Screech!
Delays in production will upset Tata Motors’ plans to earn money out of the low-cost car.
By the time this magazine is in your hands, there would be more clarity on whether conditions have turned “conducive for resuming work” at Singur, or whether Ratan Tata has decided to take the Rs 1,500-crore project out of West Bengal to a more investmentfriendly state.
Whatever happens from hereon, it’s increasingly clear that Tata Motors and its shareholders are going to feel the pinch of a project that’s delayed. Expectations of the first Nano rolling out of Singur by October—or even in the October-December quarter—appear overly optimistic. That, coupled with Tata Motors’ capital-raising compulsions for the acquisitions of Ford’s Jaguar and Land Rover, have resulted in the stock having a torrid time on Dalal Street—it has slipped 24.4 per cent over the last three months, even as the BSE Sensex shed only 10.7 per cent.
A delay in rolling out the Nano isn’t good for a few reasons: for one, it’s a project whose viability hangs on waferthin margins (estimated at barely 2 per cent); for another, every day lost pushes back breakeven, which analysts expect in two years. A key to the Nano’s cost competitiveness is the integration of the adjoining vendor facility. Surinder Kapur, Managing Director, Sona Group, which is providing the steering column to the Nano, told BT: “Work on our facility is complete; we have moved the machinery in, and are awaiting word from Tata Motors.”
The burning Rs 1-lakh question, however, is whether the Tatas will be in a position to position the Nano at around that price. It looks difficult because a delay will only compound problems of rising raw material costs. A quick ramp-up is an imperative to break even. The initial plan for the plant calls for production of 150,000 units a year.
Production in the six months between October and March 2009 will also be crucial to determine how long Tata Motors takes to make profits. In a recent report, analysts at HDFC Securities were expecting only 25,000 units to roll out in 2008-09. With the work having stopped, even that figure now looks optimistic.
Ratan Tata: Roadblocks to rollout
A delay in rolling out the Nano isn’t good for a few reasons: for one, it’s a project whose viability hangs on waferthin margins (estimated at barely 2 per cent); for another, every day lost pushes back breakeven, which analysts expect in two years. A key to the Nano’s cost competitiveness is the integration of the adjoining vendor facility. Surinder Kapur, Managing Director, Sona Group, which is providing the steering column to the Nano, told BT: “Work on our facility is complete; we have moved the machinery in, and are awaiting word from Tata Motors.”
Nano plant
Production in the six months between October and March 2009 will also be crucial to determine how long Tata Motors takes to make profits. In a recent report, analysts at HDFC Securities were expecting only 25,000 units to roll out in 2008-09. With the work having stopped, even that figure now looks optimistic.
