Tata Motors Limited

Future Strategy & Growth Plans

India Unplugged : Walking the Talk
Kotak - Goldman Sachs Conference
September 2005

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

Net Revenue and Operating Margin

Rs. bn

Unconsolidated

Consolidated

Rs. bn

195.33

200

200

12.5%
174.2

14.9%
139.25

14.2%

150

12.5%

132.2

15%

150

100

10%

96.1

100

10%
79.1

75.0

50

5%

50

0%

FY02

15%
12.8%

12.5%

9.1%

9.1%
91.0

20%

20%

FY03
Net Rev

FY04

FY05

5%

0%
FY02

FY03
Net Rev

EBITDA margin

FY04

FY05

EBITDA margin

1QFY06

1QFY05

1QFY06

Net Revenue: Rs. 38.8 bn

Net Revenue: Rs. 35.7bn

Net Revenue: Rs. 44.6 bn

EBIDTA Margin: 12.6%

EBIDTA Margin:12.0 %

EBIDTA Margin:12.5 %
3

Profit after Tax

Rs. bn

Unconsolidated

Consolidated
12.4

13

Rs. bn
13.6

14

11

12

9.1

10

8.1

3.2

3.0
3

1
-1

FY02

FY03

FY04

FY05

-0.5

Last 3 Years CAGR of 103%

FY02
-2

FY03

FY04

FY05

-1.1

Last 3 Years CAGR of 106%

1QFY06

1QFY05

1QFY06

PAT: Rs. 2.7 bn

PAT: Rs. 2.2 bn

PAT: Rs.2.6 bn

Negative Working Capital

Inventory

Net Working Capital

Days of sale
Days of sale

20
0
FY02

Days of sale
30

FY03

FY04

FY05

1QFY06

Receivables (non-HP)

25

(17)

29

1Q
FY
0

27

FY
05

40

20
15
10
5
(5)
(10)
(15)
(20)
(25)
(30)
(35)
(40)

FY
04

38

39

FY
03

41

FY
02

60

(6)

(23)

(40)
18

20

12
9
10

FY02

FY03

FY04

FY05

1QFY06

Negative Working Capital

Maintained
Calculations exclude Investible surplus and vehicle
financing loans

Strong Balance Sheet

Net Debt & D/E (on Net basis)

Rs. bn
35

29.9

0.93

1.0

30

0.8

25

0.56

20

13.9

15

0.15

0.6

11.8

0.4

10

0.2

0.0

0
-5

(0.9)

(0.2)

-10

(0.15) (5.5) (0.02)

(0.4)

FY02

FY03

Net Debt

FY04

FY05

1QFY06

D/E (on Net basis) RHS

Optimizing Returns on Capital

ROE

ROCE
42%

45%
40%

32%

30%

36%

35%
30%

26%

25%
20%

25%
17%

20%
15%
10%

35%

15%

12%

10%

5%

5%

5%

0%

0%
FY02

FY03

FY04

FY05

-5%

FY02
-2%

FY03

FY04

FY05

Note : Capital Employed excludes Investible Surplus for ROE and ROCE calculation
7

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

The Indian Commercial Vehicle Industry is similar to Global CV Industry

due to its cyclic nature and low volumes
350

CAGR: 6%

Nos in '000

300
250
200
150
100
50

70

-7

72 1
-7
74 3
-7
76 5
-7
78 7
-7
80 9
-8
82 1
-8
84 3
-8
86 5
-8
88 7
-8
90 9
-9
92 1
-9
94 3
-9
96 5
19 - 9 7
98
-9
00 9
-0
02 1
-0
04 3
-0
5

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

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

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

Retarding Factors
Increasing Oil price Now, $ 70/bbl.
Railways Network plans

GDP growth rate of 6% to 8%

- Separate Rail corridor for freight

Low interest rates and availability of finance

- Discounts for bulk freight movement

Possible opening of trade with Pakistan

Continuation of high increase of input prices

Entry of global players would help in market

Development of OIL pipe-line network

expansion

10

Growth in road development activity would be the single most

important factor to move forward the Indian CV Industry

1000

Stage

900

Dramatic impact in
initial stage of
road development

800
Truck penetration
MHCV / m population

700

Germany
France

Golden
Quadrilateral

UK

600
Turkey

NSEW
Corridors

Spain

500

400

Australia
Russia
Argentina

300

Portugal

Brazil

200
100

China
South Africa

Indonesia

India

Feeder
Roads

0
0

0.5

1
1.5
Road Density
Paved Highway (km) / Area (km2)

Source: VDA (German Automotive Association), Worldbank, DRI Automotive report

43,000 KMs (USD 25 billion)

11

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

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

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

Personal Mobility is positively correlated to per capita GDP

15

Customer Habits & Market Segmentation

Sale of Cars by Price Bands

Cars priced below Rs. 500,000

account for nearly 80% of the
market.

100%
80%
60%

Sales

Vehicles priced between Rs.

300,000 500,000 form the
largest segment in the passenger
car market.

40%
20%
0%
2002

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 fuel efficient cars

with low running costs. The Tata
Indica has the lowest running cost
at Rs 2.30 per km.

2004

<Rs. 300 k

Rs. 300 - 500 k

Rs. 700k-1mn

> Rs. 1 mn

2005
Rs. 500 - 700 k

Cost of Ownership of a Basic Car

250
Monthly Costs (USD)

Preference for small cars. Small

cars are socially acceptable, even
amongst the well-off

2003

200

61

150
211

100
150
50
0
EMI

Other Costs

Total Monthly
Expenses

16

Key Market Drivers - Social

30%

Upward migration of
household income levels

27%
% Households

Growth in urbanization

% Urbanization

24%

60%
50%
40%
30%
20%
10%
0%

- 2002
-- 2007

0
21%

Low interest rates translating

to low financing and
acquisition costs hence
greater affordability.

5,000 10,000 15,000 20,000

Household Income p.a. (USD)

1981

1991

2001

Reduction in Consumer Financing Rates

85% of Cars are financed in

India (15% in China)

17

Indian Market Footprint

Product Segment Market Share

Mini
11.00%
UV
16.50%

3
3

MPV
6.20%
Luxury
0.20%

Executive
0.50%
Premium
2.90%

Compact
46.80%

C1
4.00%

C
11.90%

Tata Motors current product range addresses 75% of the market

18

Proposed launches in next few years

Indica Family
- Indica variants
- New Generation Indica
Indigo Family
- Indigo SX
- Indigo / Marina variants
- New Generation Indigo

New UV Platform
Sumo Family
- Sumo Variants
Safari Family
- Dicor
Crossover

Small Car

19

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

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

Challenges for growth of captive financiers in Indian context

Indian auto-finance industry
transitions

Competition
Retail banking
increasingly became
focus area for leading
private banks

Dominant Phase
Auto financing
dominated by NBFCs
and captive financiers
Banks were only
lenders to NBFCs

Till 1999

Critical Success Factors

Consolidation
Banks focus on
penetration and volumes

Better credit decisions

& controls

Cut intermediaries to
protect margins

Thin overheads with

faster loan processing

NBFCs with high cost

structures became
unsustainable

Relationship with
dealers and OEM

Large PSU banks

turned aggressiveleveraging their
network

Consolidation of NBFCs
with banks (ALFS,
Kotak, 20th Century)

Softer interest rates

fueled substantial drop
in IRRs

Niche NBFCs / co-op

banks continue to
maintain focus
(Sundaram, Chola)

1999-2003

Access to low cost

funds

2003-2005

2005 and beyond

Retail Banks with low CoF & wide branch network pose threat to captive financiers in
India
22

Auto Finance Market Scenario (FY 04-05)

Industry Volume
Commercial Vehciles
Passenger Car
Total

320000
1000000
1320000

Retail Finance
(crs)
21000
41000
62000

Share of major players in the market

ICICI Bank
22.6%

Others
30.9%

Banks have dominant market

share in Auto financing,

LGF
1.0%
HDFC Bank
12.9%

Chola
1.9%Kotak
2.6%
Sundaram ALFL
3.9%
4.5%

SBI
4.0%

Mahindra
4.8%

TMF
5.2%

Citi Financial
5.6%

leading NBFCs are stagnating

their growth
Cheap CoB has become CSF
for players

TMF is ahead of leading NBFCs in terms of disbursal

23

Tata Motors Finance: Market leader in CV, among top 3 in PC

Commercial Vehicles Others
20%

TMF
25%

(Tata Vehicles)

ICICI
20%

HDFC
11%
Sundaram
10%

Citi
14%

Passenger Car
ICICI
33%

Others
41%

TMF
11%

HDFC
16%

24

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

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

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

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

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

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

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 INCATs high end consulting skills and project management capabilities.

INCATs areas of Knowledge management and appropriate IPRs to provide wider product
range

31

Tata Technologies 94.3% Subsidiarycontd.

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 2005

32

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

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

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

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

Thank You

37