Macros to hit Tata Motors' capex plans: Ravi Kant...

Ravi Kant, CEO and MD, Tata Motors said the company's capex plans would be impacted due to various macro-economic factors. "Tata Motors like any other company has to think about capacity addition because unutilised capacity is a huge cost especially when interest rates have become so high. So, it makes a very big difference to your bottomline," Mr Kant said candidly.

Speaking about Land Rover and Jaguar, he said JLR derives nearly 27% of its sales from the US market. But with a sharp decline in the US market, sales of these two are bound to get impacted. In addition, Europe too has started showing sign of weakness. "But the company is making all efforts to offset this decline with increased sales in emerging markets especially Russia and China," he argues.

Speaking of India, Ravi Kant also said that the low availability of consumer finance and higher fuel prices is causing a slowdown. He expects demand for Nano to be much higher than supply. He, however, did not wish to comment on Nano and Singur issue right now.

Excerpts from CNBC-TV18's exclusive interview with Ravi Kant:

Q: As far as the automobile industry is concerned last year we saw a little bit of a slowdown. But this year seems to be worst. Do you think that there maybe a drop in overall volumes in certain segments?

A: Automobile industry is a cyclical industry and different segments have different amplitude of cyclicality for example trucks have hard cyclicality, they will shrink by 40% and they will grow up by 45-50%. Cars are less cyclical, so we have seen fairly high growth in the last four-five years and therefore certainly this was inevitable. It was a question of when it would happen. Certain external elements have accelerated the process, the key amongst them has been the lack of availability or shrinkage in availability of consumer and vehicle finance. That along with higher interest rates and fuel price increase has brought the sentiments and the ability especially of first time users, especially of fringe consumers into the market and that is causing a major setback to the industry.

Q: Talking about first-time car buyers, Nano will address a huge lot of them, will it impact the prospects of a car of that nature, which would bring the bar lower as far as the affordability of a car is concerned because they are again very price sensitive and hence may not be able to afford high interest rates?

A: I would not like to comment on Nano specifically. But we expect the demand to be much higher than our ability to supply. So it may not matter for that kind of product when the demand is so outstripping expected supply.But where supply and demand is more in balance, it is going to make a difference.

Q: Tata Motors has launched the new Indica. Do you see the volumes for passenger vehicles and commercial vehicles independently, to be as good as last year?

A: We are seeing tremendous pressure in commercial vehicles; especially the big trucks and the medium trucks. The creation of a new segment specifically by Ace and now similar products in that category is what is expanding the whole market and therefore we are seeing some good growth in small vehicles.

As far as the car industry is concerned, these are very challenging times and because it is a more of an emotional purchase in addition to being a commercial purchase, one will find that whenever new products are introduced, they bring new users into the market and therefore those people who have done well at a particular time are the ones who have been able to get new products in the market, get new consumers attracted to them. So we do hope that the new Indica will do likewise in the next few months.

Q: Because of the various macroeconomic factors, manufacturers may rethink about their investment as far as capacity expansion is concerned. Will Tata Motors's capex plans also get affected because of this turn of events as far as the macroeconomic scenario is concerned?

A: I think so because capex is of two kinds; one is capex that you spend on creating new products and bringing them to the market. Perhaps the emphasis on that will only get accentuated because of the difficult situation and therefore because of the capacity utilisation, people would like to create new products, increase market share etc. There the spends would not be impacted.

But as far as creation of new capacity and buying of new equipment is concerned, that certainly is going to get impacted. Tata Motors like any other company has to think about that because unutilised capacity is a huge cost especially when interest rates have become so high. So, it makes a very big difference to your bottomline.

Q: Overall, Jaguar is faring very well, thanks to the new XF. But in Land Rover there seems to be a revision in terms of production plan, there is a cut in production. Do you see that growing further because of the lack of demand in mature markets like the US for example?

A: About 27% of the sales comes from the US market. The US market is in a sharp decline and so it is going to have an impact on Land Rover and Jaguar. It is a question of our ability to offset that decline from other markets. Unfortunately, the UK and Europe have also begun to soften. But the company is making all efforts to offset this decline with increased sales in emerging markets especially Russia and China.

For Land Rover, Russia has become the third largest market and China is the fifth largest. Cut production, not build inventory. These are prudent management principles, and the company is following them.

Q: You have showcased the electric Indica and the electric Ace. As we understand the electric Indica will go on sale in Norway first. By when are you looking at that and do you see potential for it to be marketed in and sold in India as well?

A: We hope to put it on sale in Norway in a few months’ time. Most certainly it would also come to India. But I cannot tell you when and at what price it would come at this stage. But it is going to be fairly expensive. If you go by the standards by which electric vehicles are being sold, it will be in that category.

Q: Is electric Ace the same as Chrysler's Ace which the later will probably market in the US. Have they already played a role in developing the electric version of the Ace?

A: Yes, most definitely. It is a collaborative effort with them. We are working together to make this product happen.

Q: Today the Minister unveiled the self-regulated certificate by the automobile industry about fuel efficiency norms. As a manufacturer, what is the kind of impact it will have as far as developing new products is concerned. Will it put more pressure on manufacturers to make more fuel-efficient cars and hence invest more in technology?

A: Global warming is a very important and an urgent subject today. Although the automobile industry in India accounts for only 10% of global warming, we are still very conscious of the role that we are required to play. Therefore, as conscious citizens, we want to do something more than what is mandated. Therefore, we are taking a step forward by having self-regulation.

From January 1, we will start this consumer fuel-efficiency certificate to be displayed at all dealerships. By April 1, the industry will self-mandate itself. Therefore, consumers would begin to know more about it. We are working with the government to create a path to improve fuel efficiency over the years. We hope that we are able to play a very active and useful role in this direction.

Q: We understand that you are not in a position to comment on Nano. But are you ready with a Plan B in case you decide to withdraw from Singur?

A: I would not like to comment anything on Nano and Singur at this stage.