Jaguar Land Rover: The Turnaround Story

How a low cost Indian car manufacturer changed the fortunes of two premium British brands

The story of Jaguar Land Rover turnaround is quite a remarkable one given the short time frame in which the company returned to profits. Tata Motors succeeded where MNC’s like BMW and Ford motors failed. Initially critics had doubted Tata’s ability to manage such a premium and iconic brand, fearing that the Indian ownership will hurt the premium tag of the company. People couldn’t understand how a commercial and small car manufacturer will turn around the fortunes of premium marquee brands like Jaguar and Land Rover. Hence, the story is also of importance to the India growth story as it highlights how strong the management abilities of Indian companies are.

The June 2008, $2.5 billion acquisition couldn’t have come at a worse time for JLR and TATA Motors as the mortgage market in US collapsed leading to a global slump. Those who had money didn’t want to lend it to anyone. TATA Motors found itself saddled with a debt of around Rs. 21,900 cores, a tricky proposition for a company which had been relatively debt free. Unemployment and credit crisis meant lower sales in the critical markets of US and Europe. JLR needed a lot of cash but the recession made things worse for them. So bad was the situation that JLR even tried to approach the UK government for a probable bailout. At the height of the crises TATA Motors shares dropped to a low of Rs. 126.45 valuing the company at $ 1.5 Billion, fraction of what it paid Ford to acquire JLR

In FY2009 TATA Motors reported its first annual loss in the last seven years. It recorded a loss of Rs. 2,500 crores compared to a profit of Rs. 2,200 crores in 2008. The JLR unit made a pre-tax loss of Rs. 1,800 crores on the back of poor demand in crisis hit US and Europe.

Two years down the line those hard days seem very distant. JLR has been generating profits for several recent quarters. It now contributes to over 50% of the revenue of TATA group. The new launches have worked very well. Sales in China have surged contributing to the growth in revenue. Sales in US and Europe have also seen a healthy rise. Tata Motors current market capitalization is approx $13.87 billion(as per closing value of stock on 23.01.2012)

The Acquisition

It was first in 2007 that Mr. Ratan Tata and Mr. Ravi Kant (CEO TATA Motors) were given a brief about JLR by Ford. Mr. TATA asked his senior employees whether this acquisition would make sense. To decide on the acquisition Mr. Tata and Mr. Kant set off for US and UK to check whether these two brands still held sway in the market. In US they met dealers, who had been having hard time since long. However, these dealers expressed their faith in the brand to Mr. Tata. Next came the dealers in UK, they too held a similar view of the brand. This reassured TATA Motors that the brand of Jaguar and Land Rover was still strong in the market. Once assured of the brands power TATA Motors set on nine month long due diligence process culminating in TATA Motors acquisition of Jagaur and Land Rover marquee brands from Ford.

Bringing in the change

At the start itself Tata Motors realized that two things that needed urgent attention at JLR were cash management and cost reduction. The company was finding hard to get credit during the crisis time and hence cash was the top most priority for the TATA Motors. Since JLR didn’t have a cash management system of its own, TATA hired KPMG to implement one for them. They began managing cash on an hour to hour basis.

The next priority issue was cost management. To meet this end, Munich based Roland Berger Strategy Consultants was hired. They implemented a three pronged plan. First, a system for the managing cash and liquidity was put in place with the assistance of KPMG. Secondly, they developed a broad cost reduction plan and created almost 10 – 11 cross functional teams to handle these assignments. There was also a lot of change in the top management at JLR, with new heads coming in to the company.

Lastly a long term plan was formulated to run up to 2014 which focused on new model development and refreshing the existing models. TATA put up a young team of managers to lead these initiatives just like it had done during the restricting of TATA Motors in 2003. Also the parent company conducted daily reviews to keep check on the progress made.

The parent company also pumped capital in to JLR to tide over the problem of liquidity and to ensure that new model development programs continued as planned. TATA Sons divested its stake in a few group companies to raise cash for JLR. It was Mr. Ratan Tata’s conviction in JLR that made him take such bold decisions. All funds raised through these routes were channelized in to JLR.

Focus was also put on reduction the workforce at JLR. At the time of takeover the workforce of JLR was a humongous 27,000. Within a year the workforce was reduced by almost 11,000. Some external events like a favorable exchange rate and demand hike in China also helped JLR to clock better revenue figures.

Tata Technologies, a subsidiary of Tata Motors was handed over the work to separate JLR’s IT systems from those of Ford. This initiative also helped JLR save millions of dollars on IT.

The below table shows the amazing turnaround, in FY 2010-11 the net profit for JLR was 1,036 million pounds compared to a net profit of 24 million pounds in FY 2009-10.

The road ahead

The all new Range Rover Evoque was launched in September 2011 and has received very exciting reviews; it has helped JLR to acquire new customers. It has also announced plans to set up a 355 million pound state of the art facility in Wolverhampton, UK to produce new low emission engines. Today almost 38% of JLR’s revenue comes from the BRIC nations and it plans to increase this figure further.

Tata’s turnaround of JLR has become folklore in management circles. It shows how a committed management can bring about a change where everyone else has failed before. It also highlights the coming of age of India’s business houses; aggressive, ready to take on the world’s best.

Mukesh Ambani’s Big Bang!

The title is not in reference to the recent dandiya played by the Ambani brothers at their ancestoral home. That event did create a huge buzz, whether the two brothers were on the verge of burying their hatchet to come together. However, this is not about that. It is about Mukesh Ambani’s second entry in the Telecom industry. Well, he does plans to use Anil Ambani owned RCOM’s infrastructure to launch his entry. So they are collaborating but where this will lead to is unclear.

Infotel was the only company to bid for and win broadband wireless spectrum (BWA) in all circles. Within a few hours of Infotel winning the spectrum, came the news that Mr. Mukesh Ambani would be acquiring Infotel for $1 Billion. In one masterstroke Reliance became the only pan India wireless broadband player. Reliance would also pay $2.8 Billion for the spectrum won by Infotel. Its total investment in telecom could be taround $5 billion. The seeds of this entry were however laid a few months earlier when the brothers scrapped their non-compete agreement thereby giving the cash rich Reliance Industries more avenues to invest its cash reserves. Mukesh Ambani chose telecom as his first major investment as he was also closely associated with Reliance’s first telecom venture.

Mukesh Ambani re-entering telecom must surely have Mr. Sunil Mittal of Bharti Airtel worried. The first time Reliance entered the telecom market they changed the market dynamics. Bharti Airtel survived that assault. But this time though it looks a tough battle for Mr. Mittal. His problem started when he lost out on the wireless broadband auction (or 4^th generation – 4G) for major markets like Mumbai and Delhi. Bharti was supposed to buy out Qualcomm’s licenses in these two circles. However, due to some technical issues Qualcomm’s bid is in hold and hence Bharti has been left high and dry until Qualcomm sorts the matter out with the government.  These two circles account for major portion of data services. Not being able to launch its 4G services in these circles will be a major loss for Bharti. It seems that it cannot take the first mover advantage in these circles.

The A-Team

To put his big plan into action Mr. Ambani assembled his A-team, led by his trusted lieutenant Manoj Modi. Modi would decide on the highest level of investments. Modi’s brother in law Jyotindra Thacker was also inducted in the team, he was the Chief Information Officer of Reliance at that time. Mathew Oomen, the Chief Technology Officer at US based Sprint-Nextel was brought in to create compelling customer offerings and to ensure that the services and the devices all worked well together. Kiran Thomas, assistant vice president at Reliance and Jagdish kumar, a senior Star TV executive were the other members of the core team.

Another key set of individual’s viz. Bharat Goenka, the MD at SME software maker Tally; Rohan Shravan, the founder of Notion Ink, a tablet making company; and P.K. Bhatnagar he MD of telecom network solutions company Rancore and Kenneth Frank; completed the team.

The Technology

RIL is betting big on LTE (Long Term Evolution) technology for its 4G rollout. Though publicly it has stated that it will be going ahead with LTE, some senior RIL executives say that it is also considering Wimax a rival technology to LTE. While Wimax has the backing of Intel, LTE enjoys support from the GSM club. The problem is that Wimax is ready to be rolled out, LTE, on the other hand is still developing. It will take some time for the LTE to be ratified by International Telecom Union (ITU). LTE handsets are few and the technology costly. RIL won’t be waiting for LTE to mature, if needed it will roll out its services with Wimax. But considering the long term view RIL will eventually have to migrate to LTE as it is faster than Wimax.

Execution

Anil Ambani plays a major role in the execution of elder brother’s ambitious plan. His firm Reliance communication (RCOM) has around 50,000 towers. RIL plans to lease these towers to roll out its 4G services. Further RCOM has a wide and robust fiber optic network which again will come very handy to Mukesh.

The biggest challenge however, is to create compelling service offerings. 4G license terms do not permit RIL to provide voice service. In India voice is the biggest thing. Selling data is hard, which can be seen from the troubles market incumbents are having in selling their 3G data services. Given this background how does Mukesh plan to create a disruption in the market? The answer to this lies in video. Video is as famous as voice and generates a significant amount of traffic, and is easier to sell compared to data. It has been heard that RIL is conducting trials with set top boxes that deliver Television channels, Video on demand and Video conferencing. But for creating something big that will disrupt the market, both supply and demand should match each other. Right now voice is what rules the Indian telecom market. So till the demand for video takes off, Ambani will have to take support of voice.

Selling ‘Data only’ services will be tough. But under 4G license norms players aren’t allowed to sell voice services. This is where Anil Ambani becomes so important to RIL. His network of 50,000 towers will provide Mukesh the ideal base to launch his 4G services.

What devices RIL will launch is still not clearly known. It could be tablet computers or set top boxes. News is that they have tied up with two Taiwanese tablet makers to produce tablets at an attractive price point of Rs. 9000. As of now, the LTE technology hasn't yet matured and devices working on LTE are few. However, the scale of opportunity that Reliance will provide will make vendors to come with products dedicated to its LTE network.

So when is the Reliance juggernaut going to roll into town? Initial launch date was Dec 28^th 2011, the 79^th birth anniversary of Late Dhirubhai Ambani. However, RIL was unable to meet this deadline. Now they plan to launch their service by mid 2012. This launch however is expected to be a muted one with initial rollout in a few metro cities later followed on by complete nationwide rollout.

Mukesh Ambani’s entry in Indian telecom market is sure to be game changer. Existing players are keeping a close eye on the developments at Reliance. Reliance’s second foray in telecom will definitely be a big bang.

Flipkart: The Amazon of India

Within just 4 years of operation Flipkart has turned the Indian e-commerce industry on its head. What started off as an online book store today sells a wide range of things from cell phones to pensand consumer electronics. Founders Sachin Bansal ans Binny Bansal (no they are not related to each other) strated Flipkart with an investment of just Rs. 5 lakhs in October 2007. Today they target to become India’s first million dollar e-commerce company with revenue of Rs. 4,500 by 2015. The company boasts of selling 20 products every minute. This Bangalore based company is called by many the ‘Amazon’ of India; in fact both founders were ex-Amazon employees. That experience sure seems to have helped them a lot. Let’s have a look at the journey of this amazing company. 

It has not been an easy journey but their rise has been quick. Flipkart’s revenue in 2008-09 was only 4 crores, 2009-10 was about 20 crores and in 2010-11 they made approximately 75 crores. They expect to make around 500 crores in this fiscal. Their growth is phenomenal if you look at the Indian e-commerce market before Flipkart came. Indian’s never took to the concept of e-commerce. Our customers would rather like to look and feel the product before buying it. This severely limited the growth of e-commerce industry. Flipkart had to break through this e-commerce inertia to become a success. When Flipkart arrived its owners started out with books, in fact for the first two years Flipkart only sold books. Books are easy to procure, their customer base is large and they are easier to ship. Additionally they come comparatively cheaper hence the customer is not afraid to try the out the site’s service. Today it is the largest book seller in the country stocking close to 11.5 million titles.

The procurement model is at the heart of Flipkart’s success, as most delays or troubles occur in this part of business. Flipkart employed consignment model i.e. procurement based on demand. Initially they had tie up with two distributors in Bangalore. Whenever a customer ordered a book, Flipkart would purchase it from the distributor, pack it in their office and courier it. The owners contact numbers served as the customer service in starting days. When they received investments they built warehouses. The first warehouse came up in Bangalore. Later it opened warehouses in Delhi, Mumbai and Kolkata too. Today 80% of deliveries take place through its warehouses. This makes the system fast and efficient. It is the robust logistics at Flipkart that sets it apart from other wannabe e-commerce sites.

Flipkart’s success mantra:

1.      Great customer service

Flipkart users are more satisfied than that of their competitors. Great customer service has been its hallmark.

2.      Easy to use website, hassle free payment system

The user interface is sleek and easy to use.

3.     Cash on delivery/Card on delivery mode of payment

This has been a major instrument in Flipkart’s success. Almost 60% of its sales happen through this mode. Cash on delivery created trust in the minds of Indian customers who were always weary of making payments online.

Threats to its crown

The biggest threat to Flipkart is surely their founders’ previous company, Amazon. The American giant is keen on entering the Indian market. In the burgeoning middle class of India it sees a huge potential. Well that potential has already been highlighted by Flipkart and Amazon surely feels that it is entering the market late. Given its size, scale and technology Amazon is a formidable player to compete with. But beating Flipkart in its own backyard will be tough. Flipkart has a service totally customized for the Indian consumer. Its supply chain – logistics very robust.  Its experience of the Indian market will come very handy when competing with Amazon.

Analysts, however, believe that the Indian e-commerce market is big enough to accommodate these players. So maybe they can grow and flourish together. Well, till Amazon steps on the battlefield, our own Flipkart will surely be the king of Indian e-commerce.

Future for Flipkart

FLipkart which began with selling books now has around 12 product categories. Going ahead electronics will gain a major share of tits business. It has also started selling music CD’s and DVD’s of bollywood releases. Soon it will also start selling digital content like songs and movies as this will be a very hot segment in near future. Flipkart wants to add every category of e-commerce to its portfolio.

It was in the news recently as a private equity player might invest $150 million in the company valuing it at $1 Billion. As of now they don’t have any plans of coming out with an IPO

In a country of 1.2 billion people and just 10% internet penetration, the market for e-commerce is still growing and it has huge potential. With the advent of international players like Amazon e-commerce will get a push. Indian companies too are making merry while the sun shines. There are a large number of discount sites like snapdeal.com, mydala.com etc., apparel stores like fashionandyou.com and even a baby product company babyoye.com. All these companies are doing well at the moment. The fortunes of these e-commerce companies will keep goin upwards as more and more Indians warm up to the idea of online shopping. Some say this is just a bubble, I personally feel that e-commerce still has a long way to go. E-commerce is a growing industry and this decade will see a phenomenal rise in e-commerce in India.

Some facts about Flipkart:

Ranked in top 30 websites in India

11.5 million Book titles

8 million site visits every month

4500 strong team

30,000+ items shipped daily

The king of good times???

An over ambitious promoter and gross mismanagement or high fuel prices, duties and taxes; what is to blame for the current situation of India’s second largest airline by market share? Kingfisher airlines which revolutionized Indian aviation industry by its intense focus on service today finds itself left behind the competition, bogged down by huge debt and recurring losses.  Kingfisher would like to lay blame on the high fuel prices, depreciation in rupee, high duties and taxes. However, the real fact is that Kingfisher has been a mismanaged organization, proved by the fact that the airline hasn’t generated a single rupee of profit since its inception in 2005.

Troubled past

Kingfisher was launched in 2005 amid much fanfare and in just two years it became a prominent player in the country. Mallya’s ambition was to create the biggest airline of the country. To achieve this ambitious goal he set his target on acquisition of Sahara and Air Deccan. Kingfisher lost in a fiercely fought battle for Sahara. Having lost out on Sahara he set out to take over Air Deccan, the first low cost carrier of the nation, and after successfully acquiring the company he rebranded it ‘Kingfisher Red’ in 2007. This acquisition propelled Kingfisher to the second spot in market share. Mallya, however, had a bigger ambition of becoming the number one in Indian skies. The acquisition didn’t help Kingfisher much; instead it increased the gestation period for the company.

Trouble started in 2007, when oil prices reached alarmingly high levels. Then came the slowdown in 2008. Things went so bad that all airlines had to go before the government seeking relief packages. The conditions improved towards end 2009 as oil prices began to fall and passenger traffic began to pick up. Most of the airlines used this period to recoup losses of previous quarters. Kingfisher however decided to go international resulting in heavier losses and longer gestation periods. It continued to borrow heavily to fund its operations. Now again the global economy is in a poor state, oil prices are rising. The massive debt load of Kingfisher has become unsustainable causing the company to take some drastic efforts to rationalize its operations and reduce its debt.

Gravity of the situation

Kingfisher has been running in deep trouble since a long time, but its pain has been aggravated in recent months. It has managed to create a staggering debt load at over Rs. 6,000 crores. Having made a loan restructuring deal with a consortium of banks last year, Kingfisher is again knocking at the banks door as it struggles to manage its working capital needs. Last time round it managed to get the banks to convert a part of their debt, about 1200 cr, into equity at an absurdly high price of Rs. 62 per share. With the stock now trading below Rs. 20 the banks have already made a huge loss.

Two banks, SBI and bank of India have declared that Kingfisher airlines’ loan has become a sub standard asset for them. This declaration came after the airlines failed to pay up its dues to these banks. SBI has the largest exposure to Kingfisher at Rs. 1,457.78 crores. Collectively, all lending banks hold approximately 23% stake in the beleaguered airline.

With the exit of many pilots and cancellation of many flights in recent days Kingfisher is struggling to remain in the skies. It also got a rap from DGCA which said that it could cancel Kingfisher’s license to fly as it felt that the cash strapped airline might compromise on safety of its fleet.

Its clear that Kingfisher is struggling to stay afloat. 

	SEP’11	JUNE’11	MAR’11	DEC’10	SEP’10
Revenue	1528.17	1881.64	1677.64	1658.70	1382.72
Profit/Loss	-408.69	-263.54	-355.54	-253.69	-230.82

The above table shows the problem at Kingfisher. The airlines’ has been running a loss since many quarters, in fact it hasn’t made a single rupee of profit since its inception in 2005. With its total debt crossing more than 6,000 crore rupees and its weak balance sheet the company has been finding it hard to find new source of funds.

One could argue that other domestic airlines too haven’t fared well; they are also running losses and have huge debt. However, their debt issues aren’t as significant as Kinfishers, in fact their debt is against acquisition of aircrafts which can be sold to repay for the loans. Kingfisher’s debt on the other hand is due to its operating losses.

Fight for survival

In its bid to survive, Kingfisher announced in September that it will discontinue it low cost offering ‘Kingfisher Red’. It plans to reconfigure these planes into full service ones. The business class seats on these full service flights would be reduced to make more space for economy class seats. This decision however beats logic since most of the airlines world over are entering into the low cost segment. Even in India, domestic airlines make more money from their low cost offerings. This segment accounts for almost 45% of the market. Indigo and SpiceJet, both low cost carries reported a profit last year. Jet plans to increase its low cost service to 80 to 85% of its total capacity. Kingfisher, however, feels that their full service flights give more yield than Kingfisher Red. How this decision will help Kingfisher is to be seen.

Help might also come from the central government in the form of FDI in aviation. When and how it will happen is not known at present. But such move will surely help the cash strapped airline. A strategic investor will provide the funds the company needs badly.

Kingfisher has also approached banks to help it raise foreign currency debt which has a low cost of interest. It was supposed to go in for a GDR issue last year but gave up that plan later as they thought the share prices weren’t attractive enough. Today its share price has reached new lows. Surely Mallya would have realized by now that his dream of making Kingfisher the number one airlines is just a far cry for now. Hopefully 2012 will provide better days for the company.

Renault’s Indian Journey

Recent months have been witness to the French car maker Renault’s new strategy for the Indian market. Having learnt some valuable lessons, the hard way, Renault today seems poised for a good time in India. Having tried its hand at low cost models with M&M and Bajaj, Renault is going for the premium offerings now. It seems comfortable with wearing the premium tag on its sleeves.

Its sedan offering, Fluence has been received well in the market, selling more than what the company expected. Its second launch Koleos, a crossover between a sedan and an SUV is also a premium offering priced at around 18-20 lakhs. It has also announced launch of its hatchback, the ‘Pulse’. The hatchback will pit it directly against the likes of Maruti and Tata. A fourth launch, an SUV ‘Duster’ has also been announced. So that means Renault will be competing directly with its old rival M&M.

In all the segments in which it’s entering Renault wants to be the premium player. Its top down approach is similar to what Volkswagen did; launching Skoda first, followed by the Jetta and Passat sedans. It was only when the brand was established in the Indian market did Volkswagen go for Polo and Vento models.

Just like elsewhere in the world, in India too, Renault and Nissan are working closely. The alliance has set up greenfield factory in Chennai at an estimated cost of Rs. 4,500 crores. Their hatchback Pulse will be using the same engine as that of Nissan’s Micra. Their combined facility at Chennai will be producing both the models. While Nissan is using the facility primarily for exports, Renault wants to focus more on the domestic market.

What Renault has learnt from India

Renault executives admit that their biggest learning has been that, to work in India you need to be agile, on your feet, ready to adapt to fast changing conditions quickly. After Renault and M&M launched Logan the government announced a dual excise duty structure wherein the cars having length less than 4 meters would be charged at 12% and those above 4 would be charged 24%. It was obvious that the Logan’s length should be reduced to below 4 meters to take advantage of the new law. However, the two companies could not come to decision as Renault did not want to change a car based on a global platform. Tata Motors, on the other hand reduced Indigo’s length to below 4 meters to take advantage of the rule. 

Renault execs also cite example of their erstwhile partner M&M. M&M delayed the launch of its ‘Xylo’ when it realized that a dual air conditioner would be a significant factor to generate customer demand. This quick decision making is something that Renault wants to imbibe in its Indian division. The company’s Chennai plant which is spread over 760 acres was completed in 21 months as against a time of 36 months which should have been taken for a plant of this size.

The road ahead

It’s a general view that Renault is a late entrant in the Indian car market. However, Renault officials feel that in fact this is best time to be in India. Renault plans to make India its second largest manufacturing hub in Asia after South Korea.

Renault has set itself a target of acquiring 2.5% of the Indian market by 2013. The long term goal is to reach a share of 10%. Globally Renault has a market share of 10%. It is the second largest car maker in Europe.

The much awaited SUV ‘Duster’ will be unveiled at the AutoExpo 2012 at New Delhi. The model is expected to be available in market by Diwali. Renault also launched its ‘Pulse’ at the AutoExpo 2012.

This is surely a busy year for Renault with new launches, opening of new showrooms, and focus on localization to reduce costs. In its second try Renault seems to have got its game plan right. It will be interesting to see how it can continue to perform this way in the intensely competitive Indian market. For now the future surely seems bright and sunny for the French company.