What Is Stalling Tata Motors’ Growth In India?

While Tata Motors‘ (NYSE:TTM) continual light commercial vehicle (LCV) sales decline is dragging down the brand’s India sales, passenger vehicle sales also haven’t risen as expected. Tata’s domestic sales through April-October have remained flat compared to the year ago period. This is still better than the de-growth the automaker was witnessing in the last couple of fiscals (April-March), but in the present context, where the Indian automotive market is growing at a brisk rate, Tata’s performance is seemingly weak.

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Let the numbers speak. While passenger vehicle sales rose 8.5% year-over-year in the April-October period in India, commercial vehicle sales increased 8%. Conducive market conditions and rising disposable incomes are supporting growth in the passenger vehicle segment in the country. Although Tata registered an impressive 14% sales growth for its passenger vehicle portfolio in the seven month period, this growth is still less than was previously anticipated. Much was expected from the launch of the Genx Nano, Zest, and Bolt models. Following the launch of the sub 4-meter compact sedan, Zest, in August of last year, the automaker’s monthly car sales in the country rose in each successive month (over 2013 levels), after many consecutive months of decline. Zest and the hatchback Bolt are a part of the company’s Horizonext initiative, announced in 2013, which is an aggressive strategic plan for its passenger vehicle business unit to reverse the trend of flagging sales.

However, the Zest and Bolt, dubbed as the comeback vehicles for Tata Motors, have failed to revive sales as strongly as expected. Although passenger car sales for Tata rose over 25% year-over-year in the April-October period, the compact sedan Zest and the hatchback Bolt are performing weaker than expected. After more than a year after launch, Zest is selling one-tenth the volume that its chief competitor, Swift Dzire, is selling in its segment. On the other hand, the Bolt is losing out to even the less popular foreign hatchbacks, such as the Volkswagen Polo, in its segment in India. Tata’s market share in passenger vehicles had fallen to less than 6% in the last fiscal, hurt by poor customer perception and lack of new and attractive models in its portfolio. The Zest and Bolt, and the Genx Nano — which is faring well in its do-over stint, were launched as ‘impact’ products, and although sales are sequentially improving for Tata’s passenger vehicle segment,  growth seems to have decelerated in recent months.

On the other hand, Tata is looking to improve sales of its commercial vehicles, and sees this segment growing by 10-15% this fiscal year. The group launched new models in the Prima LX and Ultra range, and along with the expected uptick in India’s infrastructure and real estate sectors, commercial vehicle sales for Tata could improve dramatically, after falling 16% year-over-year in fiscal 2015. This decline was mainly due to the falling sales in the LCV segment, and in the April-October period, while medium and heavy commercial vehicle (M&HCV) sales rose 26.7% in India for Tata, sales of LCVs declined 22%. LCVs form over one-third the net domestic volumes for the automaker, and thus, the continual decline in this segment is weighing on the overall volume performance.

Much of the weakness in LCVs is associated with the low demand. Industry-wide sales have declined by 5% in the last seven months, as demand for these vehicles used for intra-city transport remains tepid. Within this segment, Tata Motors has also lost some of its stronghold. In fact, Mahindra & Mahindra surpassed the automaker this year in terms of unit sales of LCVs, raising its market share to over 42%, compared to Tata’s share of roughly 37%. ^[1] The loss in volume share for Tata seems even more dramatic when we consider that the company held an almost 50% share in this segment in fiscal 2014 (ended March). But Tata is looking to stimulate demand going forward with the launch of the new smart pick-up Tata ACE Mega, with a rated payload of one ton. This will help the company improve competitiveness in one of the new segments within LCVs that has arisen and is drawing more customers. And then there is the new launch Magic Mantra, on the public transport side. Tata is also looking to expedite expansion of its dealership network and improve its general presence in South India, where the company faces stiff competition from Ashok Leyland.

The LCV segment continues to decline in India, but things could soon change, as soon as the second half of fiscal 2016, in fact. The uptick in the infrastructure sector has caused a rapid rise in sales of M&HCVs, which are used for inter-city transport. Once goods arrive at certain key hubs through trucks, they are transported to surrounding areas in LCVs. The growth in M&HCVs is expected to trickle down to the LCV segment soon, which should bode well for Tata Motors as well.

Tata Motors is sequentially improving its volume sales in India, however, the growth rate still lags expectations due to the slower growth in passenger vehicle sales and sustained low demand for LCVs.

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1. M&M overtakes Tata Motors in LCV market, business-standard.com [↩]