Chief Executive Officer, JLR (Jaguar Land Rover Automotive plc)
BQ Conversations With Tata Motors' PB Balaji
BQ Conversations | Do shampoos and cars share anything in common? Find out what Tata Motors’ PB Balaji tells BloombergQuint's Sajeet Manghat.
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About Pb Balaji
In a January 2019 interview with ET Now, Tata Motors CFO P.B. Balaji discussed the company's turnaround plan for Jaguar Land Rover (JLR). Balaji described the plan as having three components: sales enhancement, cost and cash management, and capability improvements. He stated that the company aimed to remove 2.5 billion in costs over 18 months, including 1 billion from capital expenditure, and to improve working capital by at least 500 million. Balaji also outlined a four-part strategy for JLR focusing on product, geography, cost, and the balance sheet, noting a plan to expand from 12 to 16 nameplates over three to four years and to offer electric options on all models by 2020. Regarding JLR's performance in China, Balaji said the company was shifting from a push strategy focused on volume to a pull strategy emphasizing branding, dealer profitability, and exclusivity. He expressed confidence that the strategy was working, citing a reorientation toward Land Rover over Jaguar in recent sales. Balaji attributed JLR's challenges primarily to the Chinese market, while stating that other markets were expected to meet growth targets despite headwinds such as diesel taxes, Brexit, and tariffs.
Transcript (30 segments)
I
Interviewer0:07
Welcome to BQ Conversations. My guest today is the group's chief financial officer of Tata Motors, P.B. Balaji. Balaji, thank you for being here.
P
Pb Balaji0:18
Thanks for having me.
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Interviewer0:18
Let me begin with this: you have been six months in Tata Motors, moving from handling unit economics of soaps and detergents to unit economics of cars and trucks. How has it been a change?
P
Pb Balaji0:30
It's been fascinating and fun. Some matters are similar, some are very different. It's interesting to figure out which are which and tweak the approach accordingly. It's been an absolutely fascinating six months.
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Interviewer0:45
Okay. I'm starting off with the investment plans you elaborated at the press conference. Nearly $5.6 billion for JLR and nearly $500 million for Tata Motors, that's over $6 billion for a year and a half going to 2020. How are you going to fund it?
P
Pb Balaji1:12
The starting point is operating cash flows. That's the number one priority. Then it plays out differently by business: JLR needs to improve operating leverage, CV to grow and gain share, PV to get capex and contribution margins right. Each has a tailored approach. For JLR, Brexit is a key challenge; we're preparing via electrification and other measures.
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Interviewer2:33
Your net debt for the automotive division was around 13,000-14,000 crores, up from 7,400. With this $6 billion plan, clearly it won't come from cash flows. What are your plans?
P
Pb Balaji2:55
No equity needed. Our balance sheet is strong. After free cash flows, we expect only marginal negative net debt, easily managed by stepping up debt. JLR has $2.9 billion in revolvers and will issue bonds. Liquidity is adequate. But we do want to bring net debt down via our six-cylinder plan and monetizing non-core assets.
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Interviewer4:29
Let's go to the six cylinders. Starting with JLR: you have laid out a long-term EBIT margin of 7-9%. What will it take to nearly double from current levels?
P
Pb Balaji4:50
We haven't changed the aspirational 8-10% margin; we've created stepping stones. Between FY19-21 we target 4-7%. Focus on growth and cost discipline. JLR has tripped by planning ahead of demand, but it's a correction. We've taken hard calls: changed capitalization policy, impaired unaffordable projects, introduced an affordability gateway. Discipline is key. We're also innovating with I-Pace, waymo partnership, and smart outsourcing.
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Interviewer10:00
Let's come to geopolitics. JLR has 50-60% of sales from Britain, Europe, and China. How do you manage Brexit uncertainty, Europe's recovery, and China's duty changes?
P
Pb Balaji10:05
For UK, electrification will mitigate diesel issues; by 2020 every model will have an electric option. For Brexit, we work with government. Europe is recovering and our Slovakia plant starts soon. China's duty reduction is beneficial; we have five plants and no additional investments needed now. The business is cash creative.
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Interviewer10:45
Now the PV business. You ended Q4 with 6.5% market share, full year 5.7%. Will the hard calls help you cross 10% and become top three?
P
Pb Balaji10:50
That's the vision. 85% of our products are bought by individuals, not fleets. The brand resonates with young, edgy consumers. JD Power customer service is number two. Contribution margins are improving. We target 25-35 age group with pricing power. Turnaround 2.0 is about profitable breakeven, not entry-level cars. Brand and value for money are key.
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Interviewer11:30
You recently discontinued Indigo and Indica. What about the Nano? Will you bring cars to those segments?
P
Pb Balaji11:35
Products have lifecycles. Indigo and Indica had run their course; we compensated with 34% growth elsewhere. For Nano, its current form won't meet 2019 crash norms. We are rethinking; we've ring-fenced it and are open to partnership to monetize the technology.
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Interviewer12:00
You mentioned capex of about 3,500-4,000 crores for Tata Motors India over two years. Can you elaborate on the financial model?
P
Pb Balaji12:05
On a sustainable basis, Tata Motors standalone needs about 4,000 crores capex annually from operating cash flows. Beyond that, we aim to reduce debt. Regarding BS6, we won't slow new launches; consumers don't care about BS6. Our Harrier launched with BS6 already. We will continue to launch models.
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Interviewer12:30
Commercial vehicles. You have been accused of heavy discounting. Market share only gained 50 bps. What are you doing to win decisively?
P
Pb Balaji12:35
Variable marketing expenses are significantly lower this year, so discounting is not happening. The shift to rated payload gives cost engineering opportunities. We introduced a six-year warranty. Market share is increasing; we are not fully supplying demand due to supply chain constraints. We have ramped up production from 16,000 to 49,000 vehicles per month and expect supply chain issues resolved in 3-6 months.
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Interviewer13:00
Do you see any headwinds in CV? Inflation, fuel prices, interest rates?
P
Pb Balaji13:05
Two main worries: inflation and interest rates. Fleet operators are concerned about fuel prices. But I'm confident the RBI and government will manage. The cycle has just started; we must not lose it. On balance, I'm optimistic given infrastructure investments and overloading restrictions.
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Interviewer13:30
Turnaround 2.0 for Tata Motors domestic is work in progress. What is the timeline and milestones?
P
Pb Balaji13:35
First milestone: declare profit and dividend. We took tough calls to be sustainable. We changed JLR's dividend policy to 20% of PAT this year, 25% next. Then improve EBIT margins and win back share. This journey will take a few years. We're embedding discipline, focus, and ruthless execution. Employee ESOPs are tied to share gain, margin gain, and cash generation.
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Interviewer14:00
On Tata Motors Finance: it has been inconsistent with provisions. Last year it had 24% growth. What are you doing?
P
Pb Balaji14:05
TMF has had a fantastic turnaround: GNPAs down from 26% to 4%, profitability of 290 crores. Their brief is to lubricate sales, not push them. They are pricing risk correctly. We invested 300 crores this year and expect 400-450 crores annually. It's a strategic asset; we'll maintain control but are open to partners later.
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Interviewer14:30
Last question: non-core assets. You shifted two assets to held for sale: a technology asset and Hitachi construction. What is the value and strategy?
P
Pb Balaji14:35
Tata Technologies is core to our designing; we want to sell to a player who can build it further, and we remain a key vendor. Hitachi construction is doing well but not our focus; we own 40% and think it's better for Hitachi to take full control. Valuation will be fair. We are reviewing all subsidiaries; only TMF and JLR are off the table. Everything else is under strategic review.
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Interviewer15:00
Thank you very much for your time.
P
Pb Balaji15:02
Thank you.