Indica, India’s pedigree passenger car, has been a burden on its parent since its birth two years ago, reports FT.com. Now, the news organisation says, Telco, the country’s dominant truck maker, is considering seeking a foreign partner to rescue the project.
FT.com says that Telco hopes a strategic tie-up would help to stem rising group losses caused by a sharp slump in truck sales and the Rs17bn ($US364m) start-up costs for Indica.
Telco, which is part of the Tata conglomerate — one of India’s biggest business groups — is thought to be talking to at least three foreign parties. Analysts say a deal is probable within six to nine months.
The company would not comment on the speculation of alliances, but Mr Ravi Kant, executive director of commercial vehicles at Telco, told FT.com: “We knew there would be a long gestation period for Indica, but the fall in commercial vehicle sales has exaggerated the difficulties.”
Telco reported a loss of Rs1.4bn for the quarter to September, compared with a profit of Rs340m (including extraordinary items) for the same period last year.
Its share price has slumped from a high of Rs330 in September last year — around the time of Indica’s launch — to close at Rs97.60 on Tuesday.
FT.com says that Tata is under pressure to seek a partner to provide technical and financial support for Indica, which has a 9% market share in its segment, even though analysts describe it as a big mistake. Telco has a partnership with DaimlerChrysler to manufacture Mercedes at Pune, south-east of Bombay.
Satish Ramanathan, analyst at ICICI Securities in Bombay, told FT.com: “Telco’s low valuation reflects the market belief that until an international partner is found, then Indica will continue to be a big drain on the commercial vehicles division.”
Indica’s development costs have been subsidised by Telco’s once-profitable trucks unit, long regarded as a cash cow with a 65% share of the market. But Telco has been a casualty of bad timing: Indica was launched in 1998 as recession hit sales of trucks — a highly cyclical sector.
Its truck sales have fallen from a peak of about 109,000 in 1997 to 54,000 in 1999, recovering last year to 73,600 thanks to a stronger economy. Analysts forecast sales this year of just 52,000.
At the same time, Telco has seen input costs rise to 5% to make its vehicles compliant with global emissions standards.
In response, Telco has reshuffled management, outsourced production of commercial engines to a joint venture with Tata Cummins, cut its labour force by 10% and renegotiated deals with vendors.
More job cuts are likely, particularly as losses continue to grow. In April, quantitative restrictions will be lifted in line with WTO rules, allowing the import of cheaper second-hand trucks.
FT.com says that Telco is looking for help from the government’s auto policy, to be announced early next year, including tougher vehicle-safety rules that would encourage a replacement of India’s ageing trucks. About 35% of the 1.4m fleet is more than 15 years old.
Analysts say Tata’s reluctance to date to seek a partner for the Indica is also down to sentiment. Indica was India’s first indigenous passenger car since economic reforms a decade ago opened the door for tie-ups between domestic and foreign companies.
However, Mr Ramanathan told FT.com: “an alliance is imperative for Indica to survive”.