Management Discussion and Analysis
 
OUTLOOK

While the start of the new fiscal has continued from the moderate performance of last year, there is a cautious optimism that FY 2013-14 would see the start of the revival in the global and domestic economies. The Indian economy is also expected to look up marginally from growth in GDP of 5% in the last year.

Within the market however, there are certain segments which would react quicker to a revival in sentiment than others. The M&HCV segment would recover later than others and is expected to see an upswing only after a few more conscious monetary and fiscal policy moves from the Government and RBI, as well as growth in infrastructure projects spending.

While current account deficit and fiscal deficit will continue to be priorities for the Government, striking a balance between controlling expenditure and encouraging growth will be key for this year.

On the background of pressure on volumes in India and limited headroom in pricing due to the intensely competitive market dynamics, the focus will be on effective cost management- both direct and indirect to maintain margins. Even in this challenging environment, as envisioned in its Mission statement, the Company is looking to 'passionately anticipate' and provide vehicles and solutions that 'excite customers globally'. The objective remains to be the 'most admired' Company by all our stakeholders.

One of the key elements of this strategy would be to improve the relationship with the customer – the experience the customer has with the Company at each touch point from sale to service and replacement sales experiences. This would include improving the physical look of the setup, setting up right processes and forums for speedy resolution of customer issues.

The Company will also actively pursue growth in the right International markets and look to consolidate its position in markets where it is already present.

While Europe remains uncertain in the short term, JLR will continue to focus on growth from other markets, in particular the emerging markets. With entry been established in China last year, growing and consolidating presence in this market would be key to JLR's strategy for the coming year. Investment in new products and technologies along with enhancing capacity as required in the right geographies would continue for both Jaguar and Land Rover.

INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company has an adequate system of internal controls in place. It has documented procedures covering all financial and operating functions. These controls have been designed to provide a reasonable assurance with regard to maintaining of proper accounting controls, monitoring of operations, protecting assets from unauthorized use or losses, compliances with regulations and for ensuring reliability of financial reporting. The Company has continued its efforts to align all its processes and controls with global best practices in these areas as well.

Some significant features of the internal control of systems are:
  • Preparation and monitoring of annual budgets for all operating and service functions;
  • State-of-the-art ERP, Supplier Relations Management and Customer Relations Management, connect its different locations, dealers and vendors for efficient and seamless information exchange;
  • An on-going program for reinforcement of the Tata Code of Conduct. The Code covers integrity of financial reporting, ethical conduct, regulatory compliance, conflict of interests review and reporting of concerns.
  • A well-established multi-disciplinary Internal Audit team, which reviews and reports to management and the Audit Committee about the compliance with internal controls and the efficiency and effectiveness of operations and the key process risks. The scope and authority of the Internal Audit division is derived from the Audit Charter approved by the Audit Committee;
  • Audit Committee of the Board of Directors, comprising independent directors, which is functional since August 1988, regularly reviews the audit plans, significant audit findings, adequacy of internal controls, compliance with Accounting Standards as well as reasons for changes in accounting policies and practices, if any;
  • A comprehensive information security policy and continuous upgrades to IT system;
  • Documenting of major business processes and testing thereof including financial closing, computer controls and entity level controls. as part of compliance programme towards Sarbanes-Oxley Act, as required by the listing requirements at New York Stock Exchange;
  • Anti-fraud programmes.

The Board takes responsibility for the overall process of risk management in the organisation. Through an Enterprise Risk Management programme, each Business Unit addresses opportunities and the attendant risks through an institutionalized approach aligned to the Company's objectives. This is also facilitated by internal audit. The business risk is managed through cross functional involvement and communication across businesses. The results of the risk assessment and residual risks are presented to the senior management. The Audit Committee reviews reports covering operational, financial and other business risk areas.

HUMAN RESOURCES/INDUSTRIAL RELATIONS

Tata Motor's Group considers its human capital as a critical factor to its success. Under the aegis of Tata Sons and the Tata Sons promoted entities, the Company has drawn up a comprehensive human resource strategy (the "Human Resource" strategy) which addresses key aspects of human resource development such as:

  • Code of conduct and fair business practices.
  • A fair and objective performance management system linked to the performance of the businesses which identifies and differentiates high performers while offering separation avenues for non-performers.
  • Creation of a common pool of talented managers across Tata Sons and the Tata Sons promoted entities with a view to increasing their mobility through inter-company job rotation.
  • Evolution of performance based compensation packages to attract and retain talent within Tata Sons and the Tata Sons promoted entities.
  • Development of comprehensive training programs to impart and continuously upgrade the industry/function specific skills.

In line with the Human Resource strategy, the Company, in turn, has implemented various initiatives in order to build organizational capability that will enable the Company to sustain competitiveness in the global market place. The focus is to attract talent, retain the better and advance the best. Some of the initiatives to meet this objective include:

  • Extensive process mapping exercise to benchmark and align the human resource processes with global best practices.
  • Introduction of a globally benchmarked employee engagement programme.
  • Succession planning through identification of second level of managers for all units, locations, functions.
  • Implementation of a "Fast Track Selection Scheme", which is a system for identifying potential talent in the areas of general, commercial and operations management and offering them opportunities for growth within the organization. The Company's human resources team has been invited to replicate this system in other Tata Companies.
  • The Company "Talent Management Scheme" which includes the identification of high performers and high potentials through various routes such as our Performance Management System and Development Centers. Subsequent to the identification process, we provide them with challenging assignments for faster development.
  • Introduction of performance rating based salary review and quality linked variable payment for supervisory category of employees.
  • Restructuring the top level organization and creation of new verticals for greater functional focus and moving towards creating a matrix organization.
  • Creation of a powerful employer brand to attract talent - "Lead the Future" has become the Company's Employee Value Proposition statement.
  • Driving cultural transformation - The Company has reframed the mission, vision, values and culture of the organization and introduced the concept of ACES - Accountability, Customer & Product focus, Excellence and Speed.
  • Extensive brand building initiatives at university campuses to increase recruiting from premium universities.
  • JLR launched a new "Team Talk Online" portal to its production workers, which provides them with business updates alongside information on employee benefits, training and development.

We employed approximately 62,716 and 58,618 (includes Tata Motor Group) permanent employees as of March 31, 2013 and 2012 respectively. The average number of temporary employees for the FY 2012-13, was approximately 39,009.

The following table set forth a breakdown of persons employed by our business segments and by geographic location as of March 31, 2013.

Segment No of Employees
Automotive 56,393
Other 6,323
Total 62,716
 
Location No of Employees
Location 41,597
Abroad 21,119
Total 62,716

Training and Development: The Company is committed to building the competencies of its employees and improving their performance through training and development. The Company focus is on identifying gaps in its employees' competencies and preparing employees for changes in competitive environments, as well as to meet organizational challenges.

Some of the focus areas in training in the last year centered on leadership, innovation management and internationalization besides other training programmes to drive a change in the Company's employees' outlook as it continue to develop as a global competitor. Developmental initiatives for the Company's senior leadership were undertaken through international programs at various premier institutions around the world. Certain employees have also been selected for the Fulbright fellowships for leadership in management. In addition, in order to emphasize the sharing of skills across our locations and functions extensive technical training programs were organized in Pune, Jamshedpur and Lucknow. The technical exposure was enhanced further through international training and participation at international seminars.

At Jamshedpur, Pune and Lucknow in India, the Company has also established training divisions that impart basic skills in various trades like milling, grinding and welding to its young apprentices. The Company received the National Best Training Establishment award from the Government of India for the eighth time.

The Tata Motors Academy has created a couple of path-breaking branded initiatives in the Learning and Development space. "iTeach" which was created as an innovative practice of getting line managers to take ownership in sharing their knowledge and experience gained a lot of traction. The Company has switched to e-enabled learning through LMS (Learning Management System). Programs like "Autonova", "Project Leap" were introduced in the last fiscal.

JLR launched a new Higher Apprenticeship programme offering 55 places this year in key pathways, in addition to its current intermediate and advanced apprenticeship portfolio, which currently has over 1,500 apprentices on programme in 2012. JLR has excelled in its rating movement in the Times Top 100 Graduate Employers, moving from 60th ranking in 2011 to 26th in 2012. This was then followed by a move in the Guardian Top 300 Graduate Employers from a position of 127th in 2011 to 30th in 2012.

Union Wage Settlements: All employees in India belonging to the operative grades are members of labor unions except at Sanand & Dharwad plants. The Company has generally enjoyed cordial relations with its employees at its factories and offices.

Employee wages are paid in accordance with wage agreements that have varying terms (typically three years) at different locations. The expiration dates of the wage agreements with respect to various locations/subsidiaries are as follows:

Location/subsidiaries Wage Agreement valid until
Pune CVBU August 31, 2015
Pune PCBU March 31, 2013*
Jamshedpur March 31, 2013*
Mumbai December 31, 2015
Lucknow March 31, 2014
Pantnagar March 31, 2015
Jaguar Land Rover October 31, 2014
Tata Hispano December 31, 2012*

*Under negotiation

A cordial industrial relations environment has been maintained in all the Company's manufacturing units.

The variability in wage settlements was built in by introducing vehicles and profit linked payment scheme based on the index of various parameters such as quality, productivity, operating profit and individual's performance and attendance.

Operatives and Union support in implementation of programmes towards quality, cost and productivity improvements across all locations is commendable.

TDCV Union Employees had filed a lawsuit against TDCV in March 2011, for including some elements of non- ordinary salary and bonus as part of ordinary wages. The District Court gave a judgment in their favour on January 2013, and raised a demand on TDCV for the period December 2007 to May 2011, for KRW 17.2 billion and interest for the unpaid period. TDCV has filed an appeal to the High Court against the order.

RESEARCH AND DEVELOPMENT:

Over the years, the Company has devoted significant resources towards our research and development activities. The Company's research and development activities focus on product development, environmental technologies and vehicle safety. The Company's Engineering Research Centre, or ERC, established in 1966, is one of the few in-house automotive research and development centers in India recognized by the government. ERC is integrated with all of the Tata Motors Global Automotive Product Design and Development Centers in South Korea, Spain, Italy and the United Kingdom. In addition to this, the Company leverages key competencies through various engineering service suppliers and design teams of its suppliers.

The Company has a state of the art crash test facility for evaluating occupant safety. The Company has a full vehicle level crash test facility, sled test facility for simulating the crash environment on subsystems, a pedestrian safety testing facility, a pendulum impact test facility for goods carrier vehicles. This facility is also supported with CAE Infrastructure to simulate tests in digital environment. The Company has a hemi-anechoic chamber testing facility for developing vehicles with lower noise and vibration levels and an engine emission and performance development facilities, to develop products meeting international standards. The Company also has an eight poster road load simulator for vehicle structural durability validation of M&HCV. Other key facilities include a full vehicle environmental testing facility, heavy duty dynamometers and aggregate endurance test rigs.

The Company's product design and development centers are equipped with sophisticated hardware, software and other information technology infrastructure, designed to create a digital product development and virtual testing and validation environment, resulting in reduction of product development cycletime. These centers are growing with increased vehicle development programs in breadth and depth of technology. Rapid prototype development systems, testing cycle simulators, advanced emission test laboratories and styling studios are also a part of our product development infrastructure. The Company has aligned our end-to-end digital product development objectives and infrastructure, with its business goals and have made significant investments to enhance the capabilities especially in the areas of product development through Computer Aided Design/Computer Aided Manufacturing/Computer Aided Engineering/Knowledge Based Engineering/Product Lifecycle Management and specific engineering review processes like Digital Mockup (DMU). In order to track various issues arising in vehicle design and development processes, the Company has institutionalized 'issue tracking' work flow based systems in various domains to manage them effectively.

The Company's research and development activities also focus on developing vehicles running on alternative fuels, including CNG, liquefied petroleum gas, bio-diesel and compressed air and electric cars. The Company is continuing to develop green vehicles. The Company is pursuing alternative fuel options such as ethanol blending for development of vehicles fuelled by hydrogen.

The Company is also pursuing various initiatives, such as the introduction of Premium Lightweight Architecture (PLA), to enable its business to comply with the existing and evolving emissions legislations in the developed world, which it believes will be a key enabler of both reduction in CO2 and further efficiencies in manufacturing and engineering.

Initiatives in the area of vehicle electronics such as engine management systems, in-vehicle network architecture and Multiplexed Wiring, Electronic Stability programs, Automated and Automatic transmission systems, telematics for communication and tracking and other emerging technological areas are also being pursued, which could possibly be deployed on our future range of vehicles. Likewise various new technologies and systems that would improve safety, performance and emissions of our product range are under implementation on our passenger cars and commercial vehicles.

For providing prompt service to the customer, development of enterprise level vehicle diagnostics system for achieving speedy diagnostics of complex electronics of modern vehicles has been underway. Also the initiative in telematics has further spanned into a fleet management, driver information and navigation systems, and vehicle tracking system using GNSS (Global Navigation Satellite Systems).

The Company established a wholly owned subsidiary, TMETC, in 2006, to augment the abilities of its Engineering Research Centre with an objective to obtain access to leading-edge technologies to support the product development activities. In October 2010, the Company also acquired a design house in Italy, Trilix Srl, that has been working with the Company on many of its projects and are now a part of Tata Motors Design organization.

The Company endeavors to absorb the best of technologies for its product range to meet the requirements of a globally competitive market. All of its vehicles and engines are compliant with the prevalent regulatory norms in the respective countries in which they are sold. The Company's strategy to invest and develop its development capabilities have helped the Company in attaining significant achievements such as the design and development of India's first indigenously developed compact car, the segment creating mini- truck – the 'Tata Ace' and the world's most affordable family car — the Tata Nano. In collaboration with its subsidiary TDCV, the Company developed the "World Truck", now referred to as 'Prima', a sophisticated and contemporary M&HCV range with performance standards similar to those in developed markets.

JLR's vehicles are designed and developed by award-winning design teams, and it is committed to a programme of regular enhancements in product design. JLR's two design and development centres are equipped with computer-aided design, manufacturing and engineering tools, and are configured for competitive product development cycle time and efficient data management. In recent years, JLR has refreshed the entire Jaguar range under a unified concept and design language and continued to enhance the design of Land Rover's range of all-terrain vehicles. JLR's R&D operations look for synergies through sharing premium technologies, powertrain designs and vehicle architecture. All of JLR's products are designed and engineered primarily in the United Kingdom. JLR endeavours to implement the best technologies into its product range to meet the requirements of a globally competitive market. JLR is currently developing vehicles which will run on alternative fuels and hybrids and is also investing in other programmes for the development of technologies to improve the environmental performance of its vehicles including the reduction of CO2 emissions.

INTELLECTUAL PROPERTY

The Company creates, owns, and maintains a wide array of intellectual property assets that are among its valuable assets throughout the world. The Company's intellectual property assets include patents, trademarks, copyrights designs, trade secrets and other intellectual property rights. Patents relate to innovations and products; trademarks secured relate to brands and products; copyrights are secured for creative content; and designs are secured for aesthetic features of products/components. The Company proactively and aggressively seeks to protect its intellectual property in India and other countries.

The Company owns a number of patents and has applied for new patents which are pending for grant in India as well as in other countries. It has also filed a number of patent applications outside India under the Patent Cooperation Treaty, which will be effective in different countries going forward. The Company obtains new patents as part of our ongoing research and development activities.

The Company own registrations for number of trademarks and have pending applications for registration of these in India as well as other countries. The registrations mainly include trademarks for its vehicle models and other promotional initiatives. The Company uses the "Tata" brand, which has been licensed to us by Tata Sons Limited. The Company's believes that establishment of the "Tata" word mark and logo mark in India and world over, is material to our operations. As part of acquisition of TDCV, the Company has the perpetual and exclusive use of the "Daewoo" brand and trademarks in Korea and overseas markets for the product range of TDCV.

As part of the acquisition of Jaguar Land Rover business, ownership /co-ownership of core intellectual property were transferred to the Company. Additionally, perpetual royalty free licenses to use other essential intellectual properties have been licensed to the Company for use in Jaguar and Land Rover vehicles. Jaguar and Land Rover own registered designs, to protect the design of their vehicles in several countries.

In varying degrees, all its intellectual property is important to the Company. In particular, the Tata brand is integral to the conduct of our business, a loss of which could lead to dilution of our brand image and have a material adverse effect on our business.

CAUTIONARY STATEMENT

Statements in the Management Discussion and Analysis describing the Company's objective, projections, estimates, expectations may be "forward-looking statements" within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Company's operations include, among others, economic conditions affecting demand / supply and price conditions in the domestic and overseas markets in which the Company operates, changes in the Government regulations, tax laws and other statutes and incidental factors.

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