Tata Motors is seeing its investment in Jaguar Land Rover pay off

Rescued British carmaker thrives in Indian hands

Two years ago the £1.5bn that Tata paid Ford for its loss-making Jaguar Land Rover operation looked a shaky investment.

In a remarkable turnaround in fortunes the famous car maker delivered pre-tax profits of more than £1bn.

Tata Motors announced that JLR's profits had increased to £1.1bn in the year to March 31, up from £14.6m the previous year, while in the same period revenues jumped 51 per cent to £9.9bn.

Chief financial officer C Ramakrishnan said Tata Motors' consolidated earnings margin before interest, taxes, depreciation and amortisation expanded to 14.4 per cent last year from 9.3 per cent because of an increased contribution from Jaguar Land Rover.  

Looking ahead, Ramakrishnan warned that higher raw material costs and interest rates and slower industrial production would have an adverse impact, but he said freight rates are currently stable and conducive for the Indian commercial vehicle industry.

The CFO also promised a bright future for the British arm, estimating that Tata would spend £1.5bn in capital expenditure in the current financial year.

That would be almost double the £775m spent last year.

"The JLR business is entering into an interesting phase of an improving geographical sales mix and a high margin base," commented Ambrish Mishra, Mumbai-based analyst at Daiwa Capital Markets.

"In the domestic market, freight demand remains solid, which lends strength to the commercial vehicle cycle. Demand should also receive a boost from increased investment in infrastructure."

Car sales were up 26 per cent to 243,621 cars as the new Jaguar XJ and Land Rover ranges proved popular and demand strengthened, particularly in emerging markets such as China.

Loss-making former owner, US giant Ford, sold fewer than 50,000 Land Rovers and nearly 15,700 Jaguars in 2007, shortly before it offloaded the brands to India's top vehicle maker.

In the recent return Tata Motors revealed that annual sales of the luxury cars were nearly 244,000 globally and that more than 80 per cent of its bumper £1.25bn annual profits came from the JLR unit.

For Howard Wheeldon, a senior strategist at the BGC Partners financial services group in London, Tata Motors' energy and investment has revived JLR's fortunes.

The Indian car maker has pumped £2bn into JLR to bring it out of losses, analysts say, even at a time when British manufacturing is widely seen to be in decline and money better spent on cheaper, emerging markets.

"JLR has brilliantly proved the point that competitive volume or semi-volume investment manufacturing in the UK can be profitable for those prepared to invest," Wheeldon said.

Most of all, though, the company and industry watchers agree that Jaguar Land Rover now has a range of quality products to entice consumers in India's fast-growing luxury car sector, and elsewhere, as economic recovery continues.

The results are a boost to a UK workforce that was recently facing a troubled future. Tata was said to be considering closing one of its production plants in the West Midlands in a bid to cut costs.

But as the car market began to recover, the management last year performed a U-turn and said that all three plants, at Castle Bromwich and Solihull in the West Midlands and Halewood on Merseyside, would stay open.

With sales showing growth, the company announced an increase in investment and said it would create an additional 1,500 jobs at its Halewood plant.

Made in India

Jaguar Land Rover officially opened its first assembly plant in India at the end of May.

The facility at Pune, in the Maharashtra region, will assemble Land Rover Freelander 2 vehicles supplied in Complete Knock Down (CKD) form from Jaguar Land Rover's Halewood manufacturing plant in Britain.

The inauguration ceremony was led by Carl-Peter Forster, chief executive officer and MD of Tata Motors and Dr Ralf Speth, CEO of Jaguar Land Rover.

"This marks a significant step in our growth strategy for the Indian market,” Forster said.

“The opening of this plant demonstrates close co-operation between the parent company Tata Motors and Jaguar Land Rover and we are keen to develop this further."

The facility in Pune will be subject to Jaguar Land Rover's mainstream launch quality processes and will be overseen by experienced manufacturing and quality managers who have moved to India from the UK.

Painted body shells arrive shrink wrapped on huge pallets along with all associated parts to build the vehicle and are then assembled.

“We replicate the same processes that are used in the trim and assembly hall at Halewood,” said Mark Wallace, operations manager at the Pune plant.

“We do this in a lot fewer steps but we have more processes in each step to complete the vehicle.”

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