ECONOMY OVERVIEW
INDIA
The year 2017, for India was marked by a number of key structural initiatives to build strength across macro-economic parameters for sustainable growth in the future. The growth in the first half of the year suffered despite global tailwinds. However, the weakness seen at the beginning of 2017, seems to have bottomed out as 2018 set in. Currently, the economy seems to be on the path to recovery, with indicators of industrial production, stock market index, auto sales and exports having shown some uptick. India has recovered from the effects of demonetization and the introduction of the Goods and Service Tax.
As per the advance estimates, in Fiscal 2018, India’s GDP increased to 6.7% as compared to an increase of 7.1% in Fiscal 2017. India’s GDP growth bottomed out in the middle of 2017 after slowing for five consecutive quarters, and has since improved significantly, with momentum carrying over into 2018 on the back of a recovery in investment. Although investment growth was still moderately lower in 2017 than in 2016, high-frequency indicators suggest that it accelerated into 2018. The temporary disruptions caused by the implementation of the Goods and Services Tax dissipated by mid-2017, and manufacturing output and industrial production have continued to firm since then.
Currently, India is the world’s seventh-largest economy at USD 2.2 trillion, sitting between France and Italy. India has emerged as the fastest growing major economy in the world as per the Central Statistics Organization and International Monetary Fund (IMF) and it is expected to be one of the top three economic powers of the world over the next 10-15 years, backed by strong democracy and partnerships.
WORLD
2017 is the year which saw global economy accelerating although UK economy is evidently slowing, while the US economy continues to grow at a modest pace. The Chinese economy continues to grow strong. However, the Euro zone and Japan shows sign of acceleration, as do many of the major emerging economies such as Turkey and Russia. The US economy grew at 2.7% in Fiscal 2018, supported by broadbased strength in domestic demand, especially investment. The economy may be near its productive potential, as both capacity utilisation and the employment rate are moving toward peaks attained prior to the financial crisis.
During 2017, prices of base metal also strengthened, with the strong growth in infrastructure sector in major countries around the globe. Crude prices remained range bound in major part of 2017 although it started to give a signal of upward breakout towards fourth quarter of Fiscal 2018. Brent crude started sharp rally in the middle of 2017 around $44/bbl and has rallied all the way to $79/bbl. The tensions in the Middle East and West Asia will only add to the increase in oil prices.
The Eurozone grew at its faster rate in a decade in 2017, by 2% highest since 2007, reflecting the strong consumption, investment, and exports. Amid continued monetary policy stimulus, growth is projected to be 2.1% in 2018. The Eurozone is in the midst of a broad cyclical expansion, after years of economic stagnation and rolling crisis, fueled by recovery confidence and monetary stimulus from the European Central Bank. The UK by contrast, has grown by 1.8% in 2017, down from 2016’s 1.9% rate and the weakest expansion since 2012, mainly reflecting the impact of higher inflation in the wake of the 2016 Brexit vote and weaker investment from Companies due to uncertainty of future trade arrangements. The United Kingdom is expected to grow at 1.4% in 2018. The economies in Spain, Italy and France has shown better prospects with GDP rate. Germany accounted for 28% of the Euro area economy with steady growth of 2% GDP.
China registering growth of 6.9% in 2017 and had remained solid this year. Activity continues to shift to consumption, while investment growth rates remain well below those in recent years. Industrial production has stabilized following significant cuts in overcapacity sectors implemented over the past two years. However, according to International Monetary Fund (IMF), China’s debt has ballooned to 234% of the total output. Supported by deepening macro-economic stability and gradual monetary loosening, Russia’s economy continued its recovery in 2017, mainly driven by non-tradable sectors. Growth momentum towards the end of 2017 slowed down but picked up in Fiscal 2018. Russia’s growth prospect remain modest.
Growth in Japan reached 1.7% in 2017, underpinned by supportive financial conditions and strong exports, but contracted at the beginning of this year. Nonetheless, unemployment is falling to levels not seen since the 1990s. South Africa had GDP increase. This is mainly due to change in the political leadership, which has demonstrated strong commitment to strengthening institutional integrity-especially state owned enterprises- reaching out both to business and labor, and pronouncing the intention to build a new social compact in the country.
(Source : Global Economic Prospects, Wold Bank)
Business Summary
The Company primarily operates in the automotive segment which 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. Through Jaguar Land Rover business, the Company operates in the premium car market segment wholesaling vehicles 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. 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 other operations business segment mainly includes information technology services, and machine tools and factory automation services.
The Company has decided to sell stake of the various noncore investments to ensure that it wins decisively in the future. Slump sale of value added Segment of Defence vehicles business and specialized Defence projects (excluding FICV) to Tata Advanced Systems Limited (TASL). Sale of Aerospace business unit of TAL Manufacturing Solutions Ltd (TAL) via 100% Share sale to TASL. The Company has also classified its investment in Tata Technologies Ltd, Tata Hitachi Construction Machinery Company Private Ltd, Tata Steel Ltd and Tata Chemicals as held for sale / current investments.
Automotive Operations
Automotive operations is the Company’s most significant segment, which include:
The Company’s consolidated total sales (including international business sales and Jaguar Land Rover sales, excluding Chery Jaguar Land Rover) for Fiscal 2018 and 2017 are set forth in the table below:
The automotive operations segment is further divided into (i) Tata and other brand vehicles (including vehicle financing) and (ii) Jaguar Land Rover.
Tata and other brand vehicles (including vehicle financing)
India is the primary market for Tata and other brand vehicles (including vehicle financing). During Fiscal 2018, there was a robust and steady pace of economic growth in the geographic markets in which the Tata and other brand vehicles segment has operations.
Fiscal 2018 was a milestone year for the Indian automotive industry, as it overtook Germany to become the 4th largest global automotive market. The sales volume built upon last year’s momentum to register a double-digit growth - first time since Fiscal 2012 - helped by improvement in the rural economy and partly due to demonetization-influenced low base in the second half of Fiscal 2017.
The following table sets forth the Company consolidated total sales of Tata and other brand vehicles:
The Company’s overall sales of Tata and other brand vehicles increased by 21.3% to 6,75,826 units in Fiscal 2018 from 5,57,002 units in Fiscal 2017, and the revenue (before intersegment elimination) increased by 18.0% to Rs.66,620.38 crores during Fiscal 2018, compared to Rs.56,448.48 crores in Fiscal 2017.
Vehicle Sales in India
Automobile sales across categories domestically rose by 10.1% in Fiscal 2018. Sale of passenger vehicles grew by 7.3% in Fiscal 2018, as compared to Fiscal 2017, being increase in all categories- passenger cars and UV’s.
The following table sets forth the Company‘s (on standalone basis) sales, industry sales and relative market share in vehicle sales in India. Passenger vehicles includes passenger cars and utility vehicles. Commercial vehicles include Medium & Heavy Commercial Vehicles, Light Commercial Vehicles, Intermediate & Small commercial vehicles & Pickups and CV Passenger vehicles.
Passenger Vehicles in India
Sales in the passenger vehicles industry in India increased by 7.3% in Fiscal 2018. Utility Vehicles sales witnessed significant growth during Fiscal 2018 due to continued consumption demand and strong rural growth.
Reflecting the growth in the Indian passenger vehicle sector, the Company’s passenger vehicle sales in India increased by 19.0% to 184,743 units in Fiscal 2018 from 155,260 units in Fiscal 2017, due to new product offerings by the Company viz. Nexon, Tigor, Hexa, Tiago etc.
The Company’s passenger vehicles category consists of: (i) passenger cars and (ii) utility vehicles. The Company sold 134,860 units in the passenger car category in Fiscal 2018, representing a marginal decrease of 1.2% compared to 136,479 units in Fiscal 2017. However, in the utility vehicles category, the Company sold 49,883 units in Fiscal 2018, representing an increase of 165.6% from 18,781 units in Fiscal 2017. During Fiscal 2018, the Company launched, Nexon, a compact SUV and sold 27,111 units. The Tata Tiago, Hexa and Tata Tigor were launched in Fiscal 2017. All these new product launches has helped Company increasing its market share and volumes in passenger vehicles category. Dealer network upgradation and working capital availability were prevailing constrains in passenger vehicle sales and the Company has been working with THF Holding Limited, its financing arm and other banks to plug these gaps.