Tata Motors – Macro Environment

For financial year 2008, the TATA motors reported the consolidated revenues (net of excise) at Rs. 356. 51 bn posted a growth of 10. 2% over Rs. 323. 61 bn in the previous year. The Consolidated Profit after tax (PAT) for the year was Rs. 21. 67 bn, a marginal decrease over Rs. 21. 69 bn in the previous year. Standalone EBITDA impacted by 6. 6% to Rs. 30. 92 bn in FY08 from Rs 33. 12 bn in FY07; EBITDA margin stood at 10. 76% in FY08 as compared to 12. 06% in the previous financial year. Following are the main macro environmental factors from FY08 that had direct bearing on the company’s revenue and profitability figures: GDP Growth Encouraged by the continuing thrust in investments which grew by 31. 6%, the GDP growth in the third quarter of fiscal 2008 came in at 8. 4% compared to 9. 1% in the same quarter last year. A good kharif season supported growth of 3. 2% in agriculture while Industry and services grew at a moderated level of 8. 4% and 10. 5% respectively. CSO’s advance estimates projects the overall GDP at 8. 7% in the full year 2008. While the sequential decline in the GDP growth (9. 3% and 8. 9% in the first two quarters of the current year) indicates moderation of growth, it is expected that the growth momentum would continue, led by investments. Risk to growth going forward is expected to come from worsening inflation, increasing interest rates and weak global cues. Infrastructure Index The growth in the infrastructure industries for the period Apr – Feb’08 was subdued with all sectors, except coal , witnessed a lower growth on a y-o-y basis. Crude oil saw the least growth of 0. % followed by Finished steel (5%), Coal (5. 6%), Petroleum products (7. 2%) and cement(7. 5%) during this period. Index of Industrial Production IIP growth for the period Apr-Mar’08 is 8. 1% over the corresponding period of last year. On a sectoral basis, manufacturing showed the largest decline in growth from 12. 5% to 8. 6% followed by electricity (7. 2% to 6. 4%) and mining (5. 4% to 5%). A look at the use-based data indicates that while capital goods have shown a robust growth at 16. 5%, consumer goods decelerated mainly due to decline of 1% in consumer durables. Inflation The headline inflation, which declined from 6. 4% at the beginning of the fiscal year to a low of 3. 1% on October 13, 2007, has seen significant increase in the later half of fiscal year 2008. For the week ended may 10th, the headline inflation had moved to 7. 82%,largely due to the rising global food and oil prices. This has instigated government to take stringent measures such as restricting exports of select products, lowering of excise duties and dissuading domestic manufacturers such as steel and cement companies from undertaking price increases. Prices of key raw materials used in the auto industry have also increased significantly. This is exerting pressure on the input costs of the auto manufacturers. Interest rates In response to the high inflation, RBI increased the Cash Reserve Ratio (CRR) by 50 bps to 8% before the scheduled policy meeting and further by 25 bps at the policy meeting on April 29th 2008. With high global commodity prices and ample liquidity in the system indicating significant risk to inflation, it may be expected that RBI will continue to take stringent steps to check the inflationary pressures in the economy. Any move to increase the interest rate would further impact industrial growth and investment momentum in the economy. Freight Rates The benchmark freight rate index registered a moderate 1. 1% y-o-y increase over the last one year while the diesel price index has increased by 3. 2% over the same period. The financing costs also increased during the year, putting up moderate pressure on the truck operators’ profitability position. The Government raised the prices of most widely used automotive fuel products, petrol and diesel, by Rs 2 per litre and Re 1 per litre respectively on February 14, 2008. Since then the global oil prices have moved up significantly crossing $135 per barrel, hence further fuel price hike cannot be ruled out, despite ongoing inflationary pressures on the economy. National Highway Development Project (NHDP) With substantial portion of the GQ having been completed and a significant portion of the NSEW corridor under implementation, the focus is now moved to Phase IIIA and Phase V