Notice

3. OTHER INFORMATION

1. Reasons of loss or inadequate profits:

   For Fiscal 2017 the Consolidated Revenue from operations and Profit After Tax was Rs. 2,74,492 crores and Rs. 6,064 crores respectively as against Rs. 2,77,661 crores and Rs. 11,101 crores respectively in the previous year. The Standalone Revenue from operations and Profit/Loss After Tax was Rs. 49,100 crores and (Rs. 2,480) crores respectively as against Rs. 47,384 crores and (Rs. 62) crores respectively for the previous year. The loss as calculated under Section 198 of the Act for FY 2016-17 was Rs. 2,564 crores (previous year: loss of Rs. 464 crores).

   The Indian economic in Fiscal 2017, on a macro – economic level stayed fairly robust and stable. Automotive Industry in India, grew in Fiscal 2017 by 8.3% over the previous year, as against the growth of 6.0% in the Company's vehicles sales resulting in the Company's market share decreasing to 12.8% in the Indian automotive industry from 13.1% in the previous year. The Company was more severely impacted in view of certain sectors performing more adversely, which impacted segments in which the Company had larger volumes and higher market shares. The volatile domestic demand for commercial vehicles throughout the year, was a result of Government and regulatory announcements - e.g. Goods and Service Tax (GST), Demonetization, emissions change from BS-III to BS-IV etc. Within the domestic market, the Company sold 324,175 commercial vehicles, a marginal fall of 0.8% from Fiscal 2016. The Company's passenger vehicles sales were higher by 23.5% at 157,020 vehicles, registering a 5.2% market share. The Company sold 137,175 cars (higher by 28.4%) and 19,845 utility vehicles and vans, (lower by 2.2%).

   Whilst the Company has significantly improved its income from operations of Rs. 49,100 crores in Fiscal 2017, which is 3.6% higher from Rs. 47,384 crores in the previous year, muted demand of M&HCV and LCV due to demonetization, weak replacement demand, subdued freight demand from industrial segment, and lower than expected pre-buying ahead of the implementation of BS-IV. This resulted in lower EBITDA margins of 3.5% as against 7.1% in the previous year.

2. Steps taken or proposed to be taken for improvement:

   The Company has taken various initiatives, to maintain its leadership, improve market share and financial performance. It has been aggressively pursuing and implementing its strategies to improve volumes and reduce costs through improving operational efficiencies, timely launch of new products, refreshing products, building brand strengths, improving dealer effectiveness and restructuring customer facing functions thereby enhancing sales and service experience and improved working capital management. The Company has also expanded its new look, stylish, tech savvy, best-in-class flagship passenger vehicle showrooms, for superior customer experience.

   Short term strategy: Based on the recommendation of the NRC, the Board at its recently held meetings held on May 23, 2017 and May 31, 2017 critically reviewed the performance for the financial year 2016-17 and have made major leadership and organisational changes as also set the tone for a turnaround plan with emphasis on the main business of the Company – the domestic commercial vehicle business, by bringing focus on sales and service, cost control, rigor in capital allocation with careful calibration and rebuilding the credibility with customers, dealers and investors.

   Mr Borwankar is part of a core team (ExCom) and alongwith the MD & CEO is leading the Company in a major strategic and operational transformation for significant and sustained improvement in the overall business and financial performance. This transformation initiative under their leadership will comprehensively cover all areas of the Company's operations - Company strategy, platform and product strategy, manufacturing, supply chain, employee and managerial productivity, cost reduction & efficiency improvements, improved effectiveness in sales & marketing and customer satisfaction/relationships and breakthrough improvements in achieving world class quality standards.

   The Board proposes to review the agreed actions pertaining to the turnaround plan on a monthly basis with the management monitoring the same at various levels on a daily basis. These are expected to result in substantially improving the Company’s financial performance – both in terms of revenues and profitability as also, market share in various sub segments of the automotive industry. These steps are being seen by the management as only a beginning in a deeper and long term strategy for growth and a sustainable future.

   Long term strategy: As has been reported in the previous year the Company has embarked upon a transformation journey which is expected to take another 1 or 2 years which will help the Company achieve significant growth, improve market share in all our segments, be amongst the top in India in terms of quality through cost efficient operations and a highly motivated and engaged team.

   1. Enhancing the brand perception of Tata Motors- A comprehensive exercise is being initiated to develop the brand purpose and positioning of Tata Motors as a brand. This will be then executed seamlessly across the value chain to provide consistent and credible experience to the stakeholders aligned to the Company's brand promise.
   2. Providing unique and delightful customer experience-Multiple initiatives right from pre-sales stage to after sales have been identified to deliver high customer satisfaction performance.
   3. Excellence in delivery of new products- The initiatives under this imperative focus on benchmarking with world class new product development processes in order to ensure consistency and adherence to the planned time, cost and quality.
   4. Delivering reliable and high quality products with focus on world-class quality processes- There are several projects initiated to deliver high quality products by improving internal process capabilities and supplier processes.
   5. World-class manufacturing – This stream's focus is to improve the productivity performance and delivery versus schedule. There are additional projects undertaken to reduce manufacturing related costs and yield improvement. The Company believes that this initiative will enable it to support and strengthen the 'Make in India Campaign', for encouraging India to become a key center for global manufacturing.
   6. Agile and Cost-effective Supply Chain- This stream's focus will be to improve the supply-chain processes like Material Requirement Planning, strengthen relationship with Strategic suppliers, rationalize the supplier base for agility, improve manufacturing and quality processes and information systems. Considering the size and scale of the Company's operations and the vast supply chain relationships, this will again strengthen and support the Government's aim under the 'Make in India Campaign'.
   7. Cost competitiveness – There are more than 50 initiatives, addressing each and every cost element for cost competitiveness, with clear targets in cost areas like Direct Material, Marketing, Fixed Cost, Variable Conversion Cost, Product Development Costs, etc. These projects will help in significantly reducing the Company's cost structure. It will be relevant to add that this cost reduction initiative will help not only the Company, but the entire value chain, including hundreds of vendors and other partners, providing further strength and support to the 'Make in India Campaign'.

   8. People processes and organization structure- In this initiative, projects have been undertaken to drive high-performance culture, improve functional competencies, improve employee engagement, achieve benchmark levels of employee productivity and build a pipeline of talented workforce.

      It will be worthwhile to note that under the above eight pillars, the Company has over a 100 individual initiatives on which various cross functional teams of high performers across the organization have been identified and deployed. To support the Company in the pursuit of above initiatives, the leadership team is also drawing upon and will be drawing upon Mr Borwankar's vast experience and expertise in leading transformational programs.

3. Expected increase in productivity and profits in measurable terms:

   With the various initiatives taken to improve performance, particularly on cost reduction and sales enhancement as under the Company is confident that with effective implementation of its turnaround strategy there would be substantial increase in productivity and profitability to turnaround the Company within the next 2 years:

   • Cost reduction: Focused approached on reduced direct material cost, renegotiating commodity price increases, major cost reduction drive review of fixed marketing expenses with the view to drop avoidable events, review of engineering expenses, improve spares revenue and other cost tightening measures, such as crowdsourcing, travel expenses, etc.
   • Sales enhancement: Improving market share particularly in all the sub segments of the commercial vehicle business, filling product gaps already identified, ensuring meeting the demand without any supply constraints, improving market intelligence with respect to competition, pricing and sales realization, better customer financing, offering customized solutions for various applications, product training to sales force and dealer network, timely product launches and interventions, strengthening the dealer network and viability, Incentivization of dealers, rigor on variable marketing expenses, bundling the value added services and increasing the revenues from spares and annual maintenance contracts.

   With Mr Borwankar alongwith the Senior Leadership Team's broad functional, general management skills and wide international experience, they would provide Tata Motors with profound knowledge in complex restructuring/turnaround programmes, provide inputs on robust world-class process know-how in operations and accelerate transformation to a high performance culture by onboarding employees and creating ownership in the organization. The Board is of the view, that this leadership creates international, multinational teams and fosters a culture of cross-functional teamwork, agility and accountability.

   The NRC currently comprising of three independent directors [viz. Mr Nasser Munjee (as Chairman of the Committee), Dr Raghunath Mashelkar and Mr Om Prakash Bhatt] and Mr Natarajan Chandrasekaran, Non-Executive Chairman of the Board, reviews and recommends the changes in the remuneration on a yearly basis. This review is based on the Balance Score Card that includes the performances of the Company and the individual director on certain defined qualitative and quantitative parameters such as volumes, EBITDA, cash flows, cost reduction initiatives, safety, strategic initiatives and special projects as decided by the Board vis-à-vis targets set in the beginning of the year. This review also takes into consideration the benchmark study undertaken by reputed independent HR agencies on comparative industry remuneration and practices. The decisions taken at the NRC and the Board are within the broad framework of remuneration as approved by the Members.

   The Company remains committed to pursue the long term interest of all stakeholders, including the Company's Members and employees. It is necessary to balance this with recruiting and retaining industry proven management team through the long term. This involves ensuring that the Company's leadership and talent base is appropriately remunerated, notwithstanding cyclical phases. This is particularly important when the Company has ongoing significant turnaround and growth strategies under execution.

Taking into consideration the above and the terms of appointment (including payment of Minimum Remuneration) agreed with Mr Borwankar and based on the recommendation of the NRC, the Board of Directors have on May 31, 2017, accorded their approval to the said proposal of reappointment of Mr Borwankar and in the interest of the Company has recommended the aforesaid resolution set out at Item No. 6 in this Notice for the approval of the Members.

None of the Directors, Key Managerial Personnel of the Company and their relatives is in any way concerned or interested in the said Resolution, except for Mr Borwankar in the Resolution at Item No. 6 of the Notice.