)
While Jaguar Land Rover (JLR) is making Tata Motors' profit and loss statement look good, when the Tatas took over the two marquee brands and JLR's business in 2008, the shoe was on the other foot. In FY09, given the global slump, Tata Motors made a consolidated loss of Rs 2,500 crore, most of it on account of JLR, which was finding it difficult to sell in its key markets due to the credit crisis.
Amidst all this, some analysts and investors asked questions about the impact on the company's balance sheet and the ability of a largely commercial vehicle company to run luxury car brands.
The situation was such that to pay back the bridge loan of $3 billion, Tata Motors had to bring in a rights issue (Rs 4,200 crore) in October 2008, followed by long-term rupee bonds (Rs 4,200 crore), a GDR issue of Rs 3,500 crore and a sale of group holdings which fetched Rs 1,700 crore. However, the multi-billion dollar conglomerate's ambition to move into the big league of global car makers and given the attractive price tag, the deal seemed worth a try. While Ford had spent $5.3 billion to acquire the JLR business and invested more than double that in building the two brands, the Tata's paid $2.3 billion.
The second issue was to get the volumes, especially of Jaguar, falling at the time of acquisition, back on track. Though the British company did turn corner in FY10 making a small profit of £24 million with Ebitda margins of 5.4 per cent, it was in FY11 that it posted profits of over £1 billion and margins exceeding 15 per cent.
While the initial turnaround can be attributed to an improved product mix, inventory management and bit of demand coming back, it was new launches such as the Range Rover Evoque which put volume growth on an upward curve. Product refreshes and new models such as the F-Type added strength to Jaguar's flagship models.
Analysts, say while new launches helped, there were multiple reasons for the turnaround. Says Rohan Korde of Anand Rathi, "There wasn't a single factor but a combination such as on going product development, strong backing of the Tatas both to the brand and its franchise, and fabulous response to the newer products, especially from the undertapped markets."
The Tatas, decision to expand in new markets like China also provided on boost. From four per cent in FY08, China's contribution to the overall volumes has jumped to 25 per cent.
While investors have given a thumbs-up to JLR's performance thus far, the ability of the company to replicate its luxury car success while going down the value chain to volume- driven categories will decide its future.
