomobilesalesinthedomesticmarket.

Manufacturing,Technology

and

Integration

In these brands, Tata Motors has acquired impressive engineering capabilities, substantial manufacturing

facilities,(whichreflectthemajorinvestmentsbybothFordandBMWinpastyears),andenormousgoodwill

amongst the dealer network and the Jaguar owners community. There is a need to introduce a greater

numberofattractiveproductsforbothbrands,andtorekindleJaguarspastimageconnectedwithitssports

carheritage.Bothbrandshavetremendousunfulfilledmarketpotentialandasignificantglobalpresence

Theaccesstothemanufacturing plantsintheUKandtheengineeringexpertiseofJaguarandLandRoverwill

beabigplusifthetechnologyiswellassimilatedandwillalsobenefitthedomesticoperations.

UncertaintywithrespecttosupplyofenginesandcomponentsbyFordMotorswillbeaissueasthecurrent

contractisforan1yearperiod.

Whatwouldbemoredifficult istomakemoney,andtodothat,apartfrom learningfromJLR, it isessential

thatthereismoresynergyinusingIndiaasaproductionandsourcingbase,alongwithbetterproductplanning

andsharingoftechnologies.

The Company manufactures its products at multiple locations and its operations could be affected by

disruptioninitssupplychainduetoanynaturalcalamitiesandworkstoppagesatitssuppliersendduetoload

shedding,labourproblems,etc.

ProductOfferingportfoliomanagement

Atoneendofthespectrum istheNanowhich ispricedatRs.1.0Lakhandtheotherend isthenichebrand

Jaguar

priced

at

Rs.

1.0Crore

managing

the

portfolio

range

in

terms

of

production,

marketing

efforts

will

be

an

issue.

OperatingCosts

Prices of commodity items like steel, nonferrous and precious metals and rubber is witnessing an upward

movement, which can be partially offset by the Companys cost reduction initiatives. The price of steel, in

particular,hasincreasedby30%35%inthelast24monthsandisexpectedtofurtherincreasesignificantlyin

the coming year, increase in price of input materials could have a negative impact on the demand in the


14/19


domesticmarketand/orcouldseverelyimpacttheCompanysprofitabilitytotheextentthatthesamearenot

absorbedbythemarketthroughpricerealization.

PolicyRisks

TechnologyPolicyStringentemissionnormsandsafetyregulationscouldbringnewcomplexitiesandcostincreasesfor

automotive industry, impacting the Companys business. WTO, Free Trade Agreements and other

similarpoliciescouldmakethemarketmorecompetitiveforlocalmanufacturers.

Intheoverseasmarkets,manyofwhichhavestricternormsofvehicleregulationsrelatedtoemission,

safety,noise,technology,etc.,theCompanycompeteswith international playerswhichhaveglobal

brandimage,largerfinancialcapabilityandmultipleproductplatforms.Thesefactorsmayimpactthe

demandoftheCompanysproductsinoverseasmarkets.

LabourPolicyUnite

the

JLR

union

has

secured

written

guarantees

for

all

the

plants

on

staffing

levels,

employee

termsandconditions,includingpensions,andsourcingagreementswhichhavetheUKlawsupportso

any further downturn will be a potential risk if there is new retrenchment or closure of plants

involved.

CultureRisk

In thecasewesaw that the Jaguardealers in NorthernAmericamakingabig hoopla about thisdeal.Some

dealershadgonesofarastosuggestthatconsumers intheUnitedStateswouldnotwanttobuyapremium

brandsuchasJaguarifitwereownedbyacompanyinIndiapossiblebacklash.

References:

1) Jaguar/LandRoversellofflatest ByTimPollard,AutomotiveNews June2007.2) TimesOnline ByClintonDeacon Dec17,2007.3) AutomotiveNewsByZackNewmark Nov23,2007.4) Focused negotiations with the Indian Company By Atanas Markov, Automotive News Jan 3,

2008.

5) JaguarOkwithTataTakeover:AreportinFinancialExpressJan28,2008.6) CarfinancewithMr.Money ByMikeRutherford,TelegraphUK Mar28,2008.7) Indian Mergers and Acquisitions: The changing face of Indian Business By Arun Prabhudesai,

Trak.inIndiaBusinessBlog

8) IntheDriversSeatByKrishnaGopalaninBusinessTodayApr20,2008.9) WhatTataCanDo ByGautamSen,BusinessIndiaAug23,200910) Graph1 JLRGraphsintheAnnexure MorganStanleyResearch11) TataMotorswebsite www.tatamotors.com 12) Graph2 TheDealinNumbersseeannexureSwissBankUBS13) TataMotorsBalanceSheetAnnexureFinancialsfor20072008&20082009

#Ford calls Premier Auto Group (PAG) a bold new program for future market position success. Ford deems

Blue Oval an innovative plan for dealership success. It requires dealers to meet stringent standards for

customersatisfaction, salesandservice


15/19


Annexure

JaguarLandRover11

FactSheet

Jaguar Land Rover is a business built around two great British car brands with exceptional design and

engineeringcapabilities.JaguarLandRoversmanufacturing facilitiesareintheUK.

Areasofbusiness

JaguarCars,founded in1922, isoneoftheworldspremiermanufacturersof luxurysaloonsandsportscars.

LandRoverhas beenmanufacturing 4x4ssince1948. Itsproducts have defined the segments in which they

operate.

Jaguar

Land

Rovers

manufacturing

facilities

are

in

the

UK.

The

Jaguar

Land

Rover

business

employs

over

16,000people,predominantly intheUK,includingsome3,500engineersattwoproductdevelopmentcentres,

inWhitleyinCoventryandGaydoninWarwickshire.

TheJaguarXF,XJandXKmodelsaremanufacturedat thecompany'sCastleBromwichplant inBirmingham,

UK, while the Jaguar XTYPE is produced alongside the Land Rover Freelander 2 at the Halewood plant in

Liverpool,UK.LandRover'sDefender,Discovery3,RangeRoverSportandRangeRovermodelsareallbuiltat

Solihull,UK.

The business is a major wealth generator for the UK, with 78 per cent of Land Rovers exported to 169

countriesand70percentofJaguarsexportedto63countries.Sales tocustomersareconductedprincipally

throughfranchiseddealersandimporters.

Location

JaguarLandRoverisbasedintheUK.


16/19


Financials2008-2009


17/19


Financials2007-2008


18/19


Graph-1


19/19


Graph-2

Documents

Tata Motors - International Business Foray