Tata Offers First Car Buyback as Sales Plummet: Corporate India

By Siddharth Philip - Mar 5, 2013

Tata Motors Ltd. (TTMT), India’s biggest automaker, has a new strategy to revive car sales from a decade low: the company is promising to buy back your Manza sedan.
The Mumbai-based carmaker said it will guarantee customers 60 percent of the purchase price after 3 years on cars they buy in the next two months, according to an e-mail response from the company. Tata Motors, led by Chairman Cyrus Mistry, also cut prices for some of its cars this week by as much as 50,000 rupees ($912). The Manza model will be about 8 percent cheaper.
The plan to repurchase cars shows the owner of Jaguar and Land Rover is “desperate” as it has lost market share in Asia’s third-largest car market to Toyota Motor Corp. (7203) and Mahindra & Mahindra Ltd. (MM), according to Deepesh Rathore, the India managing director of IHS Automotive. Passenger vehicle sales at the company plunged 70 percent last month to the lowest in a decade.
“Tata Motors has a big problem in the local car business,” said Juergen Maier, a Vienna-based fund manager at Raiffeisen Capital Management, which oversees about $1.1 billion in emerging-market assets. “Tata Motors needs to get its quality and design right.”
India’s automakers’ association in January lowered its full-year domestic car sales forecast for the third time in six months as slowing economic growth and high interest rates continue to keep buyers from showrooms. February passenger car sales at Tata dropped to 10,613 from 34,832 a year earlier. Deliveries at Maruti Suzuki India Ltd. (MSIL), the nation’s biggest carmaker, fell 9 percent to 97,955.

Indica Hatchback

Former Chairman Ratan Tata hired Karl Slym as managing director to revive vehicle sales. Slym last month said he plans to build a diesel version of the Nano, the world’s cheapest car, as well as the Indica hatchback.
Tata Motors’ shares, which have gained 10 percent in the past year, rose 3.7 percent to 300.50 rupees in Mumbai, making it the best performer on the Bloomberg Asia Pacific Auto Manufacturer (BPRAUTM) index yesterday as Indian stocks had their biggest jump in more than three months.
Sales of the company’s trucks, buses and cars at home accounted for 36 percent of group revenue of 1.66 trillion rupees ($30.2 billion) in the year ended March 31, down from 43 percent in 2010, according to data compiled by Bloomberg.
Profit at the Jaguar Land Rover unit, which contributed 74 percent of Tata Motors’ operating income in the year ended March 31, declined 25 percent to 296 million pounds ($449 million) in the three months to Dec. 31. Tata Motors reported a loss of 4.6 billion rupees for its Indian business as sales at home dropped 21 percent to 105.3 billion rupees.

Maruti Sales

Tata sold 7,485 units of the Indigo and Indigo Manza sedans in the 10 months to January. That’s 6 percent of Maruti’s DZire sales in the same period.
Maruti sold 131,177 units of its DZire, according to data from the Society of Indian Automobile Manufacturers. Toyota’s sales including utility vehicles rose 6.4 percent to 133,296 in the 10 months to January.
“I doubt Tata Motors will be able to improve their market share,” Surjit Singh Arora, an analyst at Prabhudas Lilladher Pvt. in Mumbai. “Unless they upgrade their platforms, it looks difficult for Tata Motors.”
Maruti has seven versions, including gasoline and diesel options, of its DZire, while Tata sells 17 variants of the Indigo and more than 20 for the Indica, according to the companies’ websites.

‘Dead Cat Bounce’

“Tata continues to sell old generation models with the new. This is bad strategy,” said Mahantesh Sabarad, an analyst at Fortune Equity Brokers India Ltd. in Mumbai. When Honda Motor Co. or Maruti “introduces a new generation, they phase out the old ones.”
The company’s buyback offer will be valid for cars which haven’t had a major accident and carry a valid insurance policy, according to the e-mail from Tata Motors. The automaker doesn’t plan to extend the repurchase plan, which it says “will surely boost sales,” to other models.
The plan may help Tata see a “dead cat bounce in sales,” Sabarad said. “I don’t expect market share to increase.”
To contact the reporter on this story: Siddharth Philip in Mumbai at sphilip3@bloomberg.net
To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

®2013 BLOOMBERG L.P. ALL RIGHTS RESERVED.

Birla Mulls U.S. Purchase Driven by Shale Gas: Corporate India

By Rakteem Katakey and Abhishek Shanker - Mar 4, 2013

Indian billionaire Kumar Mangalam Birla is considering buying his first fertilizer plant in the U.S. to benefit from a 55 percent drop in prices of natural gas used to fuel the factories.
His Aditya Birla Group (ABNL) is seeking a “mid-size acquisition” which has access to technology that can be used in the conglomerate’s operations, Birla said in an interview. The U.S. boom from hydraulic fracturing, or fracking, which uses pressurized water to drive gas and oil from shale rock has depressed energy prices, while an intelligence advisory panel said in December that the world’s biggest economy may achieve energy independence in as little as 10 years.
“There’s going to be a huge geopolitical shift with shale gas in America,” Birla told Bloomberg TV India. “This is an interesting opportunity, given the fact that we have a large exposure to manufacturing. I see companies in chemicals and fertilizer space or companies that give technology for the group’s business.”
Birla, 45, who controls India’s biggest cement producer Ultratech Ltd. (UTCEM) and the world’s largest rolled aluminum maker Novelis Inc., is joining other Indian companies including Welspun Corp., which is close to starting a $100 million pipe factory in the U.S. targeting shale gas clients. The American Chemistry Council estimates low-cost natural gas may generate $72 billion in capital investment as petrochemical companies relocate or boost spending in the U.S.

Revenue Goal

The Aditya Birla Group is targeting a 63 percent increase in revenue to $65 billion by 2016, and is also looking for acquisitions in Brazil, Thailand and Indonesia, Birla said. Half of the group’s current $40 billion turnover comes from overseas, he said.
A slump in local gas production is forcing Indian companies, including power stations and fertilizer makers, to import the fuel, which is more expensive. The government also controls prices of fertilizers, making use of costly fuel unviable.
“Energy cost would be about 60 percent of the total cost and it makes an obvious choice to have a U.S. presence,” said P.D. Samudra, executive director at Uhde India Pvt., a unit of ThyssenKrupp Uhde GmbH that undertakes projects for industries including fertilizers, petrochemicals and polymers. “In India, we also have subsidy issues.”
Shares of Aditya Birla Nuvo Ltd., a group company that produces fertilizer, rose as much as 1.1 percent to 1,057.95 rupees and traded at 1,056 rupees as of 9:42 a.m. in Mumbai. The stock has gained 21 percent in the past year, compared with a 9.5 percent rise in the benchmark Sensitive Index.

No Addition

India hasn’t added any urea manufacturing capacity since 1999, according to the fertilizer ministry’s annual report.
Aditya Birla Nuvo can produce 1.1 million metric tons annually at Jagdishpur in the state of Uttar Pradesh. The company’s fertilizer business earns about 20 billion rupees ($364 million) in revenue from sales in the eastern states of Bihar, Jharkhand and West Bengal, according to a corporate presentation on its website.
Natural gas production at Asia’s second-biggest energy consumer declined 14 percent to 34.6 billion cubic meters in the 10 months ended Jan. 31, according to data compiled by Bloomberg. Output has declined every month compared with a year earlier since November 2010, as the nation’s biggest field operated by Reliance Industries Ltd. slumps.
In the U.S., a surge in gas production from shale rocks from Texas to West Virginia made it the world’s biggest producer of the fuel in 2009, beating Russia. Gas futures reached a decade low of $1.91 per million British thermal units in April in New York trading. They’ve slid 55 percent since Jan. 1, 2008.

Expanding Abroad

“Lower energy costs will attract companies to the U.S. and the Aditya Birla group will look to take advantage of cheaper gas,” said Alex Mathews, head of research at Geojit BNP Paribas Financial Services Ltd. at Kochi in southern India. “There’s a dearth of gas in India and imported gas is expensive.”
Gas in New York trading may reach $3.95 per million British thermal units by the end of this year, according to the median of 20 analyst estimates compiled by Bloomberg. Prices were at $3.55 per million Btu as of 12:12 p.m. in Singapore.
Birla has spent more than $1.5 billion in acquiring assets overseas in the past two years. Since January 2011, the group bought four companies in the chemical industry, including three overseas.
It agreed to buy Columbian Chemicals Co., a Georgia, U.S.- based carbon black maker, for $875 million on Jan. 31, 2011. Three months later, it bought Sweden’s Domsjo Fabriker AB for $340 million and followed it up in July with the purchase of Terrace Bay Pulp Inc., a paper pulp mill in Canada, to secure raw material supplies for its viscose staple fiber business.

Country Risk

Birla would rather invest in countries including Brazil and Indonesia than back home as frequent policy changes in India discourage companies from spending in Asia’s third-biggest economy, he said in the interview.
India slipped three levels in the 2013 World Economic Forum’s Global Competitiveness Index from a year earlier, to 59. Brazil was ranked 48, while Indonesia was in the 50th position.
“Country risk for India just now is pretty elevated and chances are that for deployment of capital, you would look to see if there is an asset overseas rather than in India,” Birla said. “We are in 36 countries around the world. We haven’t seen such uncertainty and lack of transparency in policy anywhere.”
A report on Feb. 28 showed India’s $1.8 trillion economy rose 4.5 percent in the three months to Dec. 31 from a year earlier, lower than forecast and the weakest pace in almost four years, as cooling investment, a drop in exports and government spending cuts sapped growth.

Net Worth

Birla has a net worth of $8.7 billion, according to the Bloomberg Billionaires Index. His wealth has declined 4.5 percent this year.
Birla’s plans to invest in the U.S. follows announcements by Austrian steelmaker Voestalpine AG to Singapore-based Indorama Group, which are hoping to benefit from cheap gas. Nucor Corp. (NUE), the biggest U.S. steelmaker, plans to start up a $750 million Louisiana project in mid-2013. This is among at least five U.S. plants under consideration or being built that would use gas instead of coal.
Indorama Group, a polyester maker operating in more than 20 nations, plans to spend $4 billion on chemical plants in gas- producing countries, including the U.S.
“A lot of manufacturing will come back into North America,” Birla said. The U.S. looks very attractive from a manufacturing point of view, he said.
To contact the reporters on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net; Abhishek Shanker in Mumbai at ashanker1@bloomberg.net
To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

®2013 BLOOMBERG L.P. ALL RIGHTS RESERVED.

Biggest Fund Manager Jain Sees Value in Banks: Corporate India

By Anto Antony and Santanu Chakraborty - Mar 3, 2013

Prashant Jain, chief investment officer at India’s biggest money manager, said he sees value in some of the nation’s biggest lenders amid prospects of a reduction in bad loans that have made them Asia’s worst- performing banking stocks in the past year.
Jain, who manages $18.6 billion at HDFC Asset Management Co., also runs HDFC Top 200 (ITCT200), India’s largest equity fund. Banks account for about 29 percent of HDFC Top 200’s assets, according to data compiled by Bloomberg. The fund owns state-run Canara Bank, Bank of Baroda (BOB) and Bank of India (BOI), the three worst performers on the 88-company MSCI AC Asia Banks Index (MXAS0BK) in the past 12 months.
Finance Minister Palaniappan Chidambaram’s budget pledge to add 140 billion rupees ($2.6 billion) to boost capital at banks will help state-run lenders increase credit and revive Asia’s third-largest economy forecast to expand at the slowest pace in a decade in the year ending March 31. A drop in delinquent debt from a five-year high will lure investors to the nation’s lenders, according to Diwakar Gupta, chief financial officer at State Bank of India (SBIN), the country’s biggest financial services company.
“At some point non-performing assets have to moderate,” Jain, 45, said in an interview to Bloomberg TV India. “Last quarter was better than the previous quarter and there is expectation this quarter will again be better than the last.”
HDFC Top 200 is India’s best performing large-cap fund in the past decade. It has returned 28 percent annually compared with the 21 percent gain at the S&P BSE Sensex index in the same period.

‘Punished Enough’