investor-presentation-kotak-goldman-sachs-conference-september2005.pdf

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Tata Motors Limited

Future Strategy & Growth Plans

India Unplugged : Walking the TalkKotak - Goldman Sachs Conference

September 2005


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1. Per f ormance

2 . Commer cia l vehicles

Gr owt h Dr i vers

Mar ket St r at egy

3. Passenger Vehic les

Gr owt h Dr i vers

Mar ket St r at egy

4 . Vehicle Financing

5. Financia l Management

6. Subsid i ar i es


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3

Net Revenue and Oper at i ng Mar gi n

75.0

174.2

132.2

91.0

12.5%

12.5%

9.1%

14.2%

0

50

100

150

200

FY02 FY03 FY04 FY05

0%

5%

10%

15%

20%

Net Rev EBITDA margin

Unconsolidated Consolidated

79.1

195.33

139.25

96.1

12.8%12.5%

9.1%

14.9%

0

50

100

150

200

FY02 FY03 FY04 FY05

0%

5%

10%

15%

20%

Net Rev EBITDA margin

Rs. bn Rs. bn

1QFY06

Net Revenue: Rs. 38.8 bn

EBIDTA Margin: 12.6%

1QFY05

Net Revenue: Rs. 35.7bn

EBIDTA Margin:12.0 %

1QFY06

Net Revenue: Rs. 44.6 bn

EBIDTA Margin:12.5 %


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Pro f i t a f t er Tax

Consolidated

3.2

9.1

13.6

-1.1-2

0

2

4

6

8

10

12

14

FY02 FY03 FY04 FY05

Unconsolidated

3.0

8.1

12.4

-0.5-1

1

3

5

7

9

11

13

FY02 FY03 FY04 FY05

Last 3 Years CAGR of 103% Last 3 Years CAGR of 106%

Rs. bn Rs. bn

1QFY05

PAT: Rs. 2.2 bn

1QFY06

PAT: Rs. 2.7 bn

1QFY06

PAT: Rs.2.6 bn


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Negat i ve Wor ki ng Capi t al

38

2927

3941

0

20

40

60

FY02 FY03 FY04 FY05 1QFY06(6)

(23)

(40)

0

(17)

(40)(35)(30)(25)(20)

(15)(10)

(5)-

5101520

FY02

FY03

FY04

FY05

1QFY

06

Inventory

Negative Working Capital

MaintainedCalculations exclude Investible surplus and vehicle

financing loans

Days of sale

Days of sale

Days of sale

79

12

18

25

0

10

20

30

FY02 FY03 FY04 FY05 1QFY06

Receivables (non-HP)

Net Working Capital


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St r ong Balance Sheet

Net Debt & D/E (on Net basis)

11.8

29.9

13.9

(5.5)

(0.9)

0.15

0.93

0.56

(0.15) (0.02)-10

-5

0

5

10

15

20

25

30

35

FY02 FY03 FY04 FY05 1QFY06

(0.4)

(0.2)

0.0

0.2

0.4

0.6

0.8

1.0

Net Debt D/E (on Net basis) RHS

Rs. bn


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Opt imizi ng Ret urns on Capi t al

ROCE ROE

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

5%

17%

36%

42%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

FY02 FY03 FY04 FY05

12%

26%

32%

-2%-5%

0%

5%

10%

15%

20%

25%

30%

35%

FY02 FY03 FY04 FY05


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1. Per f ormance


Gr owt h Dr i vers

Mar ket St r at egy


Gr owt h Dr i vers

Mar ket St r at egy



6. Subsid i ar i es


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0

50

100

150

200

250

300

350

70-71

72-73

74-75

76-77

78-79

80-81

82-83

84-85

86-87

88-89

90-91

92-93

94-95

96-97

1998

-99

00-01

02-03

04-05

Nos

in

'000

The Indian Commer ci al Vehi cle Indust r y i s simi l ar t o Globa l CV Indust r y

due t o i t s cycl ic nat ure and low volumes

Secular long term growth trend

Early stage of road development

Dis-similarto Global CV

Industry

Cyclical

Low Volume (in ,000s)

Similar withGlobal CVIndustry

CharacteristicsIndian CVIndustry

CAGR: 6%

Retain high Market Share in

existing segments & enterless cyclical segments in India

Build Strong position in emergingsegments in new geographies

Lower Break Even Point

Strategy for Countering Cyclicality


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Increasing Oil price Now, $ 70/bbl.

Railways Network plans

- Separat e Rai l corr idor f or f reight

- Discount s f or bulk f reight movement

Continuation of high increase of input prices

Development of OIL pipe-line network

Retarding Factors

The Indi an CV Indust r y, which has seen an up-cycle f or t he last 4 year s,

could be inf luenced by sever al f act or s

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

Growth Drivers


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Growth in road development act iv i ty would be the single most

impor t ant f act or t o move f orwar d t he Ind ian CV Indust r y

0

100

200

300

400

500

600

700

800

900

1000

0 0.5 1 1.5 2

Truck

pene

tration

MHCV/mp

o

pulation

Germany

France

UK

Spain

Portugal

Turkey

Australia

India

Indonesia

South AfricaChina

Brazil

ArgentinaRussia

1

2

3

4

Stage

Road Density

Paved Highway (km) / Area (km2)

Dramatic impact in

init ial stage of

road development

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

GoldenQuadrilateral

N S E W

Corridors

FeederRoads

43, 000 KMs (USD 25 bi l l i on)


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In coming years, domest ic CV market would witness entry of

Int er nat ional Play er s wi t h pr oduct s f or var ious segment s

Dong-Feng w i t h ESSAR

ITEC wi t h M&M

MAN wi t h For ce Mot or s

Tata Motors is developing theproducts to have matching orsuperior products and with value formoney offerings

Daimler Chr ysler

Hyundai


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Our underst andi ng of t he Cust omer Segment s has shaped our Pr oduct St r at egy

whi ch would enable us t o of f er compet i t iv e vehic les t i l l 2010 & beyond

Synergies of our In-house R & D Cent r e, TDCV-Kor ea, Hispano-Spa in & ext er nal

consul t ancy would suppor t in t imely launch of t hese product s

Tata Ace

World Truck

World Pickup

World LCV

New bus


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1. Per f ormance


Gr owt h Dr i vers Mar ket St r at egy


Gr owt h Dr i vers

Mar ket St r at egy



6. Subsid i ar i es


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Per sonal Mobi l i t y i s posi t i ve ly cor r elat ed t o per capi t a GDP


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Cust omer Habi t s & Mar ket Segment at i on

0%

20%

40%

60%

80%

100%

2002 2003 2004 2005

Sales

Rs. 1 mn

Cars priced below Rs. 500,000account for nearly 80% of themarket.

Vehicles priced between Rs.300,000 500,000 form thelargest segment in the passengercar market.

Indian customers are highlydiscerning, educated and wellinformed. They are price sensitiveand put a lot of emphasis on valuefor money

Preference for small cars. Smallcars are socially acceptable, evenamongst the well-off

Preference for fuel efficient carswith low running costs. The TataIndica has the lowest running cost

at Rs 2.30 per km.

150

211

61

0

50

100

150

200

250

EMI Other Costs Total Monthly

Expenses

MonthlyCosts(USD)

Sale of Cars by Price Bands

Cost of Ownership of a Basic Car


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Key Market Dr iv er s - Socia l

Growth in urbanization

Upward migration ofhousehold income levels

Low interest rates translatingto low financing andacquisition costs hencegreater affordability.

85% of Cars are financed in

India (15% in China)

Reduction in Consumer Financing Rates

% Urbanization

21%

24%

27%

30%

1981 1991 2001

0%

10%

20%

30%

40%

50%

60%

0 5,000 10,000 15,000 20,000%H

ouseholds

Household Income p.a. (USD)

- 2002

-- 2007


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Indian Mar ket Foot pr int

Product Segment Market Share

C14.00%

Premium

2.90%

Luxury

0.20%

UV

16.50%

MPV

6.20%

C

11.90%

Mini

11.00%

Compact

46.80%

Executive

0.50%

Tata Motors current product range addresses 75% of the market


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Pr oposed launches i n nex t f ew year s

Indica Fami ly

- Indi ca var i ant s

- New Gener a t ion Ind ica

Indi go Fami l y- Ind i go SX

- Ind i go / Ma r i na var i ant s

- New Gener a t ion Ind igo

Sma l l Car

New UV Pla t f orm

Sumo Fami l y

- Sumo Var i ant s

Saf ar i Fami l y

- Di cor

Crossover


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Domest i c:

1 . Expansion of net work & penet ra t ion in to smal ler t owns in pacewi t h r oad development

2 . Cust omer care a compet i t i ve edge

3 . Robust processes

Sal es Plann ing (Unique and f inest in t he wor ld)

Cust omer Relat ionship Management (SIEBEL Largest depl oyment in t he wor ld )

A cust omer f ocused f i eld appr oach i s under deployment

Int ernat i onal Busi ness:

1 . Choosing count r ies wi t h highest market pot ent ia l in cust omersegment s consci ous of over al l va lue

2. Cr eat ing pr oduct s t o be amongst t he t op 3 players in each chosensegment

3 . Cust omer care a compet i t i ve edge

Low spar es pr ice

Relat ionship of OE & Cust omer


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1. Per f ormance


Growt h Dr iv ers

Mar ket St r at egy


Growt h Dr iv ers

Mar ket St r at egy



6. Subsid i ar i es


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Auto financing

dominated by NBFCs

and captive financiers

Banks were onlylenders to NBFCs

Retail banking

increasingly became

focus area for leading

private banks

Large PSU banks

turned aggressive-

leveraging their

network

Softer interest rates

fueled substantial dropin IRRs

Banks focus on

penetration and volumes

Cut intermediaries to

protect margins

NBFCs with high cost

structures became

unsustainableConsolidation of NBFCs

with banks (ALFS,

Kotak, 20th Century)

Niche NBFCs / co-op

banks continue to

maintain focus

(Sundaram, Chola)

Dominant Phase

Competition

ConsolidationAccess to low cost

funds

Better credit decisions

& controls

Thin overheads with

faster loan processing

Relationship with

dealers and OEM

Critical Success Factors

Till 1999 1999-2003 2003-2005 2005 and beyond

Chal l enges f or gr owt h of capt i ve f i nanci ers i n Indian cont ext

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

India

Indian auto-finance industry

transitions


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Aut o Finance Mar ket Scenar i o (FY 04 -05)

ICICI Bank

22.6%

HDFC Bank

12.9%

Citi Financial5.6%

TMF

5.2%Mahindra

4.8%

SBI

4.0%

ALFL

4.5%

Sundaram3.9%

Others

30.9%

Kotak

2.6%

Chola

1.9%

LGF

1.0%

Retail Finance

(crs)

Commercial Vehciles 21000

Passenger Car 41000

Total 62000

Industry Volume

320000

1000000

1320000

Share of major players in the market

Banks have dominant market

share in Auto financing,

leading NBFCs are stagnating

their growth

Cheap CoB has become CSFfor players

TMF is ahead of leading NBFCs in terms of disbursal


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Ta t a Mot ors Finance: Market leader in CV, among t op 3 i n PC(Tat a Vehicles)

ICICI

20%

HDFC

11%

Citi

14%Sundaram

10%

TMF

25%

Others

20%

Commercial Vehicles

ICICI

33%

HDFC

16%

Others

41%

TMF

11%

Passenger Car


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Tat a Mot ors Finance st r at egy

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


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Focus Ar eas f or Vehi cle Financi ng Busi ness

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


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1. Per f ormance


Gr owt h Dr i vers

Mar ket St r at egy


Gr owt h Dr i vers

Mar ket St r at egy



6. Subsid i ar i es


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Or gani c Gr owt h 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


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Cost Reduct i on Dr i ve

Value Engineering Target Costing

E Sourcingand Global Sourcing

Supplier base rationalisation

Process Improvement

Productivity Improvement

Outsourcing

Rs. 10 bn cost

reduction targeted

over the next3 years


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1. Per f ormance


Gr owt h Dr i vers

Mar ket St r at egy


Gr owt h Dr i vers

Mar ket St r at egy



6. Subsid i ar i es


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Tat a T echnologi es 94. 3% Subsi di ar y

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 productrange

Tata Technologies is a provider of Engineering & Design and enterprise services in thefield 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 advantagesare seen with the acquisition:


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The offer price for INCAT acquisition is 220p per share which is at 4% premiumto the current market price that time. The implied market capitalisation is GBP53.4 mn.

The exit PE for this transaction is around ~17x. INCAT is a cash positive (~ GBP7.4 mn) company and the net cost of acquisition is GBP 46.0 mn

The integration will be completed within 100 days beginning October 2005

Tat a T echnologies 94. 3% Subsidi ar ycont d.


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Tat a Daewoo- Heavy T r ucks (S. Korea) (100% Subsi di ar y)

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


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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

TELCON Const r uct i on Equi pment (80% TML : 20% Hit achi JV)


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HVAL & HVTL Heavy Ax les and T r ansmi ssi on (100% subsi di ar i es)

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.


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Chal l enges 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


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Thank You

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