Tata Motors: In the slow lane

Life remains difficult for the firm because the CV cycle is unlikely to turn in a hurry

Even with the effort that the government is putting in to push sales of commercial vehicles (CV), it’s unlikely the CV cycle will turn in a hurry. To begin with, industrial production remains somewhat sluggish with the October 2008 IIPcontracting 0.4 per cent and manufacturing contracting 1.2 per cent. So, until there are signs that demand for goods is picking up, fleet operators are likely to continue to flog their existing trucks.

In fact, given that the outlook for the economy is not too bright in the near term, it would be surprising if NBFCs found too many customers who make for good credit risk and ,much like banks, they too might be hesitant about lending.

Also, even if NBFCs offer loans, fleet operators might not want to buy trucks because money is still not cheap — after all he would have to be really confident of being able to use a new truck efficiently before borrowing at current interest rates. And unless new trucks are bought, the benefit of accelerated depreciation doesn’t really help.

Ravi Kant, managing director, Tata Motors, is right when he says the government needs to work to ensure that liquidity reaches customers at reasonable costs. He must be a worried man because volumes for medium and heavy CVs at his firm in December were down a sharp 69 per cent, worse than the November fall of 60 per cent.

Of course production cuts had been announced earlier but even the Ace, a one-tonner, which had bucked the trend for the better part of 2008, seems to be losing pace. The story is pretty much the same for passenger cars : volumes dipped 25 per cent in December even though the Indigo range continues to do fairly well.

Although Tata Motors has seen net sales grow by 10 per cent in the first six months to September 2008, a clearer picture would emerge after the December quarter numbers are out. Analysts believe the top line could come off by about 14-15 per cent in 2008-09 over the stand-alone revenues of Rs 28,522 crore posted in 2007-08, while net profits could be lower than the Rs 2,029 crore registered last year.