Tata Motors Limited. Future Strategy & Growth Plans. India Unplugged : Walking the Talk. Kotak - Goldman Sachs Conference.

Transcription

1 Tata Motors Limited Future Strategy & Growth Plans India Unplugged : Walking the Talk Kotak - Goldman Sachs Conference September

2 1. Performance 2. Commercial vehicles Growth Drivers Market Strategy 3. Passenger Vehicles Growth Drivers Market Strategy 4. Vehicle Financing 5. Financial Management 6. Subsidiaries 2

3 Net Revenue and Operating Margin Rs. bn 200 Unconsolidated 12.5% 20% Rs. bn 200 Consolidated % % 14.2% % % 14.9% % 12.8% % % % % 50 5% 50 5% 0 FY02 FY03 FY04 FY05 0% 0 FY02 FY03 FY04 FY05 0% Net Rev EBITDA margin Net Rev EBITDA margin 1QFY06 Net Revenue: Rs bn EBIDTA Margin: 12.6% 1QFY05 Net Revenue: Rs. 35.7bn EBIDTA Margin:12.0 % 1QFY06 Net Revenue: Rs bn EBIDTA Margin:12.5 % 3

4 Profit after Tax 13 Rs. bn Unconsolidated 12.4 Rs. bn 14 Consolidated FY02 FY03 FY04 FY FY02 FY03 FY04 FY Last 3 Years CAGR of 103% Last 3 Years CAGR of 106% 1QFY06 PAT: Rs. 2.7 bn 1QFY05 PAT: Rs. 2.2 bn 1QFY06 PAT: Rs.2.6 bn 4

5 Negative Working Capital Days of sale Days of sale Inventory FY02 FY03 FY04 FY05 1QFY06 Receivables (non-hp) FY02 FY03 FY04 FY05 1QFY06 Days of sale (5) (10) (15) (20) (25) (30) (35) (40) FY02 Net Working Capital 0 FY03 (17) FY04 (23) FY05 (40) 1QFY06 (6) Negative Working Capital Maintained Calculations exclude Investible surplus and vehicle financing loans 5

6 Strong Balance Sheet Rs. bn Net Debt & D/E (on Net basis) (0.9) (0.15) (5.5) (0.02) FY02 FY03 FY04 FY05 1QFY (0.2) (0.4) Net Debt D/E (on Net basis) RHS 6

7 Optimizing Returns on Capital ROCE ROE 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 42% 36% 17% 5% FY02 FY03 FY04 FY05 35% 30% 25% 20% 15% 10% 5% 0% -5% 32% 26% 12% FY02 FY03 FY04 FY05-2% Note : Capital Employed excludes Investible Surplus for ROE and ROCE calculation 7

8 1. Performance 2. Commercial vehicles Growth Drivers Market Strategy 3. Passenger Vehicles Growth Drivers Market Strategy 4. Vehicle Financing 5. Financial Management 6. Subsidiaries 8

9 The Indian Commercial Vehicle Industry is similar to Global CV Industry due to its cyclic nature and low volumes Nos in '000 Indian CV Industry Similar with Global CV Industry Dis-similar to Global CV Industry Characteristics Cyclical Low Volume (in,000s) Secular long term growth trend Early stage of road development CAGR: 6% Strategy for Countering Cyclicality Retain high Market Share in existing segments & enter less cyclical segments in India Build Strong position in emerging segments in new geographies Lower Break Even Point 9

10 The Indian CV Industry, which has seen an up-cycle for the last 4 years, could be influenced by several factors Growth Drivers Continued road development in the next 5 years GDP growth rate of 6% to 8% Low interest rates and availability of finance Possible opening of trade with Pakistan Entry of global players would help in market expansion Retarding Factors Increasing Oil price Now, $ 70/bbl. Railways Network plans - Separate Rail corridor for freight - Discounts for bulk freight movement Continuation of high increase of input prices Development of OIL pipe-line network 10

11 Growth in road development activity would be the single most important factor to move forward the Indian CV Industry Truck penetration MHCV / m population Turkey Australia Russia Argentina Brazil China South Africa Indonesia India Dramatic impact in initial stage of road development Spain Portugal France Germany Road Density Paved Highway (km) / Area (km 2 ) UK Stage Source: VDA (German Automotive Association), Worldbank, DRI Automotive report Golden Quadrilateral N S E W Corridors Feeder Roads 43,000 KMs (USD 25 billion) 11

12 In coming years, domestic CV market would witness entry of International Players with products for various segments ITEC with M&M Dong-Feng with ESSAR MAN with Force Motors Tata Motors is developing the products to have matching or superior products and with value for money offerings Daimler Chrysler Hyundai 12

13 Our understanding of the Customer Segments has shaped our Product Strategy which would enable us to offer competitive vehicles till 2010 & beyond Tata Ace World Truck World Pickup World LCV New bus Synergies of our In-house R & D Centre, TDCV-Korea, Hispano-Spain & external consultancy would support in timely launch of these products 13

14 1. Performance 2. Commercial vehicles Growth Drivers Market Strategy 3. Passenger Vehicles Growth Drivers Market Strategy 4. Vehicle Financing 5. Financial Management 6. Subsidiaries 14

15 Personal Mobility is positively correlated to per capita GDP 15

16 Customer Habits & Market Segmentation Cars priced below Rs. 500,000 account for nearly 80% of the market. Vehicles priced between Rs. 300, ,000 form the largest segment in the passenger car market. Indian customers are highly discerning, educated and well informed. They are price sensitive and put a lot of emphasis on value for money Preference for small cars. Small cars are socially acceptable, even amongst the well-off Preference for fuel efficient cars with low running costs. The Tata Indica has the lowest running cost at Rs 2.30 per km. Sales Monthly Costs (USD) 100% 80% 60% 40% 20% 0% Sale of Cars by Price Bands <Rs. 300 k Rs k Rs k Rs. 700k-1mn 150 > Rs. 1 mn Cost of Ownership of a Basic Car EMI Other Costs Total Monthly Expenses 16

17 Key Market Drivers - Social Growth in urbanization Upward migration of household income levels Low interest rates translating to low financing and acquisition costs hence greater affordability. 30% 27% 24% 21% % Urbanization % Households 60% 50% 40% 30% 20% 10% 0% ,000 10,000 15,000 20,000 Household Income p.a. (USD) Reduction in Consumer Financing Rates 85% of Cars are financed in India (15% in China) 17

18 Indian Market Footprint Product Segment Market Share UV 16.50% Mini 11.00% MPV 6.20% Compact 46.80% Luxury 0.20% Executive 0.50% Premium 2.90% C1 4.00% C 11.90% Tata Motors current product range addresses 75% of the market 18

19 Proposed launches in next few years Indica Family - Indica variants - New Generation Indica Indigo Family - Indigo SX - Indigo / Marina variants - New Generation Indigo Small Car New UV Platform Sumo Family - Sumo Variants Safari Family - Dicor Crossover 19

20 A customer focused field approach is under deployment Domestic: 1. Expansion of network & penetration into smaller towns in pace with road development 2. Customer care a competitive edge 3. Robust processes Sales Planning (Unique and finest in the world) Customer Relationship Management (SIEBEL Largest deployment in the world) International Business: 1. Choosing countries with highest market potential in customer segments conscious of overall value 2. Creating products to be amongst the top 3 players in each chosen segment 3. Customer care a competitive edge Low spares price Relationship of OE & Customer 20

21 1. Performance 2. Commercial vehicles Growth Drivers Market Strategy 3. Passenger Vehicles Growth Drivers Market Strategy 4. Vehicle Financing 5. Financial Management 6. Subsidiaries 21

22 Challenges for growth of captive financiers in Indian context Indian auto-finance industry transitions Dominant Phase Auto financing dominated by NBFCs and captive financiers Banks were only lenders to NBFCs Competition Retail banking increasingly became focus area for leading private banks Large PSU banks turned aggressiveleveraging their network Softer interest rates fueled substantial drop in IRRs Consolidation Banks focus on penetration and volumes Cut intermediaries to protect margins NBFCs with high cost structures became unsustainable Consolidation of NBFCs with banks (ALFS, Kotak, 20 th Century) Niche NBFCs / co-op banks continue to maintain focus (Sundaram, Chola) Critical Success Factors Access to low cost funds Better credit decisions & controls Thin overheads with faster loan processing Relationship with dealers and OEM Till and beyond Retail Banks with low CoF & wide branch network pose threat to captive financiers in India 22

23 Auto Finance Market Scenario (FY 04-05) Industry Volume Retail Finance (crs) Commercial Vehciles Passenger Car Total Share of major players in the market LGF 1.0% Others 30.9% Chola 1.9% Kotak 2.6% Sundaram 3.9% ALFL 4.5% SBI 4.0% Mahindra 4.8% TMF 5.2% ICICI Bank 22.6% Citi Financial 5.6% HDFC Bank 12.9% Banks have dominant market share in Auto financing, leading NBFCs are stagnating their growth Cheap CoB has become CSF for players TMF is ahead of leading NBFCs in terms of disbursal 23

24 Tata Motors Finance: Market leader in CV, among top 3 in PC (Tata Vehicles) Commercial Vehicles Others 20% ICICI 20% TMF 25% Sundaram 10% Citi 14% HDFC 11% Passenger Car Others 41% ICICI 33% TMF 11% HDFC 16% 24

25 Tata Motors Finance strategy Realignment of TMF business sourcing channels Dealer driven business sourcing Direct sales agents ( DSAs) Direct marketing for fleet customers in CV and corporate clients in PC Marketing Service Providers to increase Feet on street Increase presence in M&HCV fleet segment Operating leases for high end M&HCV and for car fleet owners Refurbishment of old vehicles Used vehicle financing in CV and PC Improve collection efficiency, credit control & remedial measures to reduce overdues 25

26 Focus Areas for Vehicle Financing Business Increase penetration Realign the marketing channel ( Dealer and Direct) to compliment each other Consolidate the strong position in MUVs and LCVs Increase the presence in car and Fleet segment in M&HCV Maintain strong position in rural market ( B and C class cities) Better risk management and improve collection efficiency Constantly thriving for cost rationalization IT enabled service offerings to increase operational efficiencies and provide better service to customers New business initiatives with higher margins Refinance, operating leases, insurance brokerage, refurbishment 26

27 1. Performance 2. Commercial vehicles Growth Drivers Market Strategy 3. Passenger Vehicles Growth Drivers Market Strategy 4. Vehicle Financing 5. Financial Management 6. Subsidiaries 27

28 Organic Growth Plans Rs. 60 bn capex programme to be implemented over five years beginning April 04. Targeted investment areas New Product Introduction Capacity Expansion Enhancing ERC capabilities Product up-gradation Sustenance Expenditure 28

29 Cost Reduction Drive Value Engineering Target Costing E Sourcing and Global Sourcing Supplier base rationalisation Process Improvement Productivity Improvement Outsourcing Rs. 10 bn cost reduction targeted over the next 3 years 29

30 1. Performance 2. Commercial vehicles Growth Drivers Market Strategy 3. Passenger Vehicles Growth Drivers Market Strategy 4. Vehicle Financing 5. Financial Management 6. Subsidiaries 30

31 Tata Technologies 94.3% Subsidiary Tata Technologies is a provider of Engineering & Design and enterprise services in the field of Engineering Automation and PLM solutions to automotive and aerospace OEMs (FY05 revenue at Rs 1.7 b) To pursue its growth plans globally, the company has recently announced its intention of acquiring 100% stake in a UK based company named INCAT. The following advantages are seen with the acquisition: Increased scale of business. Current revenue size of Rs. 1.7 billion to over Rs.6.7 billion Access to a broader customer base in the automotive, aerospace and manufacturing industries Wider presence in all major geographies and markets Access to INCAT s high end consulting skills and project management capabilities. INCAT s areas of Knowledge management and appropriate IPRs to provide wider product range 31

32 Tata Technologies 94.3% Subsidiary contd. The offer price for INCAT acquisition is 220p per share which is at 4% premium to the current market price that time. The implied market capitalisation is GBP 53.4 mn. The exit PE for this transaction is around ~17x. INCAT is a cash positive (~ GBP 7.4 mn) company and the net cost of acquisition is GBP 46.0 mn The integration will be completed within 100 days beginning October

33 Tata Daewoo- Heavy Trucks (S. Korea) (100% Subsidiary) Performance in 1QFY06 Margins under pressure on account of appreciation of Korean Won against the dollar to the extent of 15% in the last twelve to fifteen months. 26% decline in in the Commercial vehicle industry in Korea during April- June 2005 TDCV maintained its market share at 29%. Debt reduced from USD 51 mn to USD 30 mn. Strategy MCVs to be manufactured in S.Korea TDCV products to be exported through TML international business channel Operational efficiencies to be improved through cost reduction, Implementation of IT systems and debt restructuring. Integration with TML for product design and development 33

34 TELCON Construction Equipment (80% TML : 20% Hitachi JV) Discussions with Hitachi in advanced stage for a broadbased partnership Technology Upgradation and Product Range expansion Larger Excavators (>200Tons),Road making equipments, Road Recycling Train, Dumpers for Domestic & Export Market, Multi Utility Loader Proposed Initiatives Focus on Full Maintenance, Annual Maintenance Contract Reconditioning and Aggregate Rebuilding Focus on Components Export to other OEMs in the world ICR (Integrated Cost Reduction) with Mckinsey TOC (Theory of Constraints) from Ms.Goldratt Consulting for better inventory management Setting up of R&D Centre Vendor up-gradation to help meet future challenges 34

35 HVAL & HVTL Heavy Axles and Transmission (100% subsidiaries) Discussions to bring the strategic partners at an advanced stage. HVAL/HVTL will support Tata motors in its advanced power train implementation strategy. Investments planned for capacity expansion, productivity, quality improvement. Exploring growth opportunities outside of Tata Motors. 35

36 Challenges Ahead Increase in input prices to continue to put pressure on operating margins Rising fuel prices Increasing competition across all vehicle segments Uncertainty about the commercial vehicle cycle Execution of product plans 36

37 Thank You 37