The Hindu Business Line : High fuel cost may impact CV, car sales: Ratan Tata

Mumbai, July 1 Mr Ratan Tata, Chairman of Tata Motors, has cautioned that higher fuel prices could negatively impact both commercial vehicles and passenger car sales in India during the current year.

“The year ahead will be a year of major challenges. There will be enormous and unprecedented increase in material costs in steel, tyres and the like, and there will be the impact of tighter money supply with higher interest rates,” he said in the company’s annual report.

In addition, he pointed out the company will have to manage the completion of the Singur plant and introduction of the Nano in the market. Further, while dealing with these challenges in India, Tata Motors’ operations will also have to absorb the cost of the Jaguar-Land Rover acquisition and deal with its integration.

Indeed, the commercial vehicle industry, including exports, witnessed a moderation in growth in the last fiscal.

The domestic market, which accounts for nearly 90 per cent of total commercial vehicle sales, was impacted by reduction in economic activity, poor credit availability, hardening of interest rates and increase in fuel prices. It grew by 6.9 per cent as compared to 33 per cent growth in the previous year.

Tata Motors reported a total sale of 3.52 lakh commercial vehicles in the domestic and overseas markets, representing a growth of 5.5 per cent over last fiscal. However, the company’s share in the domestic commercial vehicle market declined by 1.3 percentage points to 62.7 per cent due to non availability of certain components/parts in the earlier part of the year and constraints in the availability of vehicle finance from banks and NBFCs.

In the passenger vehicle segment, the company’s sales declined by 5.4 per cent over the previous year, after six consecutive years of growth.

It recorded a sale of 2,32,864 vehicles (including 3,297 Fiat cars) in the domestic and overseas markets. Its market share also declined from 16.6 per cent to 14.2 per cent during the year mainly on account of launch of several new introductions by rival car makers and the delays in the introduction of its new Indica and Indigo.

The company hopes to regain its market share with the launch of the new Indica later this year.

Mr Tata said new variants of the Nano were currently under development to meet the new environmental and fuel price challenges, as also the requirement of several international markets. The new plant for Nano in Singur in West Bengal is expected to go into operation in the last quarter of 2008. “These manufacturing facilities would be expanded to meet the demand in the domestic and international markets in the future,” he said.

He expects that the high volumes of the Nano range will change Tata Motors’ market position, reach and visibility.

On the Jaguar and Land Rover acquisition, Mr. Tata said in these brands Tata Motors had acquired impressive engineering capabilities and substantial manufacturing facilities.

To fund the acquisition, the company is raising Rs 7,200 crore on a rights basis and $500 million to $600 million through an international offering of equity or cost effective quasi equity instruments.

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