Financial Daily from THE HINDU group of publications
Friday, May 21, 2004
Tata Motors plans capacity expansion 'Cost cutting exercise to continue this year'
(From left) Mr P. Kadle, Executive Director, Finance and Corporate Affairs, Tata Motors, Mr Ravi Kant, Executive Director, Commercial Vehicle Business Unit, Mr V. Sumantran, Executive Director, Passenger Car Business Unit, at a press confeance in Mumbai on Thursday. - Vivek Bendre
Mumbai , May 20
TATA Motors Ltd plans to have 50 per cent additional production capacity for cars in place by end fiscal 2005. This will increase capacity from the current 140-150,000 cars per annum to 220-225,000 cars per annum, senior officials said at a press briefing here today.
Current industry trends grant viability to capacities touching 300-350,000 cars at a single location. Given low capacity utilisation globally, there are lines coming off for sale from profitable and troubled players. Tata Motors is aware of these opportunities.
The company's capital expenditure for purposes including capacity expansion and product development will average Rs 1,200 crore per year for the next five years.
To part finance this, Tata Motors had recently raised $400 million, $100 million by way of zero coupon convertible notes and $300 million by way of one per cent convertible notes.
Mr Praveen Kadle, Executive Director, Tata Motors, said another $100 million would be raised over the next few months taking the quantum of funds so raised to Rs 2,250 crore.
The company is banking on its own cash flows to meet the balance.
To be harvested over and above this, from its cash flows, are inputs for the `war chest' alluded to by the Chairman, Mr Ratan Tata, soon after formal acquisition of Daewoo's truck plant.
The war chest size is estimated at half a billion dollars. For the moment, separate fund raising for the purpose is not foreseen.
The company is not keen to acquire any boutique car brand from the industry's performance segment.
But it is interested in good engineering and research outfits as it has an active product development agenda.
While vehicle prices were revised earlier, a major challenge this year continues to be input cost management. Particularly so, because the company's prime hedge against margin pressure is higher volume selling, which needs a stable pricing policy to the customer. The company's strategy would be to negotiate harder with suppliers, dig deeper to cut costs, revise prices were possible and take a hit where it can't, Mr Ravi Kant, Executive Director, said.
According to Dr V. Sumantran, Executive Director, this will be a tough fiscal for margins in the car business too.
Given the new government and the cyclicality of Tata Motors' own business, officials desisted from forecasting sales trends for the fiscal, save a promise to beat industry growth rate. Mr Ravi Kant tempered worry over possible peaking of truck sales growth rates with the secular growth trend of the domestic truck market and its position at an early stage in the catalytic link between road development and truck sales.
Globally, the truck sales cycle typically lasts 5-7 years. "We can expect some growth this year too. There could however be minor ups and downs,'' he said.
The Tatas intend to introduce a medium truck for the Korean market through the recently acquired Daewoo plant. Mr Ravi Kant said, at least one model from the Daewoo portfolio will hit the Indian market this fiscal. In India, Tata Motors' medium and heavy truck production has been shifting to Jamshedpur, its Pune plant making light trucks and pick-ups.
The Pune car plant is working "flat out''. The proposed capacity expansion does not involve significant addition of physical assets, being instead through reduction of time taken for each process. Dr Sumantran said the company has shipped out 6,700 City Rovers to the UK, of which MG Rover is believed to have sold around 5,000.
MG Rover will start selling the car in continental Europe, the region's compact car bastion, possibly by this summer end. In the domestic market, FY04 was a good year for Tata UVs. Investment began last year on the next UV platform, usual time frame to fruition being three to three and a half years.
Initial studies are on for the Rs one lakh-car. "We can't say yet that it can be done,'' Dr Sumantran said.
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