Karl Slym, managing director of Tata Motors Ltd., said he’s planning to build a diesel version of the world’s cheapest car this year to revive vehicle sales, which have dropped for three straight quarters in India.
Tata Motors also plans a variant of the Nano, conceived by former Chairman Ratan Tata, that will be fueled by compressed natural gas, Slym said. The company yesterday reported profit, including that of unit Jaguar Land Rover Ltd., which missed analysts’ estimates by 44 percent. Slym is betting a 30 percent difference between diesel and gasoline prices at the pump will make the Nano a popular choice.
Slym is introducing new models of the $2,500 Nano, which according to Ratan Tata has failed to reach its “full potential,” and the Indica hatchback to help the company recover from the biggest loss in at least a decade at home. The poor performance in India will negate gains at the company’s luxury unit unless Chairman Cyrus Mistry revamps the local unit, said Mitul Shah, an analyst at Karvy Stock Broking Ltd.
“We had a quiet time and so now it’s time to break out,” Slym said in an interview in Mumbai. “You will see new products and an on-going portfolio. The Nano has a lot going on with it right now.”
Tata Motors shares gained 2.4 percent to 304.45 rupees in Mumbai after dropping as much as 3.1 percent. The company’s American depositary receipts tumbled 4.9 percent to $27.25 in New York yesterday, the most since Jan. 23.
Third-quarter group net income fell 52 percent to 16.3 billion rupees ($302 million), the lowest in three years, India’s biggest automobile company said. That lagged behind the 29.3 billion-rupee median of 40 analysts’ estimates compiled by Bloomberg.
Profit at the luxury unit, which contributed 75 percent of Tata Motors operating income in the year ended March 31, declined 25 percent to 296 million pounds ($459 million). Tata Motors reported a loss of 4.6 billion rupees for its Indian business as sales at home dropped 21 percent to 105.3 billion rupees.
“The India business is loss making right now, which is unsustainable for the company,” said Kapil Singh, an analyst with Nomura Holdings Inc. in Mumbai. “The Nano has not met expectations so models such as the diesel Nano will help, but we’ll have to watch where they price it at.”
Slym plans to “dramatically” change customer focus to revive demand for the Nano, whose sales plunged and never fully recovered after at least three caught fire in 2010.
Family on Scooter
Instead of seeking to sell to motorcycle owners looking to upgrade, the company will market the car to customers “aspiring” to buy the Nano, said Slym, who joined from GM’s China unit, where he was executive vice-president at SAIC-GM-Wuling Automobile Co.
Ratan Tata decided to develop the Nano after seeing a family riding on a scooter. After the fires, the company in December 2010 extended warranties to four years or 60,000 kilometers (37,290 miles) and started offering as much as 90 percent financing through unit Tata Motors Finance Ltd.
Sales of the Nano plunged 81 percent to 1,504 units in January from a year earlier after peaking at 10,475 units in March 2012. The company chose the first 100,000 customers for the Nano through a lottery following a deluge of orders in 2009.
The current strategy of targeting a buyer of Hero MotoCorp Ltd.’s Splendor “hasn’t really worked,” said Deepesh Rathore, the New Delhi-based managing director for IHS Automotive in India. If Tata is fighting in the same space as Maruti Suzuki India Ltd.’s Alto or Hyundai Motor Co.’s Eon, “you definitely have a better chance at higher sales.”
Tata Motors last month started selling a new version of its Indica Vista hatchback. The variant, that’s priced almost 100,000 rupees cheaper than Maruti’s best-selling Swift model, includes a higher-powered engine and satellite navigation.
Reviving demand in India may also boost profitability at the company, which started as Tata Engineering & Locomotive Co. in 1945, as increased sales for its lower-priced Range Rover Evoque model cut earnings at the Jaguar Land Rover unit, said Umesh Karne, an analyst with Brics Securities Ltd. in Mumbai.
The average selling price of vehicles such as the Jaguar XF, Land Rover Freelander and the best-selling Evoque is about 30,000 pounds compared with the 42,000-pound average for its other models, Vijay Somaiya, head of treasury at Tata Motors, said in a briefing on Jan. 24.
Earnings margin before interest, taxes, depreciation and amortization at the unit was 14 percent in the quarter, lower than 17 percent a year earlier, reflecting the product mix and higher marketing costs, Tata Motors said. The cost of introducing new models also eroded profitability.
“The losses at the domestic business is a major concern,” said Karne. “If they don’t improve from these levels, the impact on the company’s profitability will get bigger.”