Business Accounting And Financial Management Of Tata Motors Ltd

History of Tata Group

Discuss About The Business Accounting And Financial Management.

Tata Group was founded in 1868 and in 1874 it started its textile manufacturing unit and steel manufacturing in 1907 (May (ed), 2012). On 1 September 1945, Tata Sons Limited, the holding company of the group, started the automotive business (Tata Engineering and Locomotive Co. Ltd. – TELCO) with manufacturing steam locomotive boilers by purchasing the East Indian Railways from the then British Government of India (Surekha & Krishnaiah, 2015). Presently, the group’s output is 103billion INR through its 660,000 employees and Tata Motors Ltd., employing over 24,000 people, is the number one vehicle manufacturer of India, being the first Engineering Sector Company from India to be listed on the New York Stock Exchange (Casey, 2014).

Tata Group, controlled by Tata Sons Ltd., was founded in 1868 by Sir Jamsetji Tata and managed by him till 1945 when the control were taken over his son J.R.D. Tata who managed the group from 1945 to 1973 (Pandey, 2015). Sumand Moolgaokar remained at the helm from 1973 to 1988 and successfully expanded the manufacturing of automotive in India (Manna & Chakraborti, 2010). In 1991, Ratan Tata took the reins of the Tata Group from his uncle and rook the group to new heights (Ashwathappa, 2010). The consolidation of the group by Ratan Tata made it the largest manufacturer of Steel and Motors (Tulder et al (ed), 2016). Presently, Tata Motors manufactures light, medium and heavy commercial vehicles, multi-utility vehicles and passenger cars (Pandey, 2015).

Tata Motors success has been based on its supply chain excellence. Tata Motors has been committed to its excellent backend supply chain network and has been working closely with the suppliers when arriving at the costing of its products, to the extent that it completes the functional specifications of the products much before taking the products to the markets (Manna & Chakraborti, 2010). Tata Motors have remained focused on the local conditions and have been designing their cars keeping in view the needs of its customers instead of imposing any advanced but useless engineering on them (Goel, 2014).

Tata Motors uses Ariba, a software based platform which helps the management to considerably reduce bottom line costs (Banerjee, 2017). Tata Motors remains a modest company when it considers its spending targets as one of the primary objectives of the Tata Group has been to achieve high operational efficiencies at lowest costs (Banerjee, 2017). Tata Motors extensively uses Information Technology including CAD, CAM, SIEBEL and SAP for Customer Network Management and Supply Chain Management under the compliance framework of ISO20000:2005 standards (Banerjee, 2017).

Expansion of Tata Motors

Tata Motors is primarily a Business-to-Consumer Company (B2C). In the last five years, the company has taken considerable investment risks by investing heavily in its NANO Project (Brigham & Ehrhardt, 2016). This dream project of Ratan Tata of a low-cost car for the common man of India was the second successful venture of the Tata Group after the launch of its fully indigenous INDICA car (Das, 2013) (Nag, 2015). Although the company registered increase in sales during FYs 2010-11 and 2011-12, it did not do well in 2012-13 and 2013-14. It also showed negative growth trend from 2010-11 till 2012-13 but moved out of the red in 2013-14 (See Table-1) (Brigham & Ehrhardt, 2016).

TABLE – 1 Percentage increase in Sales compared to Percentage increase in Profits
Financial Year	Increase in Sales (%)	Increase in Profits (%)
2009-2010	x x x	x x x
2010-2011	33.12	(-) 19.12
2011-2012	15.33	(-) 31.44
2012-2013	(-) 17.57	(-) 75.70
2013-2014	(-) 23.34	10.84

 

Tata Motors net worth has remained stationery since 2011-12 and has registered an average of Rs.18,545.99 crores during the last five financial years. Its RONW Ratio was the highest in FY 2009-10 at 15.16%, but has steadily declined since then, averaging at 6.77% in the last five years (See Table-2 & 3) (Surekha & Krishnaiah, 2015).

TABLE – 2 Return Ratio (%) on Net Worth (Rs. in Crores)
Financial Year	Net Worth	PAT	RONW (%)
2009-2010	14,779.15	2,240.08	15.16
2010-2011	20,013.30	1,811.82	9.05
2011-2012	19,626.01	1,242.23	6.33
2012-2013	19,134.84	301.81	1.58
2013-2014	19,176.65	334.52	1.74
Average	18,545.99	1,186.09	6.77
Std. Deviation	2,172.55	867.86	5.66
Variance Co-efficient	11.71	73.17	83.60

Source: Tata Motors Annual Reports

TABLE – 3 Tata Motors Profitability Ratios (%)
Financial Year	PBDIT (%)	PBT (%)	PAT (%)	RONW (%)
2009-2010	14.85	8.00	6.33	15.16
2010-2011	10.49	4.66	3.85	9.05
2011-2012	7.67	2.47	2.29	6.33
2012-2013	7.55	0.39	0.67	1.58
2013-2014	6.94	(-) 2.99	0.98	1.74
Average	9.5	2.51	2.82	6.77
Std. Deviation	3.29	4.17	2.33	5.66
Variance Co-efficient	34.63	166.40	82.54	83.60

Source: Tata Motors Annual Reports

Competition is always a balance between Threats and Balancing Forces. As per (Wahlen, Baginski & Bradshaw, 2017), threats come from new entrants who intend to substitute existing products and services in the automotive industry where innovation is a mandatory requirement (Hitt, Ireland & Hoskisson, (2014). These threats can also lead to creative destruction of the existing products and services (Manna & Chakraborti, 2010). Pressure is created by new entrants who have the desire of capturing market shares quickly and thus cap the profit potential of the markets (Witzel, 2010). The two balancing forces countering the threats are the bargaining power of buyers and suppliers (Fridson & Alvarez, 2011). Buyers bargaining power becomes lesser in case of lower competition as customers do not have many product choices (Koster, 2009). On the other hand, when competition is lower, bargaining power of suppliers becomes higher as lesser competition restricts development of a strong supplier network and hence leads to increase in their bargaining power (Fridson & Alvarez, 2011).

Tata group is managed and owned by the majority stakeholder (36%) Tata Sons Ltd. through a chain of Family Trusts (Gupta, Wakayama & Rangan, (ed), 2012). The other big stakeholder is LIC of India (6%) and some private investing companies holding nearly 10% stake in the group (Lala, 2007). The balance (48%) is owned by the general public through equity shares (Casey, 2014). Apart from these domestic stakeholders, the company also has technical tie-ups with:

1. The Institute of Development in Automotive Engineering (IDEA), S.P.A., Italy,  who offers assistance in designing and styling designs for car body.
2. Le Moteur Moderne, France, which is responsible for developing diesel and petrol engines for the passenger cars being manufactured by the company.

Supply Chain Excellence

The definition of ERM given by the Casualty Actuarial Society Committee on Enterprise Risk Management (2003, p. 8) states and I quote: “ERM is the discipline by which an organization in an industry assesses, controls, exploits, finances, and monitors risks from all sources for the purpose of increasing the organization’s short- and long term value to its stakeholders.” Unquote.

The major Risk Factors, (Wahlen, Baginski & Bradshaw, 2017), being faced by the automotive industry across the globe, which can affect the net income of an automotive enterprise are:

1. High Competition
2. Exchange Rate Risk
3. Economic Instability
4. Access to Credit
5. Raw Material Price
6. Supply Chain Disruptions
7. Demand Volatility
8. Regulatory Risk
9. Liquidity Shock

The chart below indicates the parameters which help the automotive manufacturer in assessing, managing and avoiding these risks by applying the appropriate tools and mechanisms to thwart the threats – both from the legal and economic fronts (Brigham & Ehrhardt, 2016).

This paper established that company’s assessment of its Credit and Liquidity Shocks may not dissolve the other serious threats to the enterprise. The other important factors, which have been discussed below and also highlighted in the PESTELO Analysis must be attended to by the management for developing a suitable and appropriate Risk Assessment Model for the company (Brigham & Ehrhardt, 2016).

• Business Risk

1. High Competition

According to Ernst and Young Business Risk Report, 2010 India’s automotive industry has become highly competitive. Quality and Product Features are the factors affecting competition, along with the time required for development and innovation (Goel, 2014). Pricing, safety, reliability, fuel economy, financing terms and customer service are the other affecting factors (Goel, 2014). As the competition for sales in the industry intensifies, there arises greater need for a more valuable ERM System for the company to maintain a strong presence within the industry (Das, 2013).

1. Demand Volatility

Demand for vehicles largely depends on the political, social and economic factors in the country and is greatly influenced by the introduction of new technologies in the vehicles (Banerjee, 2017).

1. Exchange Rate Risk

Globalisation demands that Indian Rupees’ value remains attractive so that demand of Indian products in overseas markets remains high and keeps the price low of imports (Pandey, 2015). Global marketing has increased the scope of export and import for the automotive industry and this places importance on exchange rate risk (Banerjee, 2017).

1. Raw Material Price

The increasing consumption and easy availability on international level is leading to an increase in the prices of the raw materials (Pandey, 2015).

1. Supply Chain Disruptions

Supply Chain Management is facing serious disruptions as the markets get global. Tier-2 stoppages, supplier’s financial strain, union issues and legal factors are some important external factors which are leading to supply chain disruptions (Brigham & Ehrhardt, 2016). Any one factor, even if it occurs in the supplier’s country or in the buyer’s zone, results in supply chain disruptions and drastically affects the economics and operations of the company’s business (Brigham & Ehrhardt, 2016).

1. Regulatory Risk

Information Technology

Global operations and expansions being maintained and implemented by Tata Motors are subject to serious threats from change in regulations and legislations related to the country of operation. Import-export tariffs, domestic sales tax and excise duty are also effecting the prices of the company’s products and the industry as a whole (Surekha & Krishnaiah, 2015).

The Automotive sector, all over the world, remains strongly connected to the macroeconomic factors of the country. Being a consumer’s product, the country’s Per Capita Income, Employment Possibilities, Size of the Buying Class and Lender’s Interest Rates are some of the major macroeconomic parameters which directly affect the automotive industry (Wahlen, Baginski & Bradshaw, 2017). Tata Motors has been careful in dealing only with stable countries which have low political risk and which encourage foreign investments in its industries (Banerjee, 2017).

Conclusion

Since its inception, the Tata Group has maintained the custom of returning to the society what it gets from its people and this heritage has earned the company the trust and loyalty not only from its consumers, but also from its employees and stakeholders. These high standards of social behaviour have been reciprocated by the company’s employees and stakeholders who are continuously enriching this heritage (Lala, 2007).

Tata Motors, being part of the Tata Group which is celebrating 150 years of its existence, is still cautious about the following factors as has been stated in its Tata Motors Sustainability Report, 2015 –

Tata Motors takes the achievements of new entrants or of a rival company as learning lessons to guard the company’s market growth and share.

The intensity of Competitive Rivalry:

Tata Motors has the policy of thwarting competition by developing and introducing new technologies and products in the market.

 The Bargaining Power of Customers:

Tata Motors has the policy of managing proper price control of the company’s products in the market.

The Bargaining Power of Supplier:

Tata Motors has always maintained a fair and free distribution channel for all its manufacturing units. This is very important for an Indian company as the supply and demand factors are highly diverse across length and breadth of the country

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