Tata Motors' Kant: In the driver's seat

Ravi Kant, managing Director, Tata Motors is unequivocal: "The company is entering the next phase of its evolution." On the anvil: capex of Rs 10,000 crore over the next five years on new production facilities; a major revamp of its product lines; and the launch of its much-hyped "one-lakh car". Kant says this is the sixth phase the 61-year-old company is entering. "Our first phase was between 1945 and 1954 when we just started. The technical collaboration with Mercedes Benz between 1954 and 1969 was the second phase. The third was between 1969 and 1984 when we grew in a controlled economy. Between 1984 and 1999, we faced a stiff challenge from Japanese light commercial vehicles (LCV) manufacturers, but still emerged the biggest player. And from 1999, we have been in what I would call the 'Indica' phase, where we established ourselves in the passenger car market, recovered our financial strength and emerged as a strong organisation. We are now entering a growth phase, where we will change our product line and enter new geographies and new segments."

Tata Motors plans to completely revamp its passenger vehicle (PV) range; the so-called "Son of Indica" is expected to hit the road within three years; the Indigo and Marina will also be revamped. "The Indica was a first generation car and it has performed well. The next generation car will have improved fit and finish, drivability and be less noisy," says Rajiv Dube, Senior Vice President (Commercial and Marketing-PV). In addition, the entire range of utility vehicles (UVs)-from the dowdy Sumo to the swankier Safari-will also undergo massive makeovers. Additionally, capacity at the company's Pune plant will jump from 225,000 passenger cars and 90,000 UVs per annum to 300,000 cars and 150,000 UVs by 2008.

Then, there is the proposed joint venture with Fiat. Tata Motors is taking its joint-marketing agreement with the Italian carmaker further by entering into a joint-production agreement for utilising spare capacity at Fiat's Ranjangaon plant outside Pune. Dube expects 30,000 Tata passenger cars and 250,000 power trains to roll out of this plant. It will also give Tata Motors access to Fiat's next-generation common-rail diesel engines.

But Tata Motors still generates 65 per cent of its revenues from the sale of CVs. "The commercial vehicles business is undergoing a dramatic change. Following the development of new highways, we are seeing less point-to-point travel and more hub and spoke travel," says Telang P.M., President (Light and Small Commercial Vehicles) at the company. "Operators now prefer heavier vehicles for inter-city travel and very light vehicles, such as the Ace, for intra-city travel," he adds. "The Ace highlights our abilities to innovate and sometimes create new niches," says Kant. The Ace sold 30,000 units in 2005-06. Bajaj Auto and Piaggio are now looking to enter this segment by 2007.

Tata Motors is using expertise and technology from Tata-Daewoo Commercial Vehicles, the former Daewoo subsidiary which it bought in 2004 for Rs 465 crore, to develop the next generation of vehicles. "The new trucks will have power steering, cushioned seats and much more horsepower," informs Telang. A recently signed JV with Brazilian company MarcoPolo and a stake in Spanish firm Hispano have also given Tata Motors the capability to build bodies for buses.

How will the company finance these plans? Says Pravin Kadle, Executive Director (Finance), Tata Motors: "The company maintains a strong operating cash flow; so we will be able to fund our expansion from internal accruals. However, we are also exploring the possibility of raising some additional funds through debt instruments."

It won't, however, be roses roses all the way. Increased competition, rising input prices and zooming fuel costs can threaten the party. International-Mahindra, man-Force Motors and DaimlerChrysler are planning to enter the CV segment within the next 12 months (There are also rumours of a launch by Hyundai). But Tata Motors has factored these variables into its equation. "It's not as if we have never faced competition before," Dube points out. Kadle points out that the company has also undertaken a major drive to reduce costs. "We have rationalised our supplier network and use e-commerce to keep costs in check," he says, but concedes: "If prices continue to spiral, there will obviously be an impact on operating margins."

The company's performance has impressed analysts. All major brokerages recommend "buy". Vaishali Jajoo, an auto analyst at the Mumbai-based Angel Broking, is bullish despite her belief that the company's cash flows will come under pressure because of the massive capital expenditure. "Tata Motors' growth, particularly in the commercial vehicles segment, will be impressive," she says.

The "small car" may be the talismanic face of this phase of Tata Motors, but it is actually just a small cog in a very large wheel. "We hope to cross a million units a year in sales within five years. It took us 60 years to reach 500,000 units; we will double that in five," Kant says.

Success In Parts
Everybody from Aston Martin to Warburg Pincus likes Amtek.

Amtek's Dham: A is for attractive

The common link between James Bond's favourite Aston Martin and Indian public transport brand Ashok Leyland Ltd (all) is:

A: Agent 007's next film will have him driving an Aston Martin convertible from Manali to Leh; the film's climax will have Bond, with an Indian starlet in tow, performing his usual high-jinks at the wheel of a Leyland truck on the Mumbai-Chennai highway.

B: Vital components to both Aston Martin and the Hinduja Group company are supplied by one Amtek Auto, a $650-million (Rs 3,055-crore) Indian auto components firm.

A can never be ruled out, but B is the answer. Amtek, which started operations out of Sohna in Haryana in 1987, supplies vital components to a host of global and local auto components, totalling at least 52 major brands across the world, including Aston Martin and all. Amtek's components, ranging from cylinder bocks to transmission heads to gear shifters, can also be found in sporty Jaguars and BMWs on Germany's Auto Bahn. And of course in India's favourite, Maruti Suzuki.

That's just one reason for Amtek being closely followed by investors-the private equity variety included. Last fortnight, Warburg Pincus picked up over 9 per cent stake in auto parts maker Amtek Auto from the open market. The acquisition is expected to cost Warburg nearly Rs 292 crore, putting the valuation of the company at around Rs 3,400 crore, four times the company's annual sales. Warburg's buy-in follows on the heels of private investment banking group Stonebridge Investment picking up 4 per cent for Rs 144 crore around June-end.

Amtek has been chasing growth aggressively-revenues were up 62 per cent for the June quarter-organically and inorganically, back home and overseas. Recently Amtek acquired Akiel Castings in Pune and Amforge's con-rod division in Delhi. Global operations pitched in with 53 per cent in the June quarter; the figure was even higher in the March quarter, at almost 55 per cent. Next stop? "Mexico and East Europe," says Arvind Dham, Chairman and Managing Director, Amtek Group.

Recently Amtek had reportedly emerged as the highest bidder for JL French Automotive Castings Inc.'s Whitham plant in Essex in the UK, pipping Swraj Paul's Caparo Group. A final announcement in this regard is expected soon. Amtek is also said to be eyeing a machine component unit abroad for about $250 million (Rs 1,175 crore). It could also acquire a casting firm for about $20-25 million. Cash isn't a constraint. Amtek had mopped up $250 million (Rs 1,125 crore) through five-year convertible bonds in May and has cash reserves of another $100 million (Rs 450 crore).

-Amit Mukherjee

Burning A Hole
Should private sector petrol be subsidised too?

A Reliance Petro outlet: Company seeks a level playing field on subsidies

It's never an easy relationship between a retailer and a manufacturer regardless of the industry in question. A common gripe is the low margins being offered to the retailer, which he is unable to pass on to the end-consumer. Something on those lines is on between Reliance Industries Ltd (RIL) and its petrol pump retailers who, earlier this month, threatened to go on strike. This was the result of RIL deciding to increase the price of petrol and diesel by Rs 2.50 per litre, what with crude oil prices showing few signs of cooling off globally. Not surprisingly, this resulted in dampened demand that angered the retail outlets. In some cases, it is learnt that the demand for diesel dropped to a fifth of the actual sales.

RIL feels the playing field isn't level amongst public and private sector oil companies in the Indian petroleum retail marketing sector. "As per estimates, the Government of India provides Rs 5.77 per litre of subsidy for diesel sold through outlets of PSU oil companies. The private sector oil companies have been kept out of the government-sponsored survival package," says RIL, via an official communiqué. It argues that even after the price increase, the company is incurring "substantial losses" in retail marketing that has affected the operations and revenues of the RIL dealers. The current increase in prices is, therefore, an attempt to cut losses. RIL today has over 1,250 retail outlets, out of which it owns and operates more than 400. Post the increase in price, a litre of petrol at a Reliance-owned company outlet in Navi Mumbai is Rs 52 while it is Rs 51 at a PSU outlet. The price of diesel at a Reliance outlet is Rs 41 while it is Rs 39.50 at a PSU outlet. Reports have suggested that an agreement has been reached between RIL and its retail outlets, which means the strike is off for the moment. In turn, RIL will offer incentives like waiving network usage charges, increasing margins for diesel apart from bearing the cost of interest on loans for three months. But as V.K. Sharma, Director & Head (Research), Anagram Stockbroking, says, the need of the hour is to have a uniform policy. "If that is not the case, this kind of a problem can only crop up again." That it can.

-Krishna Gopalan

One Arm Tied
Are lending rates really moving faster than deposit rates?

Unlike private and foreign banks, it may not be easy for over two dozen public sector banks to resort to aggressive interest rate hikes in future. The Finance Ministry has controversially directed public sector banks (PSBs) to take prior board approval before hiking prime lending rates (PLR). And PSB honchos are predictably unhappy. "They want us to offer a subsidised lending rate and a market-linked deposit rate," says a visibly upset CEO of a state-owned bank.

Globally, interest rates are directly linked to cost of capital, which is the money mobilised through public deposits and other sources. Back home, of late, as inflationary pressures set in, deposit rates rose and along with them lending rates too moved up. But the argument put forward by the government is that the lending rates moved up much faster than the deposit rates. The government, as a shareholder in PSBs, in all likelihood would now press for a matching hike in the deposit rates. "There is definitely a case for a quarter to half a percentage point hike in deposit rates," agrees another banker. But such a decision will shrink the margins of many state-owned banks, which otherwise would have been added to the profits. "It's a vicious circle," says another banker.

PSBs today have to spend big money to stay efficient, including, for instance, investments on automation, especially in rural areas. It's such indirect costs that are included in every loan doled out by these banks. If the government prevails, survival would have just become tougher for India's PSBs.

-Anand Adhikari