Compliance with new or changing corporate governance and public disclosure requirements adds uncertainty to the Company's compliance policies and increases the Company's costs of compliance.
The Company is subjected to a complex and continuously changing regime of laws, rules, regulations and standards relating to accounting, corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and U.S. Securities and Exchange Commission, or SEC, regulations, Securities and Exchange Board of India, or SEBI, regulations, New York Stock Exchange, or NYSE, listing rules, and the Companies Act, as well as Indian stock market listing regulations. New or changed laws, rules, regulations and standards may lack specificity and are subject to varying interpretations. As an example, pursuant to the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act, which contains significant corporate governance and executive compensation-related provisions, the SEC has adopted additional rules and regulations in areas such as "say on pay". Similarly, under applicable Indian laws, for example, remuneration packages may, in certain circumstances, require shareholders' approval. The Company's management and other personnel may be required to devote a substantial amount of time to such compliance initiatives. Their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs of compliance as a result of ongoing revisions to such governance standards. The Company is committed to maintaining high standards of corporate governance and public disclosure. However, the Company's efforts to comply with evolving laws, rules, regulations and standards in this regard have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management resources and time.
The Companies Act has effected significant changes to the existing Indian Company law framework, which may subject the Company to higher compliance requirements and increase the Company's compliance costs. The Companies Act brought into effect significant changes to the Indian Company law framework, such as in the provisions related to the issue of capital (including provisions in relation to issue of securities on a private placement basis), disclosures in offering documents, corporate governance norms, accounting policies and audit matters, related party transactions, introduction of a provision allowing the initiation of class action suits in India against companies by shareholders or depositors, a restriction on investment by an Indian Company through more than two layers of subsidiary investment companies (subject to certain permitted exceptions), prohibitions on loans to directors and insider trading, including restrictions on derivative transactions concerning a Company's securities by directors and key managerial personnel. The Company is also required to spend, in each financial year, at least 2% of the Company's average net profits during the three immediately preceding financial years, calculated for Tata Motors Limited on a standalone basis under Ind AS, toward corporate social responsibility activities. Furthermore, the Companies Act imposes greater monetary and other liability on the Company and it's directors for any non-compliance. To ensure compliance with the requirements of the Companies Act, the Company may need to allocate additional resources, which may increase the Company's regulatory compliance costs and divert management's attention. The Company may also face challenges in interpreting and complying with certain provisions of the Companies Act due to limited relevant jurisprudence. In the event that the Company's interpretation of the Companies Act differs from, or contradicts with, any judicial pronouncements or clarifications issued by the Government of India in the future, The Company may face regulatory actions or be required to undertake remedial steps. In addition, some of the provisions of the Companies Act overlap with other existing laws and regulations (such as corporate governance provisions and insider trading regulations issued by SEBI). The SEBI recently promulgated the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, or the Listing Regulations, which are applicable to all Indian companies with listed securities or companies intending to list its securities on an Indian Stock Exchange, and the Listing Regulations became effective on December 1, 2015. Pursuant to the Listing Regulations, the Company is required to ensure that the Company's board of directors includes at least one female director at all times, to establish and maintain a vigilance mechanism for directors and employees to report their concerns about unethical behavior, actual or suspected fraud or violation of the Company's Code of Conduct or ethics policy under the Company's whistleblower policy, to implement increased disclosure requirements for price sensitive information.
The Company is subject to risks associated with legal proceedings and governmental investigations, including potential adverse publicity as a result thereof.
The Company is and may be involved from time to time in civil, labour, administrative or tax proceedings arising in the ordinary course of business. It is not possible to predict the potential for, or the ultimate outcomes of, such proceedings, some of which may be unfavorable to the Company. In such cases, the Company may incur costs and any mitigating measures (including provisions taken on the Company's balance sheet) adopted to protect against the impact of such costs may not be adequate or sufficient. In addition, adverse publicity surrounding legal proceedings, government investigations or allegations may also harm the Company's reputation and brands.
The Company may have to comply with more stringent foreign investment regulations in India in the event of an increase in shareholding of non-residents or if the Company is considered as engaged in a sector in which foreign investment is restricted.
Indian companies, which are owned or controlled by non-resident persons, are subject to investment restrictions specified in the Consolidated FDI (Foreign Direct Investment) Policy. Under the Consolidated FDI Policy, an Indian company is considered to be "owned" by non-resident persons if more than 50% of its equity interest is beneficially owned by non-resident persons. The nonresident equity shareholding in the Company may, in the near future, exceed 50%, thereby resulting in the Company being considered as being "owned" by non-resident entities under the Consolidated FDI Policy. In such an event, any investment by the Company in existing subsidiaries, associates or joint ventures and new subsidiaries, associates or joint ventures will be considered as indirect foreign investment and shall be subject to various requirements specified under the Consolidated FDI Policy, including sectoral limits, approval requirements and pricing guidelines, as may be applicable.
Furthermore, as part of its automotive business, the Company supplies and has in the past supplied, vehicles to Indian military and paramilitary forces and in the course of such activities have obtained an industrial license from the Department of Industrial Policy. The Consolidated FDI policy applies different foreign investment restrictions to companies based upon the sector in which they operate. While the Company believes it is an automobile company by virtue of the significance of its automobile operations, in the event that foreign investment regulations applicable to the defense sector (including under the Consolidated FDI Policy) are made applicable to it, the Company may face more stringent foreign investment restrictions and other compliance requirements compared to those applicable to it presently, which, in turn, could materially affect the Company's business, financial condition and results of operations.
The Company requires certain approvals or licenses in the ordinary course of business, and the failure to obtain or retain them in a timely manner, or at all, may adversely affect its operations.
The Company requires certain statutory and regulatory permits, licenses and approvals to carry out its business operations and applications for their renewal need to be made within certain periods. For some of the approvals, which may have expired, the Company either has made, or is in the process of making, an application for obtaining the approval or its renewal. While the Company has applied for renewal for such approvals, registrations and permits, the Company cannot assure you that it will receive them in a timely manner or at all. The Company can make no assurances that the approvals, licenses, registrations and permits issued to it would not be suspended or revoked in the event of non-compliance or alleged non-compliance with any terms or conditions thereof, or pursuant to any regulatory action. Furthermore, if the Company is unable to renew or obtain necessary permits, licenses and approvals on acceptable terms in a timely manner, or at all, its business, financial condition and results of operations could be materially and adversely affected.
Any downgrading of India's debt rating by a domestic or international rating agency could negatively impact the Company's business.
Any adverse revisions to India's credit ratings for domestic and international debt by domestic or international rating agencies could adversely impact the Company's ability to raise additional financing, as well as the interest rates and other commercial terms at which such additional financing is available. This could have a material adverse effect on the Company's financial results, business prospects, ability to obtain financing for capital expenditures and the price of the Company's Shares and ADSs.
Business Summary
The Company primarily operates in the automotive segment. The Company's automotive segment operations include all activities relating to the development, design, manufacture, assembly and sale of vehicles including vehicle financing, as well as sale of related parts and accessories. The acquisition of the Jaguar Land Rover business has enabled the Company to enter the premium car market in developed markets such as the United Kingdom, the United States, Europe and China as well as several emerging markets such as Russia, Brazil and South Africa amongst others. Going forward, the Company expects to focus on profitable growth opportunities in its global automotive business through new products and market expansion. Within automotive operations, the Company continues to focus on integration and synergy through sharing of resources, platforms, facilities for product development and manufacturing, sourcing strategy and mutual sharing of best practices.
The Company's business segments are (i) automotive operations and (ii) all other operations. The Company provide financing for vehicles sold by dealers in India. The vehicle financing is intended to encourage sales of vehicles by providing financing to the dealers' customers and as such is an integral part of the Company's automotive business. The Company's automotive operations are further subdivided into Tata and other brand vehicles (including vehicle financing) and Jaguar Land Rover. Tata and other brand vehicles consist of vehicles manufactured under Tata, Daewoo and Fiat brands, and exclude vehicles manufactured under Jaguar Land Rover brands.
The Company's produce a wide range of automotive products, including:
- Passenger Cars: The Company's range of Tata-branded passenger cars include the Nano (micro), the Indica, the Bolt, the Tiago (compact) in the hatchback category the Indigo eCS, and the Zest (mid-sized) and Tigor in the sedan category. The Company has expanded its passenger car range with several variants and fuel options designed to suit various customer preferences. The Company's Jaguar Land Rover operations have an established presence in the premium passenger car category under the Jaguar brand name. Current cars lines manufactured under the Jaguar brand name, include the F-TYPE two-seater sports car coupe and convertible, the XF sedan (including the long wheel base XFL), the XJ saloon, the XE sports saloon and Jaguar's luxury performance SUV the F-PACE.
- Utility Vehicles: The Company manufactures a range of Tata brand utility vehicles, including the Hexa a crossover, the Sumo and the Safari, which are SUVs and the Venture, a multipurpose utility vehicle. The Company offers two variants of the Safari: the Dicor and the Storme. The Company also offer a variant of the Sumo, the Sumo Gold, which is an entry level UV. Current lines manufactured under the Land Rover brand include the Range Rover, Range Rover Sport, Range Rover Evoque (including the Evoque convertible), the all new Land Rover Discovery (which went on sale in February 2017) and the Land Rover Discovery Sport. The new Range Rover Velar was revealed to the public in March 2017, and is the fourth Range Rover model, positioned between the Range Rover Evoque and the Range Rover Sport. The Velar is expected to commence sale during the summer of 2017.
- Light Commercial Vehicles: The Company manufacture a variety of light commercial vehicles, including pickup trucks and small commercial vehicles. This includes the Tata Ace, India's first indigenously developed mini-truck, with a 0.7 ton payload with different fuel options; the Super Ace, with a 1-ton payload; the Ace Zip, with a 0.6 ton payload; the Magic and the Magic Iris, including an electric variant, both of which are passenger variants for commercial transportation developed on the Tata Ace platform; and the Winger. In addition, the Company launched the Xenon Yodha pickup truck and Magic Mantra passenger carrier in Fiscal 2017.
- Medium and Heavy Commercial Vehicles: The Company manufactures a variety of medium and heavy commercial vehicles, which include trucks, tractors, buses, tippers, and multi-axle vehicles, with GVWs (including payload) of between 8 tons and 49 tons. In addition, through Tata Daewoo Commercial Vehicle Co. Ltd., or TDCV, the Company manufactures a wide array of trucks ranging from 215 horsepower to 560 horsepower, including dump trucks, tractor-trailers, mixers and cargo vehicles. The company's signature product is the Prima and Prima LX range of trucks, which are sold in India and South Korea as well as exported to a number of countries in South Asia, Middle East and Africa. The SIGNA range of new M&HCV trucks launched in 2016 has been extended to several additional tractor and tipper variants. The Company also offers a range of buses, which includes the Semi Deluxe Starbus Ultra Contract Bus and the new Starbus Ultra. The Company's range of buses is intended for a variety of uses, including as intercity coaches (with both air-conditioned and non-air-conditioned luxury variants), as school transportation and as ambulances. In Fiscal 2017, the Company introduced a range of electric and hybrid passenger products including the Starbus Electric 9m/12m and Starbus Hybrid 12m.
The Company's other operations business segment mainly includes information technology services, and machine tools and factory automation services.
The Company's Strategy
The Company intends to further strengthen its position in the Indian automobile industry by launching new products, investing in research and development, strengthening Company's financial position and expanding its manufacturing and distribution network. The Company have pursued a strategy of increasing its presence in the global automotive markets and enhancing its product range and capability through strategic acquisitions and alliances. The Company's goal is to position itself as a major international automotive company by offering products across various markets by combining its engineering and other strengths as well as through strategic acquisitions. The Company's strategy to achieve these goals consists of the following elements:
Continued focus on new product development: The Company's recent product launches and anticipated product launches include the following:
- Xenon Yodha Pickup: The Xenon Yodha is a reliable new Pickup range, with high levels of performance at a low operating cost.
- SIGNA range of M&HCVs: The SIGNA range offers improved cab experience, connected vehicle-related functionalities and an improved driveline, as compared to prior models. This range is being extended across the heavy product line.
- Magic Mantra: The Magic Mantra is a small passenger vehicle in the SCV segment, which offers performance combined with fuel efficiency and a low cost of ownership.
- Electric and Hybrid Bus range: Tata Motors launched two variants of its emission-free, ultra-quiet and efficient STARBUS ELECTRIC buses and the STARBUS HYBRID diesel-electric hybrid bus. The STARBUS HYBRID is the most advanced bus in India.
- Hexa: Contemporary SUV was launched in January 2017.
- Tigor: Subcompact sedan was launched in March 2017.
- Nexon: Subcompact SUV is expected to go on sale in Fiscal 2018.
- Jaguar XE: The all new Jaguar XE went on retail sale in the US in May 2016.
- Jaguar XFL: The all new long wheel base Jaguar XFL, specifically designed for the China market, is produced by or China joint venture and went on sale in September 2016.
- Jaguar F-PACE: The Jaguar F-PACE luxury performance SUV went on sale in April 2016.
- Range Rover Evoque: The new Range Rover Evoque convertible went on sale in June 2016.
- Land Rover Discovery: The all new Land Rover Discovery went on sale in February 2017.
- The new Range Rover Velar was revealed to the public in March 2017 and is the fourth Range Rover model positioned between the Range Rover Evoque and the Range Rover Sport. The Velar is due to go on sale during the summer of 2017.
- Production of JLR's in-house 4 cylinder Ingenium petrol engine commenced at the Engine Manufacturing Centre in Wolverhampton in the UK in September 2016 and is now available in the Jaguar XE, XF, F-PACE and in the Land Rover Discovery Sport and the Range Rover Evoque. The Ingenium petrol engine will also be available in the new Range Rover Velar from launch.
- The Jaguar I-PACE concept, JLR's first battery electric vehicle, was revealed to the public in November 2016 and will go on sale in 2018.
Further, during Fiscal 2017, The Company increased its global presence by launching the Super Ace in Vietnam; the Xenon pickup, Super Ace and LCV Truck in Bolivia; the Prima truck in Bhutan and the Kingdom of Saudi Arabia and the Ultra truck in Kenya. The Company also signed orders to supply 562 buses to the Government of Côte d'Ivoire; 67 Winger ambulances to the Government of Sri Lanka and 553 Xenon pickups to POS Malaysia.
The Company's research and development focuses on developing and acquiring the technology, core competencies and skill sets required for the timely delivery of its envisaged future product portfolio with industry-leading features across it's range of commercial and passenger vehicles. For the passenger vehicle product range, the Company's focus is on stunning design, driving pleasure and connected car technologies. For the commercial vehicle product range, the Company's focus is on enhancing fuelefficiency and minimizing the total cost of ownership. The Company continue to endeavour to adopt technologies for its product range to meet the requirements of a globally competitive market. The Company has also undertaken programs for development of vehicles, which run on alternate fuels such as LPG, CNG, bio-diesel, electric-traction and hydrogen.
The Company has plans to expand the range of its product base further supported by its strong brand recognition in India, its understanding of local consumer preferences, in-house engineering capabilities and extensive distribution network. With growing competition, changing technologies and evolving customer expectations, the Company understand the importance of bringing new platforms to address market gaps and further enhance it's existing range of vehicles to ensure customer satisfaction. The Company's capital expenditures totaled Rs. 31,750.74 crores and Rs. 31,425.39 crores during Fiscal 2017 and 2016, respectively, and the Company currently plans to invest approximately Rs. 400 billion in Fiscal 2018 in capacity, new products and technologies.
Jaguar Land Rover has invested to enhance its technological expertise through in-house R&D activities, including the development of its engineering and design centers, which centralize Jaguar Land Rover's capabilities in product design and engineering. Furthermore, Jaguar Land Rover participates in advanced research consortia that bring together leading manufacturers, suppliers and academic specialists in the United Kingdom and are supported by funding from the UK Government's Technology Strategy Board.