Tata Motors CFO P.B. Balaji in an exclusive interview with ET Now

What we see today is a full-fledged turnaround plan, and typically turnaround plans run into three distinct buckets. There's one work around what we call sales enhancement, which is about stepping up your portfolio, stepping up your products, stepping up your customer engagement, stepping up your sales activations. That piece of work got done. Second piece of work that was done on all things costs and cash, where I think significant amount of effort has gone through in terms of taking costs out of the business and ensuring that we are benchmarking with others, ensuring that we are driving design costs down, designing out needless complexity, and also ensuring that we're adding complexity which is value-adding at various points in time to also ensure that we're able to deliver better sales. And the last piece of work is all things capabilities, which is some of the more fundamental issues in the business we had to go and fix. And for Tata Motors, one of the big areas that we have focused upon is getting the reliability of our supply chain up across the board. And that was the first turnaround 1.0 last year, which after a lot of time we actually managed to get, almost after five years we generated positive free cash flows last year, coming in after almost five years, which is quite a good achievement in those circumstances. And therefore we now called out turnaround 2.0, where the specific focus was on passenger vehicles, and the first milestone was to hit the EBITDA breakeven, which I'm happy that we did it last year. We need to ensure that we stabilize that, we are able to get sustainable EBITDA breakevens, and then move it from there into an EBITDA breakeven, then to a PBT breakeven, and then all the way to a cash breakeven. And it's very much doable.

See, I think volume is important, but volume is not everything. We need to be a bit careful on this one, because the auto industry does have this myth of saying that everything is volume, volume, volume. I'll just nuance it by saying that it is not volume, it's actually looking at value. You're looking at revenue as a larger measure.

Where we need to be careful to get the maximum value out of it is that I'm thinking long-term. What the platform architecture gives us, both Alpha and Omega architecture, gives us is to start thinking about the next four, five years of cars coming in. So which means if I'm negotiating with a vendor on a particular product, I'm not negotiating only for that part — I'm looking for the next five cars that are coming through on the platform itself. That gives me scale. The fact that we have a capital-constrained environment helps you to think more clearly on what is the capital you want to be in, what is the capital you don't want to be in. But at the same time there will always be opportunities. Take electric — one of the biggest collaborations that is now currently happening between JLR and Tata Motors, because with the I-PACE launch they've actually proven to the world that they can do stuff in style. And in terms of an EV strategy, obviously I think an EV would be a separate platform. So is there a lot of investment going into newer technology, especially on electrification? These platforms come package-protected for electric as well, so therefore it's not like we're going to have a separate platform that we'll end up creating for EVs. And therefore these two platforms take care of all the requirements in the foreseeable future.

Yeah, let me split the whole JLR approach that we're having into four buckets: product, geography, cost, cash/balance sheet. Because typically if I address these four things, the JLR question invariably gets answered. As far as product is concerned, they have a pretty rich product pipeline coming through, because we have the Evoque coming in — the new Evoque launches just now — then you have the Defender coming in subsequently, we have the full year of I-PACE coming in, we have the full year of the Model Year 18 and the facelifts of the Range Rover, Range Rover Sport coming in there. And therefore the product pipeline is absolutely full, and we will then over the next three, four years move to 16 nameplates from the current 12. And then by 2020 we have all the SUVs available on some electric option or the other.

When I move to geography, this year we'll probably meet, barring China, every other market will meet our numbers in terms of our total growth. This is despite diesel, this is despite diesel taxes, this is despite Brexit, this is despite tariffs, everything. China is where we have an issue, and China is basically where we are resetting our priorities as to how we go to market. From a push strategy of pushing volumes in, starting somewhere around mid of this year we have flipped and said we would love to do more of a pull kind of strategy, where we are a premium OEM — it's only fair that we focus on branding, we're focusing on profitability of your dealers, and we are focusing on exclusivity. And you do that, then automatically volumes start coming in. We are confident that with this, China should start delivering for us. And that's the reason we have taken the hit on our chin in terms of the volumes, we have taken the hit on the chin in terms of what we saw as growth rates in that market, but that's absolutely what the doctor ordered as far as China is concerned.

This is now fully aligned within the entire business, from Ralph all the way down to us. But this is not going to — the market is going to get even more tougher simply because there's Brexit that we need to deal with, there are still more clouds on the horizon. US has had a peach of a ride — no one knows whether US will get more sanguine, and an inverted yield curve is not something that anybody would like. In that situation we need to be clear that come what may, demand is likely to be challenged. We have our plan of action ready, we need a Plan B as well, which is the reason why Project Charge got launched. And when Project Charge got launched, one of the key focus areas is cost and cash, and every line of the P&L is being looked at, identical to what the turnaround plan in Tata Motors is about. We have delivered in CV, we delivered in PV, we'll deliver in JLR as well — there's no debate about it.

Project Accelerate, which has been launched, is all about fixing their capability issues. So if you notice, the theme is almost similar: sales activation, cost outs, and capability builds. And capability builds for them is on three fronts: timing of launches, quality of launches, cost of launches. If you get these three right, JLR is fundamentally fixed for the pieces related to their capabilities. So I think we have a pretty clear plan of action on costs, and we have put out that over the next 18 months we want to take out two and a half billion out of that place — one billion coming out of capex. So this year we will deliver the four billion, next year also we'll deliver four billion of capex. From the four and a half, we'll reduce that to four — committed, will happen. We will improve working capital by at least 500 million, that's a bare minimum number. That alone is one and a half billion. And then this year, in the next 18 months, one billion of cost will come out of the place — be it on material, be it on VME, FME, other indirects, the whole works. So identical to what is happening in Tata Motors.

With this in place, if two and a half billion cost comes out, you then have your threshold EBITDA margins, which is now sitting at about 10 percent, moving to about 14 percent. And then we are committing that going forward, 11 to 12 percent is what our capex is, which means fundamentally I become a cash-accretive business thereafter. When I become a cash-accretive business, you don't have an issue of balance sheet, you don't have an issue on borrowing in that place, and they go back to their heyday. So you'll notice that we're not touching a single product that we want to launch — everything is there. With this four billion of capex, you'll have all the MLA Medium, MLA Low, MLA High architecture products going in, we will have every one of the products on the 16 nameplates we want, we would have completed ADAS, we would have completed electric. So I think we have a comprehensive plan of action in JLR ready, and those executions are happening methodically. Take even yesterday's sales — you'll notice that the reorientation more towards Land Rover coming out of Jaguar is happening as well. So I'm getting more and more confident that our strategy is working on the ground with respect to JLR.