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Declining heavy vehicles market share worries Tata Motors

LiveMint logoLiveMint 04-06-2017 Shally Seth Mohile

Mumbai: The declining market share of medium and heavy duty truck and bus business at India’s largest auto maker Tata Motors Ltd has attracted the attention of its board, two people aware of the development said, asking not to be identified.

In the past couple of years, the leader in high-tonnage trucks and buses has lost much ground to rival Ashok Leyland Ltd.

In 2016-17, Tata Motors’ share of the medium and heavy duty commercial vehicles (MHCV) segment, including buses, fell to 49.2% from 51.9% a year ago, as per the Society of Indian Automobile Manufacturers (Siam). The fall was led by a decline in market share of heavy duty trucks to 53% in fiscal 2017 from 58% in fiscal 2015.

In May, Tata Motors MHCV truck sales fell 40%, while overall commercial vehicles sales dropped 13% to 23,606 units from a year ago.

Tata Motors does not give a break-up of individual business units, but a back-of-the-envelope calculation indicates a loss in market share has dented Tata Motors’ revenue and profitability.

Ravindra Pisharody, executive director, commercial vehicle business at Tata Motors, blamed the decline on external factors such as the November note ban and the ban on selling BS-III vehicles from 1 April.

“April sales were low because after the court ruling, the availability of BS-IV vehicles became an issue as the presumption was that in the first month of the year, we will also have the mix of both BS-III and BS-IV vehicles,” said Pisharody, adding that a high base of last year has been another reason for an underperformance this year. May sales suffered also because of a shortage of fuel injection pumps (FIP).

The CV business is Tata Motors’ cash cow, fetching more than seven out of ten rupees of its India revenues. A decline in the more profitable MHCV business is a concern, said an analyst from a domestic brokerage, who declined to be identified. An approximate calculation suggests that the market share loss has weighed down its profitability, he said. 

Here is how: Tata Motors' average market share in 2013-14 and 2014-15 was 54.7%. This fell to 51.9% in 2015-16 and further to 49.2% in 2016-17. Compared with the FY14-FY15 average, Tata Motors has lost 2.8% and 5.5% market share, respectively, in the two following years. This meant 8,600 and 16,700 fewer units were sold in the past two years, implying a revenue loss of Rs1,100 crore and Rs2,300 crore, respectively. The lost volumes, including the market losses on account of spare parts and annual maintenance services, crimped Tata Motors profit after tax by Rs90 crore and Rs180 crore in fiscals 2016 and 2017, respectively, computed on an incremental revenue-less-cost basis.

The decline has not gone unnoticed and the Tata Motors board is considering some “radical steps” to bring the business back on track, one of the two people mentioned in the beginning said.  Pisharody, also a Tata Motors director, said: “They are analyzing all aspects of the business.  This is all I can say.”

He is confident that with impact of most of the factors, including goods and services tax, that has led to a postponement in sales wearing off, and supply of FIPs getting restored, sales will revive in the next couple of months. He hopes the recovery in volumes will help the firm regain at least a 5% market share by the turn of the current fiscal.  

But S.P. Singh, senior fellow at Delhi based think tank Indian Foundation of Transport Research and Training (IFTRT), said Tata Motors’ underperformance vis-à-vis its key competitor goes beyond these external factors. “Tata dealers are not very serious about after-sales,” said Singh, pointing out Ashok Leyland is superior in response. “On a 0-to-10 scale, one would give Ashok Leyland’s dealer seven, and Tata Motors’ five, when it comes to response time,” said Singh.

It’s time Tata Motors addresses this issue as with advancement in emission norms, vehicles are becoming more complex, therefore, the quality of after-sales will be the most important differentiator, he added.

Some also said a gap in Tata Motors’ product line is also responsible for it losing ground to Ashok Leyland. 

“Ashok Leyland’s blockbuster product 3718 alone gave it a 3.5% market share in fiscal 2016 and 2017. Tata Motors had no answer to this product,” said the analyst cited earlier.

Pisharody disagrees.

“This was true 12 months ago; not any more. Our 37-tonne market share was 47% in 2016-17, and has grown much more than competition,” he said, adding that over the past two years, Tata Motors has addressed all product gaps.

He said the company is educating customers, organizing service programmes and expanding its network. “Service has started playing a bigger role in BS-IV regime,” he said. 

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