Tata Motors’ year of transformation

Tata Motors showed remarkable performance in FY24 despite global challenges, with the CV, PV and JLR divisions achieving significant milestones.

By Shahkar Abidi and Ketan Thakkar calendar 23 Jun 2024 Views icon7642 Views Share - Share to Facebook Share to Twitter Share to LinkedIn Share to Whatsapp
Tata Motors’ year of transformation

In a year marked by geopolitical tensions and supply chain woes, Tata Motors defied the odds to report a stellar performance in FY24.

"The global geo-political scenario continues to be tense with continuing military conflicts," N Chandrasekaran, Chairman and Non‑Executive Director of the company said in the company's latest annual report, referencing ongoing conflicts and their impact on supply chains. However, he pointed towards stabilising economic conditions with projected global growth of 3% in the next couple of years.

Tata Motors navigated these headwinds effectively. The company successfully transitioned to stricter BS VI phase-2 emission norms in India, all while its commercial vehicles (CV), passenger vehicles (PV), and Jaguar Land Rover (JLR) units delivered significant improvements across key metrics. Brand health, customer experience, financials, product innovation, and employee engagement all saw notable gains.

Financially, Tata Motors hit record highs. Consolidated net revenue reached Rs 4,37,928 crore, with EBITDA at Rs 62,798 crore. Profit before tax (excluding exceptional items) stood at Rs 28,932 crore, and auto free cash flow reached a healthy Rs 26,925 crore.

Perhaps most significantly, Tata Motors' India business is now completely debt-free, with plans to eliminate JLR's debt by FY25. This financial strength positions the company to capitalise on the ongoing shift towards electric vehicles and a more digital automotive landscape.

"With the turnaround at Tata Motors, the Company is embracing these shifts from a position of strength and confidence," declared Chandrasekaran.

Diversification in CV business

Tata Motors' commercial vehicle (CV) segment roared back in FY24, the top executive Chandrasekaran highlighted. The unit reported a strong 11.3% year-over-year revenue jump to Rs. 78,791 crore, with profit before tax (excluding exceptional items) surging nearly 90% to Rs. 6,102 crore.

Beyond its core offerings in heavy and intermediate trucks, small commercial vehicles, buses, and international markets, the CV business is expanding its horizons. This includes growing its non-vehicle business (spare parts, servicing), incubating smart mobility solutions for urban electric vehicle adoption, and developing a digital ecosystem for trucks and trips.

Chandrasekaran emphasised the long-term potential of the Indian CV market, aligning its growth trajectory with the country's GDP. He underscored Tata Motors' strong position in this space, citing the company's decades-long market presence, robust brand recognition, technological prowess, and comprehensive vehicle portfolio.

The CV unit boasts a sound business model with healthy margins and strong operating leverage. Looking ahead, the focus will be on accelerating revenue growth, improving EBITDA, generating robust free cash flow, and maximising return on capital employed. Technology and brand leadership will also remain key priorities.

Diversification beyond traditional vehicle sales, as per Chandrasekaran, remains a key pillar of the strategy. By expanding into areas like spare parts, digital solutions, and smart mobility services tied to the existing vehicle fleet, Tata Motors aims to mitigate the volatility, inherent in vehicle sales cycles. This multi-pronged approach is expected to drive consistent and value-accretive growth for the CV segment in the years to come.

Tata Motors' push for diversification into the CV business should also be seen in the context of its e-buses, which it supplies to various state transport units on Gross Cost Contract (GCC) basis. In FY24, the CV major accelerated its electric bus (e-bus) ambitions with three subsidiaries securing a combined Rs 837 crore in long-term financing for running the GCC projects. Notably, Tata Motors advocates for an "asset-light" model in this space, focusing on efficient operations rather than owning the e-buses themselves under government tenders.

Tata Motors' PVs hit third gear, eye long-term growth

Tata Motors' passenger vehicle (PV) business extended its winning streak to three years, Chairman N. Chandrasekaran emphasised. The unit notched record sales for the third consecutive year, registering 573,541 units (up 6% YoY) and witnessing an even stronger 8.4% growth in retail sales (Vahan-based) compared to FY23.

A sharp focus on clean technologies like CNG and electric vehicles (EVs) paid off, with these segments now accounting for a significant 29% of the overall PV portfolio. Tata Motors solidified its leadership position in the Indian EV market, maintaining a dominant 70% plus market share. The company surpassed a significant milestone by achieving cumulative EV production of over 1,50,000 vehicles, a feat achieved by only a handful of global car manufacturers. EV sales surged by 47.5% YoY to 73,844 units in FY24.

Tata Motors boasts the top two best-selling SUVs in India — the Nexon and Punch. The PV business also achieved its highest-ever annual revenue of Rs 52,353 crore, reflecting a healthy 9.4% growth over FY23. Profitability improved as well, with a notable 100 basis point increase in EBIT margins. Importantly, the PV business remained free cash flow positive.

Looking ahead, Chandrasekaran sees significant long-term growth potential in the Indian passenger vehicle market, which is expected to surpass the five million unit sales mark in the coming years, up from 4.1 million last year. Despite being the world's second-largest market, India lags behind China, which boasts a market size six times larger. Furthermore, India's vehicle penetration rate of around 30 vehicles per 1,000 population remains well below global averages, indicating significant room for future growth. Tata Motors is strategically positioned to capitalise on this opportunity and further strengthen its market share, he continued.

The PV business has outlined its key priorities for the next phase: exceeding market growth, improving EBITDA margins, maintaining positive free cash flow, enhancing customer experience, and strengthening technology and brand leadership. The competitive landscape is expected to remain intense, and the company will continue to invest in products, platforms, electrical and electronic architectures, and vehicle software to stay ahead of the curve. A significant focus will also be placed on improving customer experience and enhancing product quality.

The EV segment, in particular, will prioritise market penetration through strategic product launches, market development initiatives, and continued improvements to the charging network infrastructure. Additionally, the company will strive to introduce even more aspirational features in its EV offerings.

JLR roars back, reimagines future as a luxury EV powerhouse

Following a turbulent three years marked by supply chain disruptions, inflation, energy crisis, and global instability, Jaguar Land Rover (JLR) has roared back to financial health, Chairman N. Chandrasekaran remarked in the annual report. JLR is now firmly laying the groundwork for the next phase of its "Reimagine" strategy, focused on establishing itself as a leading premium electric vehicle (EV) manufacturer.

JLR unveiled a new "House of Brands" approach and a revamped corporate identity to accelerate its vision of becoming the "proud creators of modern luxury." The business achieved record highs in FY24, with annual revenue surging 27% to £29 billion, PBT (excluding exceptional items) reaching £2.2 billion, and free cash flow hitting a record £2.3 billion.

Chandrasekaran emphasised the enduring strength and aspirational nature of the premium luxury market. He highlighted the importance of brand heritage, stunning products, cutting-edge technology, and a personalised customer experience. JLR, with its iconic British brands like Range Rover, Defender, Discovery, and Jaguar, is well-positioned to solidify its credentials in this space.

Looking ahead, JLR will double down on its journey to become a premium EV leader. Key priorities include achieving strong revenue growth, further improving profitability, generating positive free cash flow, enhancing customer satisfaction, and continued investment in products and technologies. An exciting pipeline of new products is slated for launch over the next three years, with the first electric Range Rover arriving later in 2024. This will be followed by a wave of additional EVs, including an all-electric Jaguar.

"JLR shall continue to invest in products, platforms, electrical and electronic architectures and vehicle software to provide a world class in-cabin and all-round customer experience to our discerning clientele," noted Chandrasekaran.

Demerger to unleash growth potential

In a strategic shift, Tata Motors recently demerged the company into two separate listed entities. This calculated move aims to empower each business unit – commercial vehicles and related businesses. The second is the passenger vehicles (PV) including electric vehicles (EV) and Jaguar Land Rover (JLR) and related investments – to pursue distinct growth strategies with greater agility and accountability.

This strategic shift goes beyond mere separation. Chandrasekaran emphasised the significant synergies to be unlocked by combining the PV, EV, and JLR businesses under one roof. Collaboration in areas like EVs, autonomous vehicles, and vehicle software holds immense potential for future growth.

"This will lead each company to deliver a superior experience for customers, better growth prospects for employees and enhanced value for shareholders," Chandrasekaran further noted.

Drive toward net-zero future with sustainability push

Chandrasekaran, while elaborating on the company's push towards sustainability, emphasised the alignment with the Tata Group's "Aalingana" initiative, which outlines a roadmap for achieving net-zero emissions by 2045.

Aalingana focuses on three key pillars: decarbonising Tata Motors' businesses and value chain, adopting a circular economy approach to minimise resource use and waste, and actively preserving and restoring the natural environment.

Talking about the sustainability-driven efforts being taken at the company's CV unit, Girish Wagh, Executive Director at Tata Motors claims that they are working on a two-pronged approach — a "TATVA" framework for a circular economy and a focus on net-zero emissions, thereby aligning with Aalingana initiative.

The systematic TATVA framework integrates circularity principles across the entire business lifecycle, encompassing energy consumption, material usage, product lifespan, and utilisation.

Tata Motors is also strengthening its end-of-life vehicle management strategy with the operationalisation of five "Tata Re.Wi.Re" vehicle scrappage facilities. This initiative ensures responsible disposal of old vehicles, recovering valuable materials for reuse. "Furthermore, to ensure an effective end-of-life management, five vehicle scrappage facilities were operationalised under the Tata Re.Wi.Re brand. Also, we are on track to become net positive on water and achieve 100% usage of renewable electricity in line with our sustainability roadmap," Chandrasekaran stated in his concluding remarks.

This feature was first published in Autocar Professional's June 15, 2024 issue.

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