BUSINESS OVERVIEW

Tata Motors Business: The Indian economy, which recorded a growth rate of 8.6% during FY 2010-11, started showing softening indicators in second half of FY 2010-11. This was mainly due to inflationary pressures and continued anti-inflationary monetary stance taken the by Reserve Bank of India (RBI). During the current year, the inflation continued to remain at higher levels with headline Wholesale Price Index (WPI) staying at above 9% during April-November 2011, and moderated to 6.9% by end March 2012. On the foreign exchange front, higher crude oil prices, lower net capital inflows and lower export growth in the last six months of the year due to worsening global economic scenario, adversely affected the Indian currency. The rate of Index of Industrial growth (IIP) decelerated from 8.2% in FY 2010-11 to 2.8% in current year. Due to these factors, India's growth rate is estimated to be lower at 6.9% during FY 2011-12.

The automotive industry was affected by the overall macro economic factors discussed above. In particular, the demand was impacted due to higher interest rates and slowing economy. Further, sharp increases in petrol prices (after deregulation in June 2010) adversely impacted the demand for petrol vehicles. However, diesel prices did not move in tandem. This created a gradual shift in demand from petrol cars to diesel cars. There was a spurt in demand for diesel cars in the last six months of the current year, resulting in supply constraints on diesel vehicles.

On the above background, the Indian auto industry grew at a moderate rate of 7.2% in FY 2011-12, with 19.2% growth in Commercial Vehicles and 3.6% growth in Passenger Vehicles.

The Company's total domestic sales grew by 10.9% to 8,63,248 vehicles in FY 2011-12. Commercial Vehicle sales increased by 15.7% to 530,204 units, while Passenger Vehicles sales grew by 4% to 333,044 units. The competitive scenario intensified as the existing OEM's launched new variants to protect market share and new entrants sought to gain a foothold in the market. The Company maintained leadership with a market share of 59.4% in the Commercial Vehicle segment despite international OEM's entering the market. For Passenger Vehicles, in a highly competitive environment, the Company was successful in maintaining its market share of 13.1%. The Company's exports grew by 8.6% to 63,105 units during the year. The growth was driven by focus on the emerging markets in SAARC, South Asia and Africa.

The industry performance in the domestic market during FY 2011-12 and the Company's market share is given below (Table - 1):-

Source: Society of Indian Automobile Manufacturers report and Company Analysis
Commercial vehicles Include V2 Van sales;
Passenger vehicles include Fiat and Jaguar Land Rover branded cars

Industry Structure and Developments

Commercial Vehicles:

During the current year, the domestic Commercial Vehicle market, recorded a growth of 19.2% with the highest ever sales of 892,349 vehicles. The Medium and Heavy Commercial Vehicles (M&HCV) sector grew by 6.5%, while growth of Light Commercial Vehicle (LCV) segment was at 29.1%. The lower growth of agriculture, manufacturing and construction, mainly contributed to lower growth in Commercial Vehicle segment at 19.2% in current year as compared to 27.3% in FY 2010-11 over FY 2009-10. Further, M&HCV demand was mainly affected by higher interest rates and restricted availability of financing support, due to tight monetary policy by the RBI.

The domestic industry performance during FY 2011-12 and the Company's share are given below (Table - 2):-

Source: Society of Indian Automobile Manufacturers report and Company Analysis
LCVs include V2 Van sales

The Company's sale of Commercial Vehicle in the domestic and international markets was 585,283 units representing a growth of 15.1% over the previous year. The growth was driven by focused product actions, enhancement of quality of the service network, increased service outlets, and financing options suited to customer needs. However, the domestic market share during the year was 59.4%, lower by 180 basis points, compared to 61.2% last year.

The LCV segment continued to drive growth for the Company. The Company's sales increased by 23.5% to 323,118 units from 261,637 units in FY 2010-11, due to improved performance in the pickup segment and ramp up of production in the Pantnagar plant aided volume growth in the LCV truck segment. The commercial production has commenced at Dharwad. The major launches in FY 2011-12 were Ace Zip and Magic Iris. The sales of the Tata Ace continued to increase year-on-year. However, the entry of new competition in the small commercial vehicle category, and the expanding market size in this segment, resulted in lowering of the Company's market share in LCV segment to 59.4% in FY 2011-12 from 62.1% in FY 2010-11.

In M&HCV category, the Company sold 207,086 units during FY 2011-12, which resulted in a market share of 59.4%. The economic crisis in the Euro Zone and political unrest in the Middle East, mainly contributed to a slowdown in the global economy. The real GDP growth in the Euro Zone dropped successively each quarter of the year. SAARC and ASEAN countries, however, continued to grow steadily. In particular, the growth in Small Commercial Vehicle segments in these geographies was robust. The new launches during FY 2011-12 include the Tata Divo, a super-luxury inter-city bus and new variants in the Tata Starbus Ultra range.

The Company also showcased a fuel-cell bus and other advanced hybrid technologies at the New Delhi Auto Expo in January 2012.