With A CEO In Place, Will Tata Motors Now Be Able To Grow Domestic Revenues?

January 28th, 2016 by Trefis Team
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On January 18th, Tata Motors (NYSE:TTM) announced that it had appointed Mr. Guenter Butschek, the former Chief Operating Officer of Airbus, as its Chief Executive Officer and Managing Director to lead operations of Tata Motors in India and international markets, including South Korea, Thailand, Indonesia, and South Africa. [1]. This position had been vacant for the past two years, as the company struggled with its domestic passenger vehicle business. We believe with the appointment of a CEO, Tata Motors should be able to improve its focus on India and other international markets and work on initiatives to grow its passenger car volumes in the region.

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Challenging Phase As Vehicle Sales Decline

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Tata Motors is witnessing a declining trend in its total vehicle sales for the past two years, although exports saw an increase in the fiscal year 2015-2016 (till December 2015).

Tata Motors Total Vehicle Sales

Tata Motors Image 22116

Source: Company Data

The primary cause of this decline is the fall in volumes of LCV’s which registered a nearly 40% decline in sales between 2013- 2014 and 2015-2016. [2]. While this decline can be attributed to the low demand, as industry wide sales in this segment fell by 3.5% between April and December 2015, passenger car sales have been disappointing, with Tata Motors’ market share in India in this segment falling to 5.7% , a significant decline from 10% a decade ago. [3]. With the CEO position now filled, the company should be able to increase its focus on this segment and take initiatives to improve its market share. Tata Motors has a host of new launches lined up for 2016 including Tata Kite Sedan and a compact SUV called Tata Nexon. [4]. With a high GDP growth and rising per capita income, the automotive industry in India has a huge growth potential.  It was the fastest growing passenger car market in 2015 and is the world’s fifth largest passenger vehicle market by volume. [5]. We expect Tata Motors to improve its market share in the Indian Automotive market from around 15% in 2016, to more than 18% by the end of our forecast period, and car sales will play a significant role in this increase.

Though Tata and other vehicles account for only 8% of the company’s valuation as per our estimates, we believe India is a growth region for Tata Motors, and improved focus on the country with a CEO in place after two years, can help the company tap the potential in this region.

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Notes:
  1. Tata Motors Appoints Mr. Guenter Butschek as Chief Executive Officer  & Managing Director, Company Release, January 18, 2016 [↩]
  2. Company Release [↩]
  3. Tata Motors looks to regain market share in passenger vehicles segment by 2020, The Economic Times, October 2015 [↩]
  4. Upcoming Tata Cars in India, Auto Portal [↩]
  5. At 7.64% growth, India fastest growing passenger car market, LiveMint, January 2016 [↩]