JLR-Driven Profits Belie Tata’s Domestic Distress

MUMBAI – Tata’s 2008 acquisition of Jaguar Land Rover still stands as the Indian automaker’s best business move of recent years, as the British luxury brand regularly generates profits while the parent company loses ground in its home market.

Once India’s largest automaker, sales of Tata light vehicles plummeted 29.8% to 468,976 in 2013, according to WardsAuto data. Deliveries from January through July fell even more sharply, backsliding 37.6% from prior-year to 186,395.

Tata has fallen to fourth place behind longtime sales leader Maruti Suzuki and recently, Hyundai and Mahindra & Mahindra. “Tata performance in domestic operations has been dismal,” CEO Cyrus Mistry concedes.

JLR sales increased 22% to 115,596 in first-quarter 2014, raising Tata’s overall operating margin to 20.3% from 15.8% year-ago while the domestic business’s operating margin fell to -2.8% from 2.3% in the same period.

The momentum from JLR carried into the second quarter, when Tata tripled its consolidated net profit to Rs54 billion ($893.7 million) from Rs17.3 billion ($286.4 million) a year ago, and easily beat analysts’ projections of Rs37.1 billion ($613.7 million).

Tata still dominates the Indian truck and bus business, but it has struggled to sell light vehicles despite launching eight facelifted models across five brands last year. “Tata’s aim was to align old products to new market conditions,” President Ranjit Yadav says.

Products meant to appeal to younger buyers have failed to make inroads against the likes of the Maruti Swift Dzire, Honda Amaze, Renault Duster, Nissan’s Datsun Go, Ford EcoSport or Toyota Ertiga.

Managing Director Karl Slym was implementing a comeback plan for Tata at the time of his sudden death in January. He had saved  Rs30 billion ($510 million) in costs, cut the number of suppliers from 1,400 to 400 and planned to have all 12 Tata models built on a single platform by 2020.

Tata also remains burdened by the Nano, a stripped-down minicar introduced in 2009 with an emphasis on its low price. But its initial popularity sank as the “inexpensive” tag gave way to “cheap.” Sales shrank from 10,475 in March 2012 to 2,452 in March 2014.

The Nano is produced at Tata’s plant in Sanand in Gujarat state, effectively using only 10% of the plant’s annual capacity of 250,000 units. The automaker is considering moving Nano production to another country such as Indonesia, but the Nano is the only Tata model currently eligible for low-interest, deferred-payment loans from the Gujarat government.

Tata is lobbying the government to relax that restriction.

Looking beyond its model lineup, Tata last year launched Horizonext, a marketing strategy

focused on quality improvements, enhanced consumer experience and consistent quality of service. “But,” notes Mistry, “we have never seen before the intensity of new launches from competition.”

Tata is pressing ahead with its recovery effort with this month’s launch of the Zest compact sedan, its first new product in four years. A premium hatchback called the Bolt could reach the market next year, and the automaker has further plans to launch two new latest-generation vehicles every year to 2020.

Until Tata rebounds in India, JLR will continue to sustain the automaker. Land Rover’s U.S. sales alone rose 14.5% in 2013 compared with 2012, while Jaguar’s skyrocketed 41.1% in the same period, according to WardsAuto data.

To facilitate further gains, the luxury brand is looking toward new products and expanding a manufacturing base now largely limited to the U.K. Two plants are in the works, one in China and the other Brazil, two countries JLR has targeted for growth.

All of the investment comes directly from revenue generated by JLR, not from Tata, says Andy Goss, group sales operations director. The parent company has given the green light for the heavy investments with little obvious reason to resist.