Tata Motors Limited

Future Strategy & Growth Plans India Unplugged : Walking the Talk
Kotak - Goldman Sachs Conference September 2005

1. Performance 2. Commercial vehicles

Growth Drivers Market Strategy

3. Passenger Vehicles
Growth Drivers Market Strategy

4. Vehicle Financing 5. Financial Management 6. Subsidiaries

2

Net Revenue and Operating Margin

Rs. bn
200

Unconsolidated
12.5% 174.2 14.2%

Rs. bn
200

Consolidated
195.33

20%

20%
14.9% 139.25

150
9.1%

12.5%

132.2

15%

150

12.5%

15% 12.8%

9.1%

96.1

100
75.0

91.0

10%

100
79.1

10%

50

5%

50

5%

0 FY02 FY03 Net Rev FY04 FY05

0%

0 FY02 FY03 Net Rev FY04 FY05

0%

EBITDA margin

EBITDA margin

1QFY06 Net Revenue: Rs. 38.8 bn EBIDTA Margin: 12.6%

1QFY05 Net Revenue: Rs. 35.7bn EBIDTA Margin:12.0 %

1QFY06 Net Revenue: Rs. 44.6 bn EBIDTA Margin:12.5 % 3

Profit after Tax

Unconsolidated
12.4

Rs. bn
13 11 9 7 5

Consolidated
Rs. bn
14 12

13.6

8.1

10 8 6

9.1

3.0
3

4 2

3.2

1 -1 FY02 FY03 FY04 FY05

FY02
-2

FY03

FY04

FY05

-0.5

-1.1

Last 3 Years CAGR of 103%

Last 3 Years CAGR of 106%

1QFY06 PAT: Rs. 2.7 bn

1QFY05 PAT: Rs. 2.2 bn

1QFY06 PAT: Rs.2.6 bn

Negative Working Capital

Inventory
Days of sale

Net Working Capital

Days of sale

60

41
40 20 0
FY02

39 27 29

38

FY03

FY04

FY05

1QFY06

Days of sale
30

Receivables (non-HP)

20 15 10 5 (5) (10) (15) (20) (25) (30) (35) (40)

0
FY 02 FY 04 FY 05 FY 03 1Q FY 0 6

(6)

(17)

(23)

25 18

(40)
12 9

20

10

Negative Working Capital Maintained

Calculations exclude Investible surplus and vehicle financing loans

FY02

FY03

FY04

FY05

1QFY06

Strong Balance Sheet

Net Debt & D/E (on Net basis)

Rs. bn
35 30 25 20 15 10 5 0 -5 -10 FY02 FY03 FY04

29.9

0.93

1.0 0.8

0.56 13.9

0.15 11.8

0.6 0.4 0.2 0.0

(0.9) (0.15) (5.5) (0.02)

FY05 1QFY06

(0.2) (0.4)

Net Debt

D/E (on Net basis) RHS

Optimizing Returns on Capital

ROCE
45% 40% 35% 30% 25% 20% 15% 10% 5% 0% FY02 FY03 FY04 FY05 17% 36% 42%
35% 30% 25% 20% 15% 10%

ROE
32% 26%

12%

5%

5% 0% -5% FY02 -2% FY03 FY04 FY05

Note : Capital Employed excludes Investible Surplus for ROE and ROCE calculation 7

1. Performance 2. Commercial vehicles

Growth Drivers Market Strategy

3. Passenger Vehicles
Growth Drivers Market Strategy

4. Vehicle Financing 5. Financial Management 6. Subsidiaries

8

The Indian Commercial Vehicle Industry is similar to Global CV Industry due to its cyclic nature and low volumes
350 300

CAGR: 6%

Nos in '000
Indian CV Industry Similar with Global CV Industry Dis-similar to Global CV Industry

250 200 150 100 50 0

72 1 -7 74 3 -7 76 5 -7 78 7 -7 80 9 -8 82 1 -8 84 3 -8 86 5 -8 88 7 -8 90 9 -9 92 1 -9 94 3 -9 96 5 19 - 9 7 98 -9 00 9 -0 02 1 -0 04 3 -0 5 70 -7

Characteristics Cyclical Low Volume (in ,000s) Secular long term growth trend Early stage of road development

Strategy for Countering Cyclicality Retain high Market Share in existing segments & enter less cyclical segments in India Build Strong position in emerging segments in new geographies Lower Break Even Point 9

The Indian CV Industry, which has seen an up-cycle for the last 4 years, could be influenced by several factors

Growth Drivers
Continued road development in the next 5 years GDP growth rate of 6% to 8% Low interest rates and availability of finance Possible opening of trade with Pakistan Entry of global players would help in market expansion

Retarding Factors
Increasing Oil price Now, $ 70/bbl. Railways Network plans - Separate Rail corridor for freight
- Discounts for bulk freight movement

Continuation of high increase of input prices Development of OIL pipe-line network

10

Growth in road development activity would be the single most important factor to move forward the Indian CV Industry

1000 900 800 700

Truck penetration MHCV / m population

Stage

Dramatic impact in initial stage of road development

UK Turkey

Germany France

Golden Quadrilateral

600 500 400 300 200 100 0 0 1 1.5 Road Density Paved Highway (km) / Area (km2) 0.5 2
Australia Russia Argentina Brazil China South Africa Spain

4
Portugal

NSEW Corridors

3 2 1
Feeder Roads

India

Indonesia

Source: VDA (German Automotive Association), Worldbank, DRI Automotive report

43,000 KMs (USD 25 billion)

11

In coming years, domestic CV market would witness entry of International Players with products for various segments

ITEC with M&M Dong-Feng with ESSAR

MAN with Force Motors Daimler Chrysler Hyundai

Tata Motors is developing the products to have matching or superior products and with value for money offerings

12

Our understanding of the Customer Segments has shaped our Product Strategy which would enable us to offer competitive vehicles till 2010 & beyond

Tata Ace World Truck World Pickup World LCV New bus

Synergies of our In-house R & D Centre, TDCV-Korea, Hispano-Spain & external consultancy would support in timely launch of these products
13

1. Performance 2. Commercial vehicles

Growth Drivers Market Strategy

3. Passenger Vehicles
Growth Drivers Market Strategy

4. Vehicle Financing 5. Financial Management 6. Subsidiaries

14

Personal Mobility is positively correlated to per capita GDP

15

Customer Habits & Market Segmentation

Sale of Cars by Price Bands
100% 80%

Cars priced below Rs. 500,000 account for nearly 80% of the market. Vehicles priced between Rs. 300,000 500,000 form the largest segment in the passenger car market. Indian customers are highly discerning, educated and well informed. They are price sensitive and put a lot of emphasis on value for money
Monthly Costs (USD)
Sales

60% 40% 20% 0% 2002 <Rs. 300 k Rs. 700k-1mn 2003 2004 2005 Rs. 500 - 700 k

Rs. 300 - 500 k > Rs. 1 mn

Cost of Ownership of a Basic Car

250 200 150 100 150 50 0 EMI Other Costs Total Monthly Expenses 211 61

Preference for small cars. Small cars are socially acceptable, even amongst the well-off Preference for fuel efficient cars with low running costs. The Tata Indica has the lowest running cost at Rs 2.30 per km.

16

Key Market Drivers - Social

30% % Urbanization

Growth in urbanization

27%
% Households

Upward migration of household income levels

24%

60% 50% 40% 30% 20% 10% 0%

0

- 2002 -- 2007

5,000 10,000 15,000 20,000

21% 1981 1991 2001

Household Income p.a. (USD)

Low interest rates translating to low financing and acquisition costs hence greater affordability.

Reduction in Consumer Financing Rates

85% of Cars are financed in India (15% in China)

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Indian Market Footprint

Product Segment Market Share

Mini 11.00% UV 16.50%

MPV 6.20% Luxury 0.20% Executive 0.50% Premium 2.90%

Compact 46.80%

C1 4.00%

C 11.90%

Tata Motors current product range addresses 75% of the market

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Proposed launches in next few years

Indica Family - Indica variants - New Generation Indica Indigo Family - Indigo SX - Indigo / Marina variants - New Generation Indigo Small Car

New UV Platform Sumo Family - Sumo Variants Safari Family - Dicor Crossover

19

A customer focused field approach is under deployment Domestic: 1. Expansion of network & penetration into smaller towns in pace with road development 2. Customer care a competitive edge 3. Robust processes
Sales Planning (Unique and finest in the world) Customer Relationship Management (SIEBEL Largest deployment in the world)

International Business: 1. Choosing countries with highest market potential in customer segments conscious of overall value 2. Creating products to be amongst the top 3 players in each chosen segment 3. Customer care a competitive edge
Low spares price Relationship of OE & Customer 20

1. Performance 2. Commercial vehicles

Growth Drivers Market Strategy

3. Passenger Vehicles
Growth Drivers Market Strategy

4. Vehicle Financing 5. Financial Management 6. Subsidiaries

21

Challenges for growth of captive financiers in Indian context

Indian auto-finance industry transitions
Critical Success Factors

Consolidation
Banks focus on penetration and volumes Cut intermediaries to protect margins NBFCs with high cost structures became unsustainable Consolidation of NBFCs with banks (ALFS, Kotak, 20th Century) Niche NBFCs / co-op banks continue to maintain focus (Sundaram, Chola)

Access to low cost funds Better credit decisions & controls Thin overheads with faster loan processing Relationship with dealers and OEM

Competition
Retail banking increasingly became focus area for leading private banks

Dominant Phase
Auto financing dominated by NBFCs and captive financiers Banks were only lenders to NBFCs

Large PSU banks turned aggressiveleveraging their network Softer interest rates fueled substantial drop in IRRs

Till 1999

1999-2003

2003-2005

2005 and beyond

Retail Banks with low CoF & wide branch network pose threat to captive financiers in India
22

Auto Finance Market Scenario (FY 04-05)

Industry Volume Commercial Vehciles Passenger Car Total 320000 1000000 1320000 Retail Finance (crs) 21000 41000 62000

Share of major players in the market

Others 30.9% LGF 1.0% Chola 1.9%Kotak 2.6% Sundaram ALFL 3.9% 4.5% SBI 4.0% Mahindra 4.8% TMF 5.2% HDFC Bank 12.9% Citi Financial 5.6% ICICI Bank 22.6%

Banks have dominant market share in Auto financing, leading NBFCs are stagnating their growth Cheap CoB has become CSF for players

TMF is ahead of leading NBFCs in terms of disbursal

23

Tata Motors Finance: Market leader in CV, among top 3 in PC

Commercial Vehicles Others 20%
ICICI 20%

(Tata Vehicles)

TMF 25%

HDFC 11% Sundaram 10% Citi 14%

Passenger Car
Others 41% ICICI 33%

TMF 11%

HDFC 16%

24

Tata Motors Finance strategy

Realignment of TMF business sourcing channels Dealer driven business sourcing Direct sales agents ( DSAs) Direct marketing for fleet customers in CV and corporate clients in PC Marketing Service Providers to increase Feet on street Increase presence in M&HCV fleet segment Operating leases for high end M&HCV and for car fleet owners Refurbishment of old vehicles Used vehicle financing in CV and PC Improve collection efficiency, credit control & remedial measures to reduce overdues

25

Focus Areas for Vehicle Financing Business

Increase penetration Realign the marketing channel ( Dealer and Direct) to compliment each other Consolidate the strong position in MUVs and LCVs Increase the presence in car and Fleet segment in M&HCV Maintain strong position in rural market ( B and C class cities) Better risk management and improve collection efficiency Constantly thriving for cost rationalization IT enabled service offerings to increase operational efficiencies and provide better service to customers New business initiatives with higher margins Refinance, operating leases, insurance brokerage, refurbishment

26

1. Performance 2. Commercial vehicles

Growth Drivers Market Strategy

3. Passenger Vehicles
Growth Drivers Market Strategy

4. Vehicle Financing 5. Financial Management 6. Subsidiaries

27

Organic Growth Plans Rs. 60 bn capex programme to be implemented over five years beginning April 04. Targeted investment areas
New Product Introduction Capacity Expansion Enhancing ERC capabilities Product up-gradation Sustenance Expenditure

28

Cost Reduction Drive

Value Engineering Target Costing E Sourcing and Global Sourcing Supplier base rationalisation Process Improvement Productivity Improvement Outsourcing

Rs. 10 bn cost reduction targeted over the next 3 years

29

1. Performance 2. Commercial vehicles

Growth Drivers Market Strategy

3. Passenger Vehicles
Growth Drivers Market Strategy

4. Vehicle Financing 5. Financial Management 6. Subsidiaries

30

Tata Technologies 94.3% Subsidiary

Tata Technologies is a provider of Engineering & Design and enterprise services in the field of Engineering Automation and PLM solutions to automotive and aerospace OEMs (FY05 revenue at Rs 1.7 b) To pursue its growth plans globally, the company has recently announced its intention of acquiring 100% stake in a UK based company named INCAT. The following advantages are seen with the acquisition:
Increased scale of business. Current revenue size of Rs. 1.7 billion to over Rs.6.7 billion Access to a broader customer base in the automotive, aerospace and manufacturing industries Wider presence in all major geographies and markets Access to INCATs high end consulting skills and project management capabilities. INCATs areas of Knowledge management and appropriate IPRs to provide wider product range

31

Tata Technologies 94.3% Subsidiarycontd.

The offer price for INCAT acquisition is 220p per share which is at 4% premium to the current market price that time. The implied market capitalisation is GBP 53.4 mn. The exit PE for this transaction is around ~17x. INCAT is a cash positive (~ GBP 7.4 mn) company and the net cost of acquisition is GBP 46.0 mn The integration will be completed within 100 days beginning October 2005

32

Tata Daewoo- Heavy Trucks (S. Korea) (100% Subsidiary)

Performance in 1QFY06 Margins under pressure on account of appreciation of Korean Won against the dollar to the extent of 15% in the last twelve to fifteen months. 26% decline in in the Commercial vehicle industry in Korea during April- June 2005 TDCV maintained its market share at 29%. Debt reduced from USD 51 mn to USD 30 mn.

Strategy MCVs to be manufactured in S.Korea TDCV products to be exported through TML international business channel Operational efficiencies to be improved through cost reduction, Implementation of IT systems and debt restructuring. Integration with TML for product design and development

33

TELCON Construction Equipment (80% TML : 20% Hitachi JV)

Discussions with Hitachi in advanced stage for a broadbased partnership Technology Upgradation and Product Range expansion
Larger Excavators (>200Tons),Road making equipments, Road Recycling Train, Dumpers for Domestic & Export Market, Multi Utility Loader

Proposed Initiatives
Focus on Full Maintenance, Annual Maintenance Contract Reconditioning and Aggregate Rebuilding Focus on Components Export to other OEMs in the world ICR (Integrated Cost Reduction) with Mckinsey TOC (Theory of Constraints) from Ms.Goldratt Consulting for better inventory management

Setting up of R&D Centre Vendor up-gradation to help meet future challenges

34

HVAL & HVTL Heavy Axles and Transmission (100% subsidiaries)

Discussions to bring the strategic partners at an advanced stage. HVAL/HVTL will support Tata motors in its advanced power train implementation strategy. Investments planned for capacity expansion, productivity, quality improvement. Exploring growth opportunities outside of Tata Motors.

35

Challenges Ahead

Increase in input prices to continue to put pressure on operating margins Rising fuel prices Increasing competition across all vehicle segments Uncertainty about the commercial vehicle cycle Execution of product plans

36

Thank You

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