The Hindu Business Line : `We are working hard to keep operating margins at 12-12.5%'

At last Friday's press briefing, Mr Praveen Kadle, Executive Director, Tata Motors, said fiscal 2006 had been difficult and tempered business outlook with the obvious risks. The company's 23.60 per cent growth in last fiscal PAT to Rs 1,528.88 crore alongside 18.27 per cent rise in net sales/income from operations to Rs 20,602.20 crore, betrayed the tight operating environment unfolding through successive quarters. Soon after the meeting, he spoke briefly to Business Line. Excerpts:

Can you put the results in perspective and outline the major challenges of FY06?

The year 2005-06 was a difficult year after seeing almost plus 30-per cent growth in the previous three years, in both commercial vehicles and passenger vehicles. We started the year with a lot of negative factors. There were the new emission norms and the confusion it caused with regard to applicability in some States; it in turn caused problems linked to availability of major components. Then there was the CMVR introduction, which requiring new features, added to costs. It was also the time that the northern, western and southern parts of the country were impacted by floods, making distribution difficult. Further, there was rise in cost of inputs - steel, for first the 2-3 months, and aluminium, copper and engineering plastics. October onwards, we saw the liquidity crisis and then the interest rate hike.

All these were impediments to big growth. Across commercial vehicles and passenger vehicles, industry growth was hardly 7-8 per cent. But new products like the Ace and Indica Xeta plus cost reduction of Rs 471 crore - that helped us.

When the company began selling cars it was noted for its conservative sales policy. Now, you have admitted having to compensate dealers for price discounts. So, has the competitive market forced you to dilute the earlier tight parameters?

We had to taken into account market realities, so we have been offering incentives and schemes to improve retail sales. But our outflow on account of these steps is perhaps the lowest in the industry.

We also maintained our margins and we would like to maintain our operating margin between 12-12.5 per cent. Keep in mind that our revenues have been growing. As our operations expand, they become more complex, the cost of raw materials keep going up, realisations are under constant pressure - in this sort of a situation, maintaining operating margin at 12-12.5 per cent is a big challenge. But we have said we would like to do that. And, done so.

Input costs don't seem to give up their rising trend. On the other hand, you are promising what is likely the cheapest small car in the market by 2008. How do you reconcile the two?

The market expectation is that Tatas would deliver the Rs 1-lakh car. When such expectation is there, the market would not take into account to what extent our raw material cost has gone up. So, it is our task to contain cost and give the car to the consumer at that price level. We are not in the business of charity; we are in the business of actually manufacturing a profitable car.

What does that mean for the finance function?

We all have to think out of the box. The manufacturing processes will be different, the manufacturing technology may be different, how we look at the production and distribution base would be different. It is not the finance function alone; the entire organisation is looking at the project differently to implement it in a successful manner.

You had cited rising interest rates as a concern. The stock markets have been correcting and rising interest rates find mention as one of the causes. How worrisome is the scenario?

In the last three years after liquidity improved in the market and interest rates began softening, we saw significant demand upsurge for trucks and cars.

To a large extent, this was driven by easy availability of funds and lower interest rates. If that trend gets reversed - for a longer period and in a stronger manner than was initially thought of - then, there would certainly be some negative impact.

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