Company Quick10K Filing
Quick10K
Tata Motors
20-F 2019-03-31 Annual: 2019-03-31
20-F 2018-03-31 Annual: 2018-03-31
20-F 2017-03-31 Annual: 2017-03-31
20-F 2016-03-31 Annual: 2016-03-31
GM General Motors 52,424
F Ford 35,254
RACE Ferrari 29,733
PCAR Paccar 22,650
FCAU Fiat Chrysler Automobiles 19,863
WBC Wabco Holdings 6,800
NAV Navistar 2,145
FSS Federal Signal 1,742
REVG REV Group 745
SOLO Electrameccanica Vehicles 78
TTM 2019-03-31
Part I
Item 1. Identity of Directors, Senior Management and Advisers
Item 2. Offer Statistics and Expected Timetable
Item 3. Key Information
Item 4. Information on The Company
Item 4A. Unresolved Staff Comments
Item 5. Operating and Financial Review and Prospects
Item 6. Directors, Senior Management and Employees
Item 7. Major Shareholders and Related Party Transactions
Item 8. Financial Information
Item 9. The Offer and Listing
Item 10. Additional Information
Item 11. Quantitative and Qualitative Disclosures About Market Risk
Item 12. Description of Securities Other Than Equity Securities
Part II
Item 13. Defaults, Dividend Arrearages and Delinquencies
Item 14. Material Modifications To The Rights of Security Holders and Use of Proceeds
Item 15. Controls and Procedures
Item 16A. Audit Committee Financial Expert
Item 16B. Code of Ethics
Item 16C. Principal Accountant Fees and Services
Item 16D. Exemptions From The Listing Standards for Audit Committees
Item 16E. Purchases of Equity Securities By The Issuer and Affiliated Purchasers
Item 16F. Change in Registrant's Certifying Accountant
Item 16G. Corporate Governance
Item 16H. Mine Safety Disclosure
Part III
Item 17. Financial Statements
Item 18. Financial Statements
Item 19. Exhibits
EX-7.1 d707018dex71.htm
EX-8.1 d707018dex81.htm
EX-12.1 d707018dex121.htm
EX-12.2 d707018dex122.htm
EX-13.1 d707018dex131.htm

Tata Motors Earnings 2019-03-31

TTM 20F Annual Report

Balance SheetIncome StatementCash Flow

20-F 1 d707018d20f.htm FORM 20-F Form 20-F
Table of Contents

As filed with the Securities and Exchange Commission on July 30, 2019

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 20-F

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2019

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                to                

 

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

Commission file number: 001-32294

 

 

 

LOGO

TATA MOTORS LIMITED

(Exact name of Registrant as specified in its charter)

 

Republic of India  

Bombay House

24, Homi Mody Street

Mumbai 400 001, India

(Jurisdiction of incorporation or organization)   (Address of principal executive offices)

H.K. Sethna

Tel.: +91 22 6665 7219

Facsimile: +91 22 6665 7790

Email: hks@tatamotors.com

Address:

Bombay House

24, Homi Mody Street

Mumbai 400 001, India

(Name, Telephone, Facsimile number, Email and Address of company contact person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of Each Exchange On Which Registered

Ordinary Shares, par value Rs.2 per share*   TTM   New York Stock Exchange

Securities registered or to be registered pursuant to Section 12(g) of the Act:

None

(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

‘A’ Ordinary Shares, par value Rs.2 per share

(Title of Class)

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report: 2,887,348,694 Ordinary Shares and 508,502,371 ‘A’ Ordinary Shares, including 323,696,360 Ordinary Shares represented by 64,735,220 American Depositary Shares (“ADSs”), outstanding as of March 31, 2019. Each ADS represents five (5) Ordinary Shares as of March 31, 2019.

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    ☒  Yes    ☐  No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    ☐  Yes    ☒  No

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    ☒  Yes    ☐  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☒  Yes    ☐  No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  ☒    Accelerated filer  ☐    Non-accelerated filer  ☐    Emerging growth company  ☐

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards1 provided pursuant to Section 13(a) of the Exchange Act.    N/A

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing.

 

U.S. GAAP  ☐

   International Financial Reporting Standards as issued by the International Accounting Standards Board  ☒   

Other  ☐

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17  ☐    Item 18  ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ☐  Yes    ☒  No

 

*

Not for trading, but only in connection with listed American Depositary Shares, each representing five Ordinary Shares.

 

 

 

 

1 

The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.


Table of Contents

In this annual report on Form 20-F, each of the following terms has the meaning ascribed to it below:

 

   

“ADR” means an American Depositary Receipt evidencing one or more ADSs;

 

   

“CNG” refers to compressed natural gas;

 

   

“Commercial Vehicles” or “CVs” means vehicles in the commercial vehicle segment, including SCV & Pickups, MHCVs, ILCVs and CV Passenger Vehicles;

 

   

“Company” refers to Tata Motors Limited;

 

   

“Companies Act” refers to the Indian Companies Act, 2013, as amended from time to time, unless stated otherwise;

 

   

“CV Passenger Vehicles” means commercial Passenger Vehicles, which are passenger carriers in the Commercial Vehicle segment;

 

   

“Earnings Before Other Income, Interest and Tax” means earnings after adjusting the provision for impairment in Jaguar Land Rover but before share of profit/(loss) of equity accounted investees (net), assets written off/loss on sale of assets and others (net), other income/(loss) (net), foreign exchange gains/(loss) (net), interest income, interest expense (net) and income tax expense.

 

   

“Euro”, “EUR” and “€” mean the currency issued by the European Central Bank;

 

   

“Fiscal” means our fiscal year ending on March 31 of that year;

 

   

“Free Cash Flow” is a non-IFRS measure that equals cash flow from operating activities, less payment for property, plants and equipment and intangible assets;

 

   

“GBP” means the British pound, the lawful currency of the United Kingdom;

 

   

“GVW” means gross vehicle weight;

 

   

“IFRS” means the International Financial Reporting Standards and its interpretations as issued by the International Accounting Standards Board;

 

   

“ILCVs” means intermediate and light Commercial Vehicles, which are vehicles that have a GVW between 3.5 metric tons and 12 metric tons;

 

   

“Ind AS” means the Indian Accounting Standards;

 

   

“Indian GAAP” means the accounting principles generally accepted in India;

 

   

“Indian rupees” and “Rs.” mean the lawful currency of India;

 

   

“Korean won” means the lawful currency of South Korea;

 

   

“Liters” means the measurement equivalent to 61.02 cubic inches of volume, or approximately 1.057 U.S. quarts of liquid measure;

 

   

“Metric tons” or “tons” is a measurement equal to 1,000 kilograms or approximately 2,200 pounds;

 

   

“MHCVs” means medium and heavy Commercial Vehicles, which are vehicles that have a GVW of over 12 metric tons;

 

   

“Millimeters” or “mm” means the measurement equal to 1/1000 of a meter. A meter is equal to approximately 39.37 inches and a millimeter is equal to approximately 0.039 inch;

 

   

“Passenger Cars” means vehicles that have a seating capacity of up to five persons, including the driver, that are further classified into the following market categories:

 

 

Compact — length between 3,600 mm and 4,000 mm;

 

i


Table of Contents
 

Executive — length between 4,500 mm and 4,700 mm;

 

 

Luxury — length above 5,000 mm;

 

 

Mid-size — length between 4,250 mm and 4,500 mm;

 

 

Micro — length up to 3,200 mm;

 

 

Mini — length between 3,200 mm and 3,600 mm;

 

 

Premium — length between 4,700 mm and 5,000 mm; and

 

 

Super Compact — length between 4,000 mm and 4,250 mm;

 

   

“Passenger Vehicles” means Passenger Cars or Utility Vehicles;

 

   

“Ratio of Net Debt to Shareholders’ Equity” is measured as (total debt less cash and cash equivalent, mutual funds—current and money market funds) divided by equity (including non-controlling interest).

 

   

“Revenue” means the total revenue net of excise duty unless stated otherwise;

 

   

“RMB” and “Chinese Renminbi” mean the lawful currency of the People’s Republic of China;

 

   

“Russian Ruble” means the lawful currency of Russia;

 

   

“SG$” means the Singapore dollar, the lawful currency of Singapore;

 

   

“Shares” means the Ordinary Shares and the ‘A’ Ordinary Shares of Tata Motors Limited, unless stated otherwise;

 

   

“Small Commercial Vehicles & Pickups” or “SCVs & Pickups” means vehicles that have a GVW of up to 3.5 tons;

 

   

“SUV” means sports utility vehicle;

 

   

“TML” refers to Tata Motors Limited; and

 

   

“Utility Vehicles” or “UVs” means vehicles that have a seating capacity of five to ten persons, including the driver, which includes SUVs, multi-purpose vehicles and vans.

In addition to the terms defined above:

 

   

References to “we”, “our”, “us” and “Tata Motors Group” are to Tata Motors Limited and its consolidated subsidiaries, except as the context otherwise requires;

 

   

References to “Jaguar Land Rover”, “Jaguar Land Rover business”, “Jaguar Land Rover Group” and “JLR” are to Jaguar Land Rover Automotive Plc and its subsidiaries, except as the context otherwise requires;

 

   

For our Jaguar Land Rover business, references to premium cars and luxury performance SUVs refer to a defined list of premium competitor cars and SUVs;

 

   

Unless otherwise stated, comparative and empirical Indian industry data in this annual report on Form 20-F have been derived from published reports of the Society of Indian Automobile Manufacturers (“SIAM”);

 

   

Figures in tables may not add up to totals due to rounding; and

 

   

All references to websites in this annual report on Form 20-F are intended to be inactive textual reference for information only and information contained in or accessible through any such website does not form a part of this annual report on Form 20-F.

 

ii


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Cautionary Note Regarding Forward-looking Statements

This annual report on Form 20-F contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may”, “will”, “should”, “potential”, “intend”, “expect”, “seek”, “anticipate”, “estimate”, “believe”, “could”, “plan”, “project”, “predict”, “continue”, “future”, “forecast”, “target”, “guideline” or other similar words or expressions. Forward-looking statements are not guarantees of performance and are based on certain assumptions, discuss future expectations, describe plans and strategies, contain projections of results of operations or of financial condition or state other forward-looking information. Our ability to predict results or the actual effect of plans or strategies is inherently uncertain, particularly given the economic environment. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements and you should not unduly rely on these statements. These forward-looking statements involve risks, uncertainties and other factors that may cause our actual results in future periods to differ materially from those forward-looking statements.

Information regarding important factors that could cause actual results to differ materially from those in our forward-looking statements appear in a number of places in this annual report on Form 20-F and the documents incorporated by reference into this annual report on Form 20-F, and include, but are not limited to:

 

   

changes in general economic, business, political, social, fiscal or other conditions in India, the United States, the United Kingdom and the rest of Europe, North America, Russia, China or in any of the other regions where we operate;

 

   

implementation of our growth strategy and new projects, including mergers, acquisitions and divestments, planned by management;

 

   

the level of competition in the automotive industry;

 

   

movements in the prices of key inputs such as steel, aluminum, rubber and plastics;

 

   

development of new technologies affecting the automotive market;

 

   

accidents and natural disasters;

 

   

changes in our credit rating and the terms on which we finance our working capital and capital and product development expenditures and investment requirements;

 

   

fluctuations in the currency exchange rate against the functional currency of the respective consolidated entities;

 

   

the performance of our distribution channels and contractual arrangements with suppliers;

 

   

government policies including those specifically regarding the automotive industry, including industrial licensing, environmental regulations, safety regulations, import restrictions and duties, excise duties, sales taxes, value added taxes, product range restrictions, diesel and gasoline prices and road network enhancement projects;

 

   

various litigation, government investigations and proceedings affecting us; and

 

   

other factors beyond our control.

All forward-looking statements included herein are based upon information available to us on the date hereof and we are under no duty to update any of the forward-looking statements after the date hereof to conform these statements to actual results.

Non-IFRS Measures

We use the following non-IFRS performance indicators to monitor financial performance:

Earnings Before Other Income, Interest and Tax

Earnings Before Other Income, Interest and Tax is earnings after adjusting the provision for impairment in Jaguar Land Rover but before share of profit/(loss) of equity accounted investees (net), assets written off/loss on sale of assets and others (net), other income/(loss) (net), foreign exchange gains/(loss) (net), interest income, interest expense (net) and income tax expense. It is monitored by management for the purpose of performance of income earned by our operations. Earnings Before Other Income, Interest and Tax is presented because management believes this gives earnings earned by the business of the Company. Reconciliation of our consolidated Earnings Before Other Income, Interest and Tax to our consolidated net income is provided in Item 5.A “Operating and Financial Review and Prospects—Operating Results—Overview.”

 

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Free Cash Flow

Free Cash Flow is measured as cash flow from operating activities, less payments for property, plants and equipment and intangible assets. It is monitored by management for the purpose of quantifying ongoing needs for investments in plants and machinery, products and technologies. Free Cash Flow is presented because management believes this provides investors with a relevant measure of cash available to address our debts, pay dividends and fund capital expenditures and other strategic initiatives. Reconciliation of our Free Cash Flow to cash flow from operating activites is provided in Item 5.A “Operating and Financial Review and Prospects—Operating Results—Overview.”

Ratio of Net Debt to Shareholders’ Equity

Ratio of Net Debt to Shareholders’ Equity is measured as (total debt less cash and cash equivalent, mutual funds—current and money market funds) divided by equity (including non-controlling interest). It is monitored by management because it helps assess our debt commitments. Ratio of Net Debt to Shareholders’ Equity is presented because management believes it is a relevant financial measure for investors to understand the leverage employed in our operations and of our ability to obtain financing. Calculation of our Ratio of Net Debt to Shareholders’ Equity is provided in Exhibit 7.1 to this annual report on Form 20-F.

The non-IFRS measures used herein should not be considered in isolation and are not measures of our financial performance or liquidity under IFRS. They may not be indicative of our results of operations, and should not be construed as alternatives for any IFRS measures. Additionally, the non-IFRS measures may not be comparable to other similarly titled measures used by other companies.

 

iv


Table of Contents

TABLE OF CONTENTS

 

PART I 

            1  
 

Item 1.

    

Identity of Directors, Senior Management and Advisers

     1  
   

A.

  

Directors and Senior Management

     1  
   

B.

  

Advisers

     1  
   

C.

  

Auditors

     1  
 

Item 2.

    

Offer Statistics and Expected Timetable

     1  
   

A.

  

Offer Statistics

     1  
   

B.

  

Method and Expected Timetable

     1  
 

Item 3.

    

Key Information

     1  
   

A.

  

Selected Financial Data

     1  
   

B.

  

Capitalization and Indebtedness

     3  
   

C.

  

Reasons for the Offer and Use of Proceeds

     3  
   

D.

  

Risk Factors

     3  
 

Item 4.

    

Information on the Company

     29  
   

A.

  

History and Development of the Company

     29  
   

B.

  

Business Overview

     32  
   

C.

  

Organizational Structure

     65  
   

D.

  

Property, Plants and Equipment

     69  
 

Item 4A.

    

Unresolved Staff Comments

     74  
 

Item 5.

    

Operating and Financial Review and Prospects

     74  
   

A.

  

Operating Results

     74  
   

B.

  

Liquidity and Capital Resources

     88  
   

C.

  

Research and Development, Patents and Licenses

     100  
   

D.

  

Trend Information

     100  
   

E.

  

Off-balance Sheet Arrangements

     100  
   

F.

  

Tabular Disclosure of Contractual Obligations

     100  
   

G.

  

Safe Harbor

     100  
 

Item 6.

    

Directors, Senior Management and Employees

     101  
   

A.

  

Directors and Senior Management

     101  
   

B.

  

Compensation

     105  
   

C.

  

Board Practices

     106  
   

D.

  

Employees

     112  
   

E.

  

Share Ownership

     114  
 

Item 7.

    

Major Shareholders and Related Party Transactions

     116  
   

A.

  

Major Shareholders

     116  

 

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B.

  

Related Party Transactions

     118  
   

C.

  

Interests of Experts and Counsel

     119  
 

Item 8.

    

Financial Information

     119  
   

A.

  

Consolidated Statements and Other Financial Information

     119  
   

B.

  

Significant Changes

     119  
 

Item 9.

    

The Offer and Listing

     119  
   

A.

  

Offer and Listing Details

     119  
   

B.

  

Plan of Distribution

     120  
   

C.

  

Markets

     120  
   

D.

  

Selling Shareholders

     120  
   

E.

  

Dilution

     120  
   

F.

  

Expenses of the Issue

     120  
 

Item 10.

    

Additional Information

     120  
   

A.

  

Share Capital

     120  
   

B.

  

Memorandum and Articles of Association

     120  
   

C.

  

Material Contracts

     129  
   

D.

  

Exchange Controls

     129  
   

E.

  

Taxation

     132  
   

F.

  

Dividends and Paying Agents

     138  
   

G.

  

Statement by Experts

     138  
   

H.

  

Documents on Display

     138  
   

I.

  

Subsidiary Information

     138  
 

Item 11.

    

Quantitative and Qualitative Disclosures about Market Risk

     138  
 

Item 12.

    

Description of Securities Other than Equity Securities

     138  
   

A.

  

Debt Securities

     138  
   

B.

  

Warrants and Rights

     138  
   

C.

  

Other Securities

     138  
   

D.

  

American Depositary Shares

     139  

PART II

            140  
 

Item 13.

    

Defaults, Dividend Arrearages and Delinquencies

     140  
 

Item 14.

    

Material Modifications to the Rights of Security Holders and Use of Proceeds

     140  
 

Item 15.

    

Controls and Procedures

     140  
 

Item 16A.

    

Audit Committee Financial Expert

     142  
 

Item 16B.

    

Code of Ethics

     142  
 

Item 16C.

    

Principal Accountant Fees and Services

     143  
 

Item 16D.

    

Exemptions from the Listing Standards for Audit Committees

     143  
 

Item 16E.

    

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

     143  

 

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Item 16F.

     

Change in Registrant’s Certifying Accountant

     144  
  

Item 16G.

     

Corporate Governance

     144  
  

Item 16H.

     

Mine Safety Disclosure

     146  

PART III

              147  
  

Item 17.

     

Financial Statements

     147  
  

Item 18.

     

Financial Statements

     147  
  

Item 19.

     

Exhibits

     147  

 

 

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Table of Contents

PART I

 

Item 1.

Identity of Directors, Senior Management and Advisers

A. Directors and Senior Management

Not applicable.

B. Advisers

Not applicable.

C. Auditors

Not applicable.

 

Item 2.

Offer Statistics and Expected Timetable

A. Offer Statistics

Not applicable.

B. Method and Expected Timetable

Not applicable.

 

Item 3.

Key Information

A. Selected Financial Data

The following tables set forth selected financial data, including selected historical financial information as of and for each of Fiscal 2019, Fiscal 2018, Fiscal 2017, Fiscal 2016 and Fiscal 2015, in accordance with IFRS, as issued by the International Accounting Standards Board.

The selected IFRS consolidated financial data as of March 31, 2019 and 2018 and for each of Fiscal 2019, Fiscal 2018 and Fiscal 2017 are derived from our audited IFRS consolidated financial statements included in this annual report on Form 20-F. The selected IFRS consolidated financial data as of March 31, 2017, 2016 and 2015 and for Fiscal 2016 and Fiscal 2015 are derived from our audited IFRS consolidated financial statements not included in this annual report on Form 20-F.

You should read our selected financial data in conjunction with Item 5 “Operating and Financial Review and Prospects.”

Selected Financial Data Prepared in Accordance with IFRS

 

     Year ended March 31,  
     2019      2019      2018     2017     2016     2015  
    

(In US$ millions,

except share and

per share

amounts)

                                 
   (in Rs. millions, except share and per share amounts)  

Revenues

     42,797.6        2,959,666.9        2,856,910.8       2,632,176.8       2,682,793.8       2,626,297.8  

Finance revenues

     491.6        33,995.5        26,040.3       24,318.3       22,318.8       22,630.8  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     43,289.2        2,993,662.4        2,882,951.1       2,656,495.1       2,705,112.6       2,648,928.6  

Change in inventories of finished goods and work-in-progress

     296.9        20,532.8        (20,465.8     (73,751.2     (27,540.1     (29,610.9

Purchase of products for sale

     1,917.3        132,588.3        159,039.9       139,245.3       128,494.6       130,803.8  

Raw materials, components and consumables

     26,173.3        1,809,875.4        1,718,028.0       1,593,803.1       1,536,255.1       1,515,835.7  

Employee cost

     5,007.0        346,261.1        302,624.8       283,588.0       288,117.4       250,401.2  

Defined benefit pension plan amendment

     21.4        1,479.3        (36,090.1     —         —         —    

Depreciation and amortization

     3,328.7        230,197.8        209,818.2       182,405.4       168,074.9       134,495.8  

 

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Table of Contents
     Year ended March 31,  
     2019     2019     2018     2017     2016     2015  
    

(In US$ millions,

except share and

per share

amounts)

                               
  (in Rs. millions, except share and per share amounts)  

Other expenses

     9,504.7       657,298.7       629,755.4       608,461.6       585,321.4       545,909.5  

Provision for impairment in Jaguar Land Rover

     4,025.4       278,379.1       —         —         —         —    

Provision/(Reversal) for loss of inventory (net of insurance recoveries)

     —         —         (111.9     (13,301.0     16,383.9       —    

Expenditure capitalized

     (2,842.8     (196,595.6     (185,882.0     (168,768.8     (166,783.2     (153,217.5

Assets written off/loss on sale of assets and others (net)

     190.7       13,186.7       29,148.6       11,418.6       9,477.4       3,512.2  

Other (income)/loss (net)

     (512.5     (35,438.7     (47,873.3     (39,590.1     (12,613.0     (15,020.6

Foreign exchange (gain)/loss (net)

     84.2       5,824.2       4,332.9       16,590.4       21,047.0       15,468.2  

Interest income

     (113.7     (7,864.6     (7,122.4     (5,640.7     (7,186.6     (6,763.9

Interest expense (net)

     832.7       57,586.0       46,791.3       42,365.7       47,912.6       52,231.6  

Share of (profit)/loss of equity accounted investees (net)

     (30.3     (2,095     (22,782.6     (14,930.0     (5,774.7     1,748.3  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income/(loss) before tax

     (4,591.8     (317,553.1     103,740.1       94,598.8       123,925.9       203,135.2  

Income tax (expense)/credit

     367.7       25,425.0       (37,678.2     (35,035.6     (27,420.9     (70,130.3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income/(loss) after tax

     (4,224.1     (292,128.1     66,061.9       59,563.2       96,505.0       133,004.9  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Year ended March 31,  
     2019     2019     2018      2017      2016      2015  
    

(In US$ millions,

except share and

per share

amounts)

                                  
  (in Rs. millions, except share and per share amounts)  

Net income/(loss) attributable to equity holders

     (4,238.8     (293,142.7     65.040.7        58,539.3        95,516.2        132,213.7  

Net income/(loss) attributable to non-controlling interest

     14.7       1,014.6       1,021.2        1,023.9        988.8        791.2  

Dividends per share of Ordinary Shares

   US$ —         Rs. —         Rs. —          Rs.0.2        Rs. —          Rs. 2.0  

Dividends per share of ‘A’ Ordinary Shares

   US$ —         Rs. —         Rs. —          Rs.0.3        Rs. —          Rs. 2.1  

Weighted average of Ordinary Shares outstanding:

               

Basic

       2,887,348,474       2,887,348,357        2,887,218,310        2,873,188,838        2,765,339,619  

Diluted

       2,887,348,474       2,887,842,826        2,887,818,076        2,873,809,883        2,765,824,089  

Weighted average of ‘A’ Ordinary Shares outstanding:

               

Basic

       508,502,371       508,502,336        508,483,714        506,063,234        487,445,041  

Diluted

       508,502,371       508,736,110        508,736,110        506,320,979        487,684,611  

Earnings per share of Ordinary Shares:

               

Basic

   US$ (1.2     Rs. (86.3     Rs. 19.1        Rs. 17.2        Rs. 28.3        Rs. 40.6  

Diluted

   US$ (1.2     Rs. (86.3     Rs. 19.1        Rs. 17.2        Rs. 28.2        Rs. 40.6  

Earnings per share of ‘A’ Ordinary Shares:

               

Basic

   US$ (1.2     Rs. (86.3     Rs. 19.2        Rs. 17.3        Rs. 28.4        Rs. 40.7  

Diluted

   US$ (1.2     Rs. (86.3     Rs. 19.2        Rs. 17.3        Rs. 28.3        Rs. 40.7  

As described in Note 2(x) of our consolidated financial statements included in this annual report on Form 20-F, during Fiscal 2019, we applied IFRS 9 and IFRS 15. Due to the application of IFRS 9, there was a change in presentation between foreign exchange (gain)/loss (net) and interest expenses, which was retrospectively applied to prior year comparatives. IFRS 15 was adopted with a modified retrospective approach and accordingly we have not changed the prior year comparatives.

 

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As described in Note 2(o) of our audited IFRS consolidated financial statements included in this annual report on Form 20-F, during Fiscal 2018, we changed our presentation of assets written off/loss on sale of assets and others (net) in the consolidated income statement. The change in presentation was retrospectively applied to prior year comparatives. The change in the presentation does not affect net income, total comprehensive income and earnings per share in any of the periods presented.

As described in Note 2(x) of our audited IFRS consolidated financial statements included in this annual report on Form 20-F, during Fiscal 2017, we changed our presentation of foreign exchange gain/(loss) in the consolidated income statement. The change in presentation was retrospectively applied to prior year comparatives. There was no impact on net income for the years ended March 31, 2016 and 2015.

In Fiscal 2016, the Company conducted a renounceable rights offer of 150,644,759 new Ordinary Shares, including Ordinary Shares represented by ADSs, and 26,530,290 new ‘A’ Ordinary Shares of Rs.2 each to qualifying shareholders recorded in the shareholders register at the close of business on April 8, 2015, at a subscription price of Rs.450 each for new Ordinary Shares and Rs.271 each for new ‘A’ Ordinary Shares, in the ratio of six rights to subscribe to Shares for every 109 Shares held. The rights offer was fully subscribed and the shareholders received the new shares on May 13, 2015. As described in Note 39 to our audited consolidated financial statements for Fiscal 2016, the earliest period presented in the consolidated financial statement for Fiscal 2015, basic and diluted earnings per share were retrospectively adjusted for the bonus element of the rights offer attributable to the difference between the exercise price of the rights and the prevailing market price of the Shares.

Since there was a loss in Fiscal 2019, potential equity shares are not considered dilutive and hence diluted earnings per share is same as basic earnings per share.

 

     As of March 31,  
     2019      2019      2018      2017      2016      2015  
    

(in US$ millions,

except number of

shares)

                                    
     (in Rs. millions, except number of shares)  

Balance sheet data

                 

Total assets

     49,194.8        2,987,119.9        3,235,510.9        2,666,646.0        2,619,981.3        2,345,643.4  

Long term debt, net of current portion

     10,238.8        708,067.0        611,419.4        605,644.5        504,511.3        544,862.5  

Total shareholders’ equity

     8,069.9        558,067.4        913,521.0        538,842.2        768,036.7        539,351.8  

Number of equity shares outstanding

                 

-Ordinary Shares

        2,887,348,694        2,887,348,694        2,887,348,428        2,887,203,602        2,736,713,122  

-‘A’ Ordinary Shares

        508,502,371        508,502,371        508,502,291        508,476,704        481,966,945  

Exchange Rate Information

For convenience, some of the financial amounts presented in this annual report on Form 20-F have been translated from Indian rupees into U.S. dollars at the rate of Rs.69.16 to US$1.00, based on the rate in the city of Mumbai as published by the Foreign Exchange Dealers’ Association of India on March 31, 2019.

B. Capitalization and Indebtedness

Not applicable.

C. Reasons for the Offer and Use of Proceeds

Not applicable.

D. Risk Factors

This section describes the risks that we currently believe may materially affect our business, financial condition and results of operations. The factors below should be considered in connection with any forward-looking statements in this annual report on Form 20-F and the cautionary statements on page iii. Although we will make reasonable efforts to mitigate or minimize these risks, one or more of a combination of these risks could materially and adversely impact our business, revenues, sales, net assets, financial condition, results of operations, liquidity, capital resources and prospects.

 

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Risks Associated with Our Business and the Automotive Industry

The United Kingdom’s contemplated exit from the European Union may adversely impact our business, results of operations and financial condition.

In a non-binding referendum on the United Kingdom’s membership in the European Union, in June 2016, a majority of the country’s electorate voted for the United Kingdom’s withdrawal from the European Union. Pursuant to its invocation of Article 50 of the Treaty of Lisbon, the United Kingdom is currently negotiating its exit from the European Union. Substantial uncertainty remains regarding the outcome of the negotiations, the United Kingdom’s future relationship with the European Union, the legal structure applicable to companies doing business in the United Kingdom, as well as the scope and duration of a transitionary period, if any, following the expiration of the Article 50 period in December 2020. This uncertainty, along with any real or perceived impact of Brexit, could have a material adverse effect on our business, results of operations and financial condition.

Depending on the outcome of the negotiations, including if the United Kingdom exits the European Union without a formal agreement, the United Kingdom could lose its present rights or terms of access to the European Union single market and European Union customs area and to the global trade deals negotiated by the European Union on behalf of its members. New or modified trade arrangements between the United Kingdom and other countries may have a material adverse effect on our business. A decline in trade could also affect the attractiveness of the United Kingdom as a global investment center and, as a result, could have a detrimental impact on the level of investment in United Kingdom companies, including the extended value chain of Jaguar Land Rover. The uncertainty concerning the terms of Brexit could also have a negative impact on the growth of the United Kingdom economy, which may cause Jaguar Land Rover’s customers to re-evaluate when and to what extent they are willing to spend on Jaguar Land Rover’s products and services. The uncertainty surrounding Brexit could also result in greater volatility in the British pound against foreign currencies in which Jaguar Land Rover conducts business, particularly the U.S. dollar, the Euro and the Chinese Renminbi.

The Brexit vote and the perceptions as to the impact of the withdrawal of the United Kingdom have created significant uncertainty regarding the future relationship between the United Kingdom and the European Union, including with respect to the laws and regulations that will apply as the United Kingdom determines which European Union-derived laws to replace or replicate. This uncertainty may adversely affect business activity and economic conditions in the United Kingdom and the Eurozone. In particular, changes in taxes, tariffs and other fiscal policies could have a significant impact on Jaguar Land Rover; 22% of its retail sales volume in Fiscal 2019 was to customers based in the European Union (excluding the United Kingdom) and a substantial portion of its suppliers are situated there. We may be subject to risks associated with supply chains if access to the European Union market is restricted as a result of Brexit. Changes to the United Kingdom’s border and immigration policy could likewise occur as a result of Brexit, potentially affecting our business’s ability to recruit and retain employees from outside the United Kingdom. Any of the foregoing factors and other factors relating to Brexit that we cannot predict may have a material adverse effect on our business, results of operations and financial condition, including the risks of impairments.

If we are unable to effectively implement or manage our growth strategy, our operating results and financial condition could be materially and adversely affected.

As part of our growth strategy, we may open new manufacturing, research or engineering facilities, expand existing facilities, add additional product lines or expand our businesses into new geographical markets. There is a range of risks inherent in such a strategy that could adversely affect our ability to achieve these objectives, including, but not limited to: the potential disruption of our business; the uncertainty that new product lines will generate anticipated sales; the uncertainty that we may not be able to meet or anticipate consumer demand; the uncertainty that a new business will achieve anticipated operating results; the diversion of resources and management’s time; our cost reduction efforts, which may not be successful; the difficulty of managing the operations of a larger company; and the difficulty of competing for growth opportunities with companies that have greater financial resources than we have.

 

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More specifically, our international businesses face a range of risks and challenges, including, but not limited to, the following: language barriers, cultural differences, difficulties in staffing and managing overseas operations, inherent difficulties and delays in contract enforcement and the collection of receivables under the legal systems of foreign countries, the risk of non-tariff barriers, regulatory and legal requirements affecting our ability to enter new markets through joint ventures with local entities, difficulties in obtaining regulatory approvals, environmental permits and other similar types of governmental consents, difficulties in negotiating effective contracts, obtaining the necessary facility sites or marketing outlets or securing essential local financing, liquidity, trade financing or cash management facilities, export and import restrictions, multiple tax regimes (including regulations relating to transfer pricing and withholding and other taxes on remittances and other payments from subsidiaries), foreign investment restrictions, foreign exchange controls and restrictions on repatriation of funds, other restrictions on foreign trade or investment sanctions, and the burdens of complying with a wide variety of foreign laws and regulations. Furthermore, as part of our global activities, we may engage with third-party dealers and distributors, whom we do not control, but who could nevertheless take actions that could have a material adverse impact on our reputation and business; we cannot assure you that we will not be held liable for any activities undertaken by such third parties. If we are unable to manage risks related to our expansion and growth in other parts of the world and therefore fail to establish a strong presence in those higher growth markets, our business, results of operations and financial condition could be adversely affected or our investments could be lost.

Furthermore, we are subject to risks associated with growing our business through mergers, acquisitions and divestments. We believe that our acquisitions provide us opportunities to grow significantly in the global automobile markets by offering premium brands and products. Our acquisitions have provided us with access to technology and additional capabilities while also offering potential synergies. However, the scale, scope and nature of the integration required in connection with our acquisitions present significant challenges, and we may be unable to integrate the relevant subsidiaries, divisions and facilities effectively within our expected schedule. An acquisition may not meet our expectations and the realization of the anticipated benefits may be blocked, delayed or reduced as a result of numerous factors, some of which are outside our control.

For example, we acquired the Jaguar Land Rover business from the Ford Motor Company (“Ford”) in June 2008, and since then Jaguar Land Rover has become a significant part of our business, accounting for 74% of our total revenues in Fiscal 2019. As a result of the acquisition, we are responsible for, among other things, the obligations and liabilities associated with the legacy business of Jaguar Land Rover. There can be no assurance that any legacy issues at Jaguar Land Rover or any other acquisition we have undertaken in the past or will undertake in the future will not have a material adverse effect on our business, financial condition and results of operations, as well as our reputation and prospects.

We will continue to evaluate growth opportunities through suitable mergers and acquisitions in the future. Growth through mergers and acquisitions involves business risks, including unforeseen contingent risks or latent business liabilities that may only become apparent after the merger or acquisition is completed. The key success factors are seamless integration, effective management of the merged and/or acquired entity, retention of key personnel, cash flow generation from synergies in engineering and sourcing, joint sales and marketing efforts, and management of a larger business. If any of these factors fail to materialize or if we are unable to manage any of the associated risks successfully, our business, financial condition and results of operations could be materially and adversely affected.

Deterioration in global economic conditions could have a material adverse impact on our sales and results of operations.

The automotive industry could be materially affected by the general economic conditions in India and around the world. The automotive industry, in general, is cyclical, and economic slowdowns in the recent past have affected the manufacturing sector in India, including automotive and related industries. Deterioration of key economic metrics, such as the growth rate, interest rates and inflation, reduced availability of competitive financing rates for vehicles, implementation of burdensome environmental and tax policies and increase in freight rates and fuel prices could materially and adversely affect our automotive sales and results of operations.

In addition, investors’ reactions to economic developments or a loss of investor confidence in the financial systems of other countries may cause volatility in Indian financial markets and, indirectly, in the Indian economy. Any worldwide financial instability, including increased protectionist measures and withdrawal from trade pacts by countries in which we operate, could also have a negative impact on the Indian economy, including the movement of exchange rates and interest rates in India. In the event global economic recovery is slower than expected, or if there is any significant financial disruption, this could have a material adverse effect on our cost of funding, portfolio of financing loans, business, prospects, results of operations, financial condition and the trading price of the Company’s Shares and ADSs.

 

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In November 2018, the United States, Mexico and Canada signed the United States-Mexico-Canada Agreement (“USMCA”), which is intended to succeed the North American Free Trade Agreement (“NAFTA”). USMCA has been signed but not ratified by the legislature of each of the United States, Canada and Mexico. It remains unclear what the U.S., Canadian, or Mexican governments will or will not do with respect to NAFTA, USMCA or other international trade agreements and policies. This uncertainty and potential governmental action related to tariffs or international trade agreements has the potential to adversely impact demand for our products, our costs, customers, suppliers and/or the North American economy or world economy or certain sectors thereof and, thus, our business.

Our Jaguar Land Rover business has significant operations in the United Kingdom, North America, continental Europe and China, as well as sales operations in markets across the globe. Conditions in automotive markets were more challenging in Fiscal 2019, notably in China where industry volumes were down 8.3% year-on-year amid increasing trade tensions with the United States. Industry volumes were also lower in the United Kingdom (-3.7%), including a 25.9% decline in diesel vehicle sales (42% of JLR vehicle sales are diesel), down slightly in the United States (-0.5%), and lower in Europe (-3.8%). Conditions remained challenging in other markets, with only modest growth in industry volumes. Jaguar Land Rover’s growth plans may not materialize as expected, which could have a significant adverse impact on our financial performance. If automotive demand softens because of lower or negative economic growth in key markets or due to other factors, Jaguar Land Rover’s operations and financial condition could be materially and adversely affected as a result. In addition, the current U.S. presidential administration could seek to introduce changes to laws and policies governing international trade and impose additional tariffs and duties on foreign vehicle imports, which could have a material adverse effect on Jaguar Land Rover’s sales in the United States.

Deterioration in key economic factors, such as those mentioned above, in countries where Jaguar Land Rover has sales operations may result in a decrease in demand for Jaguar Land Rover automobiles. A decrease in demand could, in turn, cause automobile prices and manufacturing capacity utilization rates to fall. Such circumstances have in the past materially affected, and could in the future materially affect, our business, results of operations and financial condition.

A significant reliance on key markets by both TML and Jaguar Land Rover increases the risk of a negative impact from reduced customer demand in those countries.

We rely on certain key markets, including the United Kingdom, China, North America, India and continental Europe, from which we derive the substantial majority of our revenues. A decline in demand for our vehicles in these major markets may, in the future, significantly impair our business, financial position and results of operations. For example, the recent adverse public perception towards diesel powered vehicles, resulting from emissions scandals and tax increases on diesel vehicles, has precipitated a sharp fall in diesel sales, primarily in the United Kingdom and Europe, and created uncertainty for customers that could further impact our sales of diesel vehicles in the future. Additionally, in China, the economy is experiencing a tempering of industry growth and increased pricing pressures due to macroeconomic volatility, regulatory and policy changes, softening consumer demand and increasing competition. Softening of the Chinese economy would likely impact our growth opportunities in China, an important market for us. In addition, our strategy, which includes new product launches and expansion into growing markets, may not be sufficient to mitigate a decrease in demand for our products in mature markets in the future, which could have a significant adverse impact on our financial performance.

Changes in our credit rating could adversely affect the value of our debt securities, finance costs and our ability to obtain future financing.

Any credit ratings assigned to us or our debt securities may not reflect the potential impact of all risks related to structural, market, additional risk factors discussed and other factors that may affect the value of our debt securities. Credit rating agencies continually review the ratings they have assigned and their ratings may be subject to revision, suspension or withdrawal by the rating agency at any time. A downgrade in our credit rating may negatively affect our ability to obtain future financing to fund our operations and capital needs, which may affect our liquidity. It may also increase our financing costs by increasing the interest rates of our outstanding debt or the interest rates at which we are able to refinance existing debt or incur additional debt. A credit rating is not a recommendation to buy, sell or hold securities.

 

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We are exposed to liquidity risks.

Our main sources of liquidity are cash generated from operations, existing notes, external debt in the form of factoring discount facilities and other revolving credit facilities. However, adverse changes in the global economic and financial environment may result in lower consumer demand for our vehicles, and prevailing conditions in credit markets may adversely affect both consumer demand and the cost and availability of finance for our business and operations. If the global economy goes back into a recession and consumer demand for our vehicles drops, as a result of higher oil prices, excessive public debt or for any other reasons, and the supply of external financing becomes limited, we may face significant liquidity risks. See Item 5.B “Operating and Financial Review and Prospects—Liquidity and Capital Resources—Principal Sources of Funding Liquidity—Loan Covenants.”

We are also subject to various types of restrictions or impediments on the ability of our companies in certain countries to transfer cash across our companies through loans or dividends. These restrictions or impediments are caused by exchange controls, withholding taxes on dividends and distributions and other similar restrictions in the markets in which we operate. We may face significant liquidity risks due to squeezed credit lines for non-banking financial companies (“NBFCs”) following the Infrastructure Leasing & Financial Services Limited crisis in 2018 and its impact on the Indian lending sector.

The electric vehicle market may not evolve as anticipated.

Sales of electric vehicles are hard to predict because consumer demand may fail to shift in favor of electric vehicles, and this market segment may remain small relative to the overall market for years to come. Consumers may remain or become reluctant to adopt electric vehicles due to the lack of fully developed charging infrastructure, long charging times or increased costs of purchase and fueling. Jaguar Land Rover launched the all-electric Jaguar I-PACE in Fiscal 2019, and retail sales of this model totaled 11,336 vehicles in the twelve months up to March 31, 2019. If the value proposition of electric vehicles fails to fully materialize, this could have a material adverse effect on our financial condition or results of operations, including compliance with the Corporate Average Fuel Economy (“CAFE”) standards.

Impairment of tangible and intangible assets may have a material adverse effect on our results of operations.

Designing, manufacturing and selling vehicles is capital intensive and requires substantial investments in tangible and intangible assets such as research and development, product design and engineering technology. We review the value of our tangible and intangible assets to assess on an annual basis or trigger events basis whether the carrying amount is less than the recoverable amount for the asset concerned based on underlying cash-generating units (“CGU”) (such as Commercial Vehicles, Passenger Vehicles, Jaguar Land Rover and Vehicle Financing), either based on Value in Use (“VIU”) or fair value. We recorded a GBP3.1 billion (Rs.278,379 million) impairment charge during Fiscal 2019 due to adverse market conditions, particularly in China, rising interest rates and the failure to meet internal business plans for our Jaguar Land Rover business. While we have put in place comprehensive plans to turn the business around, we may have to take further impairment losses in the future if the carrying amount of tangible and intangible assets exceeds the recoverable amount, which could have a material adverse effect on our financial condition and the results of operations.

 

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Deterioration in the performance of any of our subsidiaries, joint ventures or affiliates could materially and adversely affect our results of operations.

We have made and may continue to make capital commitments to our subsidiaries, joint ventures and affiliates. If the business or operations of any of these subsidiaries, joint ventures and affiliates deteriorate, the value of our investments may decline substantially. We are also subject to risks associated with joint ventures and affiliates wherein we retain only partial or joint control. Our partners may be unable, or unwilling, to fulfill their obligations, or the strategies of our joint ventures or affiliates may not be implemented successfully, any of which may significantly reduce the value of our investments or cause our relationship with the co-owner to deteriorate, which could, have a material adverse effect on our reputation, business, financial position or results of operations.

We have pursued and may continue to pursue significant investments in certain strategic development projects with third parties. In particular, we have entered into a joint venture with Chery Automobile Company Ltd. (“Chery”) in China to develop, manufacture and sell certain Jaguar Land Rover vehicles and at least one own-branded vehicle in China (the “China Joint Venture”). Additionally, in March 2018, Jaguar Land Rover announced its strategic partnership with Waymo LLC (“Waymo”) to develop the world’s first premium self-driving electric vehicle. Joint ventures and strategic partnership projects, like our joint venture in China and partnership with Waymo, may be developed pursuant to agreements over which we only have partial or joint control. Investments in projects over which we have partial or joint control are subject to the risk that the other shareholders of the joint venture, who may have different business or investment strategies than we do or with whom we may have a disagreement or dispute, may have the ability to block business, financial or management decisions, such as the decision to distribute dividends or appoint members of management, which may be crucial to the success of the project or our investment in the project, or otherwise implement initiatives that may be contrary to our interests. Moreover, our partners may be unable, or unwilling, to fulfill their obligations under the relevant joint venture agreements and shareholder agreements or may experience financial or other difficulties that may adversely impact our investment in a particular joint venture or strategic partnership projects.

Operating a business as a joint venture often requires additional organizational formalities, as well as time consuming procedures for sharing information and making decisions. In joint ventures, we are required to foster our relationships with our co-owners as well as promote the overall success of the joint venture. If there is a significant change in these relationships (for example, if a co-owner changes or relationships deteriorate), our success in the joint venture may be materially adversely affected.

Intensifying competition could materially and adversely affect our sales, financial condition and results of operations.

The global automotive industry is highly competitive, and competition is likely to further intensify, including from new industry entrants. Competition is especially likely to increase in the premium automotive categories as each market participant intensifies its efforts to retain its position in established markets while also developing a presence in other key markets. Factors affecting competition include product quality and features, innovation and the development of new products, cost control, pricing, reliability, safety, fuel economy, environmental impact and perceptions thereof, customer service and financing terms. Some of our competitors based in the European Union may gain a competitive advantage that would enable them to benefit from their access to the European Union single market post-Brexit. There is no assurance that we will be able to compete successfully in the global automotive industry in the future.

We also face strong competition in the Indian market from domestic and foreign automobile manufacturers. Improving infrastructure and growth prospects in India, compared to those of other mature markets, have attracted a number of international companies to India, either through joint ventures with local partners or through independently owned operations in India. International competitors bring with them decades of international experience, global scale, advanced technology and significant financial resources. Consequently, domestic competition is likely to further intensify in the future. There is no assurance that we will be able to implement our future strategies in a way that will mitigate the effects of increased competition in the Indian automotive industry.

Designing, manufacturing and selling vehicles is capital-intensive and requires substantial investments in manufacturing, machinery, research and development, product design, engineering, technology and marketing in order to meet both consumer preferences and regulatory requirements. If our competitors consolidate or enter into other strategic partnerships or joint ventures, they may be able to take better advantage of economies of scale. If competitors are able to benefit from the cost savings offered by consolidation or strategic partnerships, it could adversely affect our competitiveness. Competitors could use consolidation or strategic partnerships as a means of enhancing their competitiveness (including through the acquisition of technology), which could also materially adversely affect our business. Further, our growth strategy relies on the expansion of our operations in less mature markets abroad, where we may face significant competition and higher than expected costs to enter and establish ourselves.

 

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We are subject to risks associated with product liability, warranties and recalls.

We are subject to risks and costs associated with product liability, warranties and recalls in connection with performance, compliance or safety related issues affecting our vehicles. From time to time, we may be subject to investigations by governmental authorities relating to safety and other compliance issues with our vehicles. For example, there are ongoing investigations with governmental agencies in China, South Korea and the United Kingdom relating to the quality of TDV6 diesel engines installed in some of our vehicles that are already in service. In particular, as our vehicles become more technologically advanced, we are subject to risks related to their software and operation, including our Advanced Driver Assistance Systems (“ADAS”) automation. We expend considerable resources in connection with product recalls and these resources typically include the cost of the part being replaced and the labor required to remove and replace the defective part. In addition, product recalls can cause our consumers to question the safety or reliability of our vehicles, which may harm our reputation. Any harm to our reputation may result in a substantial loss of customers. For example, in May 2016, an industry wide passenger airbag safety recall was announced in the United States by the National Highway Traffic System Administration (the “NHTSA”), with respect to frontal airbags that use ammonium nitrate propellant without any desiccant from Takata Corporation (“Takata”), a supplier of airbags. Certain airbags supplied by Takata were installed in some of our vehicles. We considered the cost associated with the recall to be an adjusting post-balance sheet event, and we recognized a provision of GBP67.4 million for the estimated cost of repairs in our income statement for Fiscal 2016. The provision held at the end of Fiscal 2019 with respect to the recall is GBP58 million and we intend to use it as the mandated repairs are made over the next one to two years. Additionally, in December 2016, the NHTSA announced that it was conducting an investigation into reports of rollaways of parked vehicles in certain of our models. Further, in July 2018, the NHTSA announced that it is seeking to conduct an investigation into reports of doors inadvertently opening while the vehicle was in motion in certain of our vehicles, following a recall remedy to rectify this risk.

Furthermore, we may also be subject to class actions or other large-scale lawsuits pertaining to product liability or other matters in various jurisdictions in which we have a significant presence. The use of shared components in vehicle production increases this risk because individual components are deployed in a number of different models across our brands. Any costs incurred or lost sales caused by product liability, warranties and recalls could materially adversely affect our business and reputation.

Our future success depends on our ability to satisfy changing customer demands by offering innovative products in a timely manner and maintaining product competitiveness and quality.

Customer preferences in certain more mature markets have trended towards smaller and more fuel-efficient and environmentally-friendly vehicles. Climate change concerns, increases in fuel prices, certain government regulations (such as CO2 emissions limits and higher taxes on SUVs) and the promotion of new technologies have encouraged customers to look beyond standard purchasing factors (such as price, design, performance, brand image and features). As a result, customers may look to the differentiation of the technology used in a vehicle or by a manufacturer or provider of this technology. Such consumer preferences could materially affect our ability to sell premium Passenger Cars and large or medium-sized all-terrain vehicles at current or target volume levels, and could have a material adverse effect on our general business activity, net assets, financial position and results of operations.

Our operations may be significantly impacted if we fail to develop, or experience delays in developing, fuel-efficient vehicles that reflect changing customer preferences and meet the specific requirements of government regulations. Our competitors may gain significant advantages if they are able to offer products satisfying customer needs earlier than we are able to, which could adversely impact our sales, results of operations and financial condition. Delays or cost overruns in implementing new product launches, expansion plans or capacity enhancements could also materially and adversely impact our financial condition, results of operations and cash flows.

 

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In light of the public discourse on climate change and volatile fuel prices, we face more stringent government regulations, including the imposition of speed limits and higher taxes on SUVs or premium automobiles. We endeavor to take account of these factors, and we are focused on researching, developing and producing new drive technologies, such as hybrid engines and electric cars. We are also investing in development programs aimed at reducing fuel consumption through the use of lightweight materials, reducing parasitic losses through the driveline and improving aerodynamics. Coupled with consumer preferences, a failure to achieve our planned objectives or delays in developing fuel-efficient products could materially affect our ability to sell premium Passenger Cars and large or medium-sized all-terrain vehicles at current or targeted volumes and could have a material adverse effect on our general business activity, net assets, financial position and results of operations. In addition, deterioration in the quality of our vehicles could force us to incur substantial costs and damage to our reputation. There is a risk that competitors or joint ventures set up by competitors will develop better solutions and will be able to manufacture the resulting products more rapidly, in larger quantities, with a higher quality and/or at a lower cost. It is possible that we could then be compelled to make new investments in researching and developing other technologies to maintain our existing market share or win back market share lost to competitors. Finally, our manufacturing operations and sales may be subject to potential physical impacts of climate change, including changes in weather patterns and an increased potential for extreme weather events, which could affect the manufacturing and distribution of our products, as well as the cost and availability of raw materials and components.

In contrast to other mature markets, consumer preferences in the United States have shifted towards increased demand for pickup trucks and larger SUVs. A shift in consumer demand away from these vehicles within the United States towards compact and mid-size Passenger Cars, whether in response to higher fuel prices or other factors, could adversely affect our profitability. Conversely, if the trend in U.S. consumer preferences for SUVs holds, we could face increased competition from other carmakers as they adapt to the market shift and introduce their own SUV models, which could materially and adversely impact our business, financial position or results of operations.

Private and commercial users of transportation increasingly use modes of transportation other than the automobile, especially in connection with increasing urbanization. The reasons for this include the rising costs related to automotive transport of people and goods, increasing traffic density in major cities and environmental awareness. In addition, the increased use of car sharing services (e.g., Zipcar and DriveNow) and other innovative mobility initiatives facilitate access to alternative modes of transport, thereby reducing dependency on private automobiles. Furthermore, non-traditional market participants and/or unexpected disruptive innovations may disrupt the established business model of the industry by introducing new technologies, distribution models and methods of transportation.

A shift in consumer preferences away from private automobiles would have a material adverse effect on our general business activity and on our sales, prospects, financial condition and results of operations.

To stimulate demand, competitors in the automotive industry have offered customers and dealers price reductions on vehicles and services, which has led to increased price pressures and sharpened competition within the industry. Since we are a provider of numerous high-volume models, our profitability and cash flows are significantly affected by the risk of rising competitive price pressures. Special sales incentives and increased price pressures in the new car business also influence price levels in the used car market, with a negative effect on vehicle resale values. This could have a negative impact on the profitability of the used car business in our dealer organization.

There is no assurance that our new models will meet our sales expectations, in which case we may be unable to realize the intended economic benefits of our investments, which would materially affect our business, results of operations and financial condition. In addition, there is a risk that our quality standards can be maintained only by incurring substantial costs for monitoring and quality assurance. For our customers, one of the determining factors in purchasing our vehicles is the high quality of our products. A decrease in the quality of our vehicles (or public perception of such a decrease) could damage our image and reputation as a premium automobile manufacturer and materially affect our business, results of operations and financial condition.

In addition, product development cycles can be lengthy, and there is no assurance that new designs will lead to revenues from vehicle sales, or that we will be able to accurately forecast demand for our vehicles, potentially leading to inefficient use of our production capacity. Additionally, our high proportion of fixed costs, due to our significant investment in property, plants and equipment, further exacerbates the risks associated with incorrectly assessing demand for our vehicles.

 

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We are exposed to the risks of new drive and other technologies being developed and the resulting effects on the automobile market.

Over the past few years, the global market for automobiles, particularly in established markets, has been characterized by increasing demand for more environmentally-friendly vehicles and technologies. This is related, in particular, to the public debate on global warming and climate change. In response to climate change and the laws and regulations that have been and are likely to be adopted to address it, we are focusing on researching, developing and producing new drive technologies, such as hybrid engines and electric cars. Jaguar Land Rover is also investing in development programs to reduce fuel consumption through the use of lightweight materials, reducing parasitic losses through the driveline and improvements in aerodynamics (e.g., through our premium transverse architecture). Recently, several jurisdictions, such as Norway, Germany, the United Kingdom, France, the Netherlands, India and China, have announced their intention to substantially reduce or eliminate the sale of conventionally fueled vehicles in their markets in the coming decades.

The emissions levels of diesel technologies have also become the focus of legislators in the United States and European Union. This has led various carmakers to announce programs to retrofit diesel vehicles with software that will allow them to reduce emissions which may require us to undertake increased research and development spending. There is a risk that these research and development activities, including retrofit software upgrades, will not achieve their planned objectives or that competitors or joint ventures set up by competitors will develop better solutions and will be able to manufacture the resulting products more rapidly, in larger quantities, with a higher quality and/or at a lower cost. This could lead to increased demand for these competitors’ product and result in a loss of market share for us. There is also a risk that the technologies developed through research and development including autonomous, connected and electrification technologies, or money invested in mobility solutions to overcome and address future travel and transport challenges, will, to a considerable extent, could be unsuccessful in the market for reasons inherent to our products or because competitors have developed better or less expensive products. It is possible that we could then be compelled to make new investments in researching and developing other technologies to maintain its existing market share or to win back the market share lost to competitors.

In addition, climate change concerns and the promotion of new technologies encourage customers to look beyond standard factors (such as price, design, performance, brand image, comfort or features) to differentiation of the technology used in the vehicle or the manufacturer or provider of this technology. This could lead to shifts in demand and the value-added parameters in the automotive industry at the expense of our products.

Underperformance of our distribution channels may adversely affect our sales and results of operations.

Our products are sold and serviced through a network of authorized dealers and service centers across India and through a network of distributors and local dealers in international markets. We monitor the performance of our dealers and distributors and provide them with support to enable them to perform to our expectations. There can be no assurance, however, that our expectations will be met. Any underperformance by or a deterioration in the financial condition of our dealers or distributors could materially and adversely affect our sales and results of operations.

If dealers or importers encounter financial difficulties and our products and services cannot be sold or can be sold only in limited numbers, the sales of such dealers and importers may be adversely affected. Additionally, if we cannot replace the affected dealers or importers with other franchises, the financial difficulties experienced by such dealers or importers could have an indirect effect on our vehicle deliveries.

Consequently, we could be compelled to provide additional support for dealers and importers and, under certain circumstances, may even take over their obligations to customers, which would adversely affect our financial position and results of operations in the short term.

Disruptions to our supply chains and shortages of essential raw materials may adversely affect our production and results of operations.

We rely on third parties for sourcing raw materials, parts and components used in the manufacture of our products. At the local level, we rely on smaller enterprises where the risk of insolvency is greater. Furthermore, for some parts and components, we are dependent on a single source. Our ability to procure supplies in a cost-effective and timely manner or at all is subject to various factors, some of which are not within our control. For instance, the outcome of the Brexit negotiations could lead to reduced access to the European Union single market and to the global trade deals negotiated by the European Union on behalf of its member states, which could affect imports of raw materials, parts and components and disrupt Jaguar Land Rover supplies. Furthermore, there is the risk that manufacturing capacity does not meet, or exceeds, sales demand thereby compromising business performance and without any near term remedy given the time frames and investments required for any changes to the supply chain. While we manage our supply chain as part of our supplier management process, any significant problems or shortages of essential raw materials in the future could adversely affect our results of operations.

 

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Adverse economic conditions and falling vehicle sales have had a significant financial impact on our suppliers in the past. Deterioration in automobile demand and lack of access to sufficient financial arrangements for our supply chain could impair the timely availability of components to our business. In addition, if one or more of the other global automotive manufacturers were to become insolvent, this would have an adverse impact on the supply chains and may further adversely affect our results of operations. We are also exposed to supply chain risks relating to lithium ion cells, which are critical for our electric vehicle production. Any disruption in the supply of battery cells from such suppliers could disrupt production of our vehicles. The severity of this risk is likely to increase as we and other manufacturers expand the production of electric vehicles and the demand for such vehicles increases.

We have also entered into supply agreements with Ford and certain other third parties for critical components and remain reliant upon Ford and Ford’s joint venture with the PSA Group (the “Ford-PSA Joint Venture”) for a portion of our engines. However, following the launch of the Engine Manufacturing Centre (“EMC”) in Wolverhampton, and the subsequent China Joint Venture, we now also manufacture our own “in house” engines. We may not be able to manufacture certain types of engines or find a suitable replacement supplier in a timely manner in the event of any disruption in the supply of engines, or parts of engines, and other hardware or services provided to us by Ford or the Ford-PSA Joint Venture and such disruption could have a material adverse impact on our operations, business and/or financial condition.

A change in requirements under long-term supply arrangements committing Jaguar Land Rover to purchase minimum or fixed quantities of certain parts, or to pay a minimum amount to the seller, could have a material adverse impact on our financial condition or results of operations. We have entered into a number of long-term supply contracts that require Jaguar Land Rover to purchase a fixed quantity of parts to be used in the production of Jaguar Land Rover vehicles (e.g., “take-or-pay” contracts). If the need for any of these parts were to lessen, Jaguar Land Rover could still be required to purchase a specified quantity of the part or pay a minimum amount to the seller pursuant to the take-or-pay contract, which could have a substantial adverse effect on our financial condition or results of operations.

We are more vulnerable to reduced demand for premium performance cars and all-terrain vehicles than automobile manufacturers with a more diversified product range.

Jaguar Land Rover operates in the premium performance car and all-terrain vehicle segments, which are very specific segments of the premium Passenger Car market, and it has a more limited range of models than some of its competitors. Accordingly, its financial performance is linked to market conditions and consumer demand in those market segments. Some other premium performance vehicle manufacturers operate in a relatively broader spectrum of market segments, which makes them comparatively less vulnerable to reduced demand for any specific segment. Any downturn or reduction in the demand for premium Passenger Cars and all-terrain vehicles, or any reduced demand for Jaguar Land Rover’s most popular models in the geographic markets in which it operates could have a substantial adverse effect on its performance and earnings.

Increases in input prices may have a material adverse effect on our results of operations.

In Fiscal 2019 and Fiscal 2018, the consumption of raw materials, components aggregates and purchase of products for sale (including changes in inventory) constituted 65.5% and 64.4%, respectively, of our revenues. Prices of commodity items used in manufacturing automobiles, including steel, aluminum, copper, zinc, rubber, platinum, palladium and rhodium, have become increasingly volatile in recent years. Furthermore, prices of commodity items such as steel, non-ferrous metals, precious metals, rubber and petroleum products may rise significantly. Further price movements depend on the evolving economic scenarios across the globe. Most of these inputs are priced in U.S. dollars on international markets. While we continue to pursue cost reduction initiatives, an increase in price of input materials could severely impact our profitability to the extent such increase cannot be absorbed by the market through price increases and/or could also have a negative impact on demand. In addition, because of intense price competition and fixed costs base, we may not be able to adequately address changes in commodity prices even if they are foreseeable.

In addition, we are exposed to the risk of contraction in the supply, and a corresponding increase in the price of, rare and frequently highly sought after raw materials, especially those used in vehicle electronics such as rare earth metals, which are predominantly produced in China. Rare earth metal prices and supply remain uncertain. China has, in the past, limited the export of rare earths from time to time. If we are unable to find substitutes for such raw materials or pass price increases on to customers by raising prices, or to safeguard the supply of scarce raw materials, our vehicle production, business and results from operations could be affected.

 

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We manage these risks through the use of fixed supply contracts with tenor up to 12 months and the use of financial derivatives pursuant to a defined hedging policy. We enter into a variety of foreign currency, interest rates and commodity forward contracts and options to manage our exposure to fluctuations in foreign exchange rates, interest rates and commodity price risks. These financial exposures are managed in accordance with our risk management policies and procedures. We use foreign currency forward and option contracts to hedge risks associated with foreign currency fluctuations relating to highly probable forecast transactions. We also enter into interest rate swaps and interest rate currency swap agreements, mainly to manage exposure on our fixed rate or variable rate debt. We further use interest rate derivatives or currency swaps to hedge exposure to exchange rate fluctuations on principal and interest payments for borrowings denominated in foreign currencies. Specific transactional risks include risks like liquidity and pricing risks, interest rate and exchange rate fluctuation risks, volatility risks, counterparty risks, settlement risks and gearing risks. However, the hedging transactions may not adequately protect us against these risks. In addition, if markets move adversely, we may incur financial losses on such hedging transactions, and the financial condition and results of operations may be adversely impacted.

Any inability to implement our growth strategy by entering new markets may adversely affect our results of operations.

Our growth strategy relies on the expansion of our operations in emerging markets such as the Association of Southeast Asian Nations (“ASEAN”) region, the South Asian Association for Regional Cooperation (“SAARC”) region, Latin American countries, north and west Africa, as well as other parts of the world that feature higher growth potential than many of the more mature automotive markets in developed countries. The costs associated with entering and establishing ourselves in new markets, and expanding such operations may, however, be higher than expected, and we may face significant competition in those regions. In addition, our international business faces a range of risks and challenges, including language barriers, cultural differences, difficulties in staffing and managing overseas operations, inherent difficulties and delays in contract enforcement and the collection of receivables under the legal systems of foreign countries, the risk of non-tariff barriers, regulatory and legal requirements affecting our ability to enter new markets through joint ventures with local entities, difficulties in obtaining regulatory approvals, environmental permits and other similar types of governmental consents, difficulties in negotiating effective contracts, obtaining the necessary facility sites or marketing outlets or securing essential local financing, liquidity, trade financing or cash management facilities, export and import restrictions, multiple tax regimes (including regulations relating to transfer pricing and withholding and other taxes on remittances and other payments from subsidiaries), foreign investment restrictions (including restrictions on incentives offered by foreign governments for investment in their jurisdictions), foreign exchange controls and restrictions on repatriation of funds, other restrictions on foreign trade or investment sanctions, and the burdens of complying with a wide variety of foreign laws and regulations. If we are unable to manage risks related to our expansion and growth in other parts of the world and therefore fail to establish a strong presence in those higher growth markets, our business, results of operations and financial condition could be adversely affected or our investments could be lost.

Potential changes to our business through acquisitions and divestments may have a material adverse effect on our future results and financial condition.

We regularly examine a range of corporate opportunities, including acquisitions and divestments, with a view to determining whether those opportunities will enhance our strategic position and financial performance. There can be no assurance that any acquisition or divestment would have the anticipated positive results, including results relating to the total cost of integration or separation, the time required to complete the integration or separation, the amount of long-term cost savings, the overall performance of the combined or remaining entity, or an improved price for the Company’s securities.

Additionally, there are risks relating to the completion of any particular transaction occurring, including counterparty and settlement risk, or the non-satisfaction of any completion conditions (for example, relevant regulatory or third party approvals). Our operating performance, risk profile and capital structure may be affected by these corporate opportunities and there is a risk that our credit ratings may be placed on credit watch or downgraded if these opportunities are pursued.

Integration or separation of an acquired or divested business can be complex and costly, sometimes including combining or separating relevant accounting and data processing systems, and management controls, as well as managing relevant relationships with employees, customers, regulators, counterparties, suppliers and other business partners. Integration or separation efforts could create inconsistencies in standards, controls, procedures and policies, as well as diverting management attention and resources. This may adversely affect our ability to conduct our business successfully and impact our operations or results. Additionally, there can be no assurance that employees, customers, counterparties, suppliers and other business partners of newly acquired or retained) businesses will remain post-acquisition or post-divestment, and the loss of employees, customers, counterparties, suppliers and other business partners may adversely affect our operations or results.

 

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Exchange rate and interest rate fluctuations could materially and adversely affect our financial condition and results of operations.

Our operations are subject to risks arising from fluctuations in exchange rates with reference to countries in which we operate. We import capital equipment, raw materials and components from, manufacture vehicles in, and sell vehicles into, various countries, and therefore, our revenues and costs have significant exposure to the relative movements of the GBP, the U.S. dollar, the Euro, the Russian Ruble, the Chinese Renminbi, the Singapore dollar, the Japanese yen, the Australian dollar, the South African rand, the Thai baht, the Korean won and the Indian rupee. Brexit could also have a negative impact on the growth of the United Kingdom economy and increase volatility of the GBP. A significant proportion of our input materials and components and capital equipment are sourced overseas, in particular from Europe, and therefore we have costs in, and significant exposure to the movement of, the euro (specifically a strengthening of the Euro) and certain other currencies relative to the GBP (Jaguar Land Rover’s reporting currency), which may result in decreased profits to the extent these are not fully mitigated by non GBP sales. The majority of our product development and manufacturing operations, as well as our global headquarters, are based in the United Kingdom, but we also have national sales companies which operate in the major markets in which we sell vehicles. As a result, we have exposure to movements of the U.S. dollar, the Euro, Chinese Renminbi, the Russian Ruble and other currencies relative to the GBP and foreign exchange volatility may affect our results of operations, profitability and financial position.

As published by Bloomberg L.P., the exchange rate as of March 31, 2018 expressed in Indian rupees per GBP1.00, was Rs.91.60 compared to Rs.90.51 as of March 31, 2019 and Rs.87.57 as of June 30, 2019 and the rate expressed in US$ per GBP1.00, was US$1.40 as of March 31, 2018 compared to US$1.30 as of March 31, 2019 and US$1.27 as of June 30, 2019.

Moreover, we have outstanding foreign currency-denominated debt and are sensitive to fluctuations in foreign currency exchange rates. We have experienced and could in the future experience foreign exchange losses on obligations denominated in foreign currencies in respect of our borrowings and foreign currency assets and liabilities due to currency fluctuations.

We are exposed to changes in interest rates, as we have both interest-bearing assets (including cash balances) and interest-bearing liabilities, which bear interest at variable rates. Although we engage in managing our interest and foreign exchange exposure through use of financial hedging instruments, such as forward contracts, swap agreements and option contracts, higher interest rates and a weakening of the Indian rupee against major foreign currencies could significantly increase our cost of borrowing, which could have a material adverse effect on our financial condition, results of operations and liquidity. Please see note 38(d)(i) – (b) to our consolidated financial statements included elsewhere in this annual report on Form 20-F for further detail on our exposure to fluctuations in interest rates.

 

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Appropriate hedging lines for the type of risk exposures we are subject to may not be available at a reasonable cost, particularly during volatile rate movements, or at all. Moreover, there are risks associated with the use of such hedging instruments. While hedging instruments may mitigate our exposure to fluctuations in currency exchange rates to a certain extent, we potentially forego benefits that might result from market fluctuations in currency exposures. These hedging transactions can also result in substantial losses. Such losses could occur under various circumstances, including, without limitation, any circumstances in which a counterparty does not perform its obligations under the applicable hedging arrangement (despite having International Swaps and Derivatives Association agreements in place with each of our hedging counterparties), there are currency fluctuations, the arrangement is imperfect or ineffective, or our internal hedging policies and procedures are not followed or do not work as planned. In addition, because our potential obligations under the financial hedging instruments are marked to market, we may experience quarterly and annual volatility in our operating results and cash flows attributable to our financial hedging activities.

A decline in retail customers’ purchasing power or consumer confidence or in corporate customers’ financial condition and willingness to invest could materially and adversely affect our business.

Demand for vehicles for personal use generally depends on consumers’ net purchasing power, their confidence in future economic developments and changes in fashion and trends, while demand for vehicles for commercial use by corporate customers (including fleet customers) primarily depends on the customers’ financial condition, their willingness to invest (motivated by expected future business prospects) and available financing. A decrease in potential customers’ disposable income or their financial flexibility or an increase in the cost of financing will generally have a negative impact on demand for our products. A weak macroeconomic environment, combined with restrictive lending and a low level of consumer sentiment generally, may reduce consumers’ net purchasing power and lead existing and potential customers to refrain from purchasing new vehicles, to defer a purchase further or to purchase a smaller model with less equipment at a lower price. A deteriorating macroeconomic environment may disproportionately reduce demand for luxury vehicles. It also could lead to reluctance by corporate customers to invest in vehicles for commercial use and/or to lease vehicles, resulting in a postponement of fleet renewal contracts.

To stimulate demand, the automotive industry has offered customers and dealers price reductions on vehicles and services, which has led to increased price pressures and sharpened competition within the industry. We are a provider of numerous high-volume models, so our profitability and cash flows are significantly affected by the risk of rising competitive and price pressures.

Special sales incentives and increased price pressures in the new car business also influence price levels in the used car market, with a negative effect on vehicle resale values. This may have a negative impact on the profitability of the used car business in our dealer organization.

 

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We may be adversely affected by labor unrest.

All of our permanent employees in India, other than officers and managers, and most of our permanent employees in our automotive business in South Korea and the United Kingdom, including certain officers and managers, are members of labor unions and are covered by our wage agreements, where applicable, with those labor unions.

In January 2019, Jaguar Land Rover announced reduction of the size of its global workforce by around 4,500 people to deliver cost reductions and cash flow improvements, as well as long-term strategic operating efficiencies. In general, we consider our labor relations with all of our employees to be good. However, in the future we may be subject to labor unrest, which may delay or disrupt our operations in the affected regions, including impacting the acquisition of raw materials and parts, the manufacture, sales and distribution of products and the provision of services. If work stoppages or lock-outs at our facilities or at the facilities of our major vendors occur or continue for a long period of time, our business, financial condition and results of operations may be materially and adversely affected. During Fiscal 2018, we faced two standalone incidents of labor unrest in India, one at our Jamshedpur plant and the other at our Sanand plant. Although these particular issues were amicably resolved, there is no assurance that additional labor issues could not occur, or that any future labor issues will be amicably resolved.

In addition, we engage in bi-annual negotiations in relation to wage agreements, covering approximately 20,000 of our unionized employees, the most recent of which resulted in a two year wage agreement concluded in November 2016. The current wage agreement has expired in October 2018 and the same is still under negotiation. There is a risk, however, that future negotiations could escalate into industrial action ranging from “work to rule” to a strike before a settlement is ultimately reached.

We are exposed to operational risks, including cybersecurity risks, in connection with our use of information technology.

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. This includes, among other things, losses that are caused by a lack of controls within internal procedures, violation of internal policies by employees, disruption or malfunction of information technology (“IT”) systems, computer networks and telecommunications systems, mechanical or equipment failures, human error, natural disasters, security breaches or malicious acts by third parties (including, for example, hackers), whether affecting our systems or affecting those of third party providers. We are generally exposed to risks in the field of information technology, since unauthorized access to or misuse of data processed on our IT systems, human errors associated therewith or technological failures of any kind could disrupt our operations, including the manufacturing, design and engineering processes. In particular, as vehicles become more technologically advanced and connected to the Internet, our vehicles may become more susceptible to unauthorized access to their systems. As a business with complex manufacturing, research, procurement, sales and marketing and financing operations, we are exposed to a variety of operational risks and, if the protection measures put in place prove insufficient (especially given the harsher sanctions imposed under the new General Data Protection Regulation (Regulation (EU) 2016/679) (the “GDPR”)), our results of operations and financial condition can be materially adversely affected. In addition, we would likely experience negative press and reputational impacts. Cybersecurity incidents could lead to loss of productivity, negative impact on our reputation, and, in extreme cases, financial loss due to business disruptions.

Our business and prospects could suffer if we lose one or more key personnel or if we are unable to attract and retain our employees.

Our business and future growth depend largely on the skills of our workforce, including executives and officers, and automotive designers and engineers. The loss of the services of one or more of our personnel could impair our ability to implement our business strategy. In view of intense competition, any inability to continue to attract, retain and motivate our workforce could materially and adversely affect our business, financial condition, results of operations and prospects.

 

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We may be adversely impacted by political instability, wars, terrorism, multinational conflicts, countries resorting to protectionism, natural disasters, fuel shortages/prices, epidemics and labor strikes.

Our products are exported to a number of geographical markets, and we plan to further expand our international operations in the future. Consequently, we are subject to various risks associated with conducting our business both within and outside our domestic market and our operations in markets abroad may be subject to political instability, wars, terrorism, regional or multinational conflicts, natural disasters and extreme weather, fuel shortages, epidemics and labor strikes. Any disruption of the operations of our manufacturing, design, engineering, sales, corporate and other facilities could materially and adversely affect our business, financial condition and results of operations. For example, the current U.S. presidential administration could seek to introduce changes to laws and policies governing international trade and impose additional tariffs and duties on foreign vehicle imports, which could have a material adverse effect on our sales in the United States. In addition, conducting business internationally, especially in emerging markets, exposes us to additional risks, including adverse changes in economic and government policies, unpredictable shifts in regulation, inconsistent application of existing laws and regulations, unclear regulatory and taxation systems and divergent commercial and employment practices and procedures. If any of these events were to occur, there can be no assurance that we would be able to shift our manufacturing, design, engineering, sales, corporate and other operations to alternate sites in a timely manner, or at all. Any deterioration in international relations, especially between India and its neighboring countries, may result in investor concern regarding regional stability. Any significant or prolonged disruption or delay in our operations related to these risks could materially and adversely affect our business, financial condition and results of operations.

Terrorist attacks, civil disturbances, regional conflicts and other acts of violence, particularly in India, may disrupt or otherwise adversely affect the markets in which we operate, our business and our profitability. India has from time to time experienced social and civil unrest and hostilities and adverse social, economic or political events, including terrorist attacks and local civil disturbances, riots and armed conflict with neighboring countries. Events of this nature in the future could influence the Indian economy and could have a material adverse effect on our business, as well as the market for securities of Indian companies, including the Company’s Shares and ADSs. Such incidents could also create a greater perception that investment in Indian companies involves a higher degree of risk and could have a material adverse effect on our business, results of operations and financial condition, and also the market price of the Company’s Shares and ADSs.

We are vulnerable to supply chain disruptions resulting from natural disasters or accidents. For example, on August 12, 2015, there was an explosion in the city port of Tianjin, one of three major ports in China through which we import our vehicles. Approximately 5,800 of our vehicles were stored at various locations in Tianjin at the time of the explosion, and, as a result, we recognized an exceptional charge of GBP245 million in the three months ended September 30, 2015. Subsequently, GBP274 million of net insurance proceeds and other recoveries have been received as of March 31, 2018, including GBP35 million related to other costs associated with Tianjin including lost and discounted vehicle revenue. A significant delay or sustained interruption in the supply of key inputs sourced from areas affected by disasters or accidents could materially and adversely affect our ability to maintain our current and expected levels of production, and therefore negatively affect our revenues and increase our operating expenses.

We are a global organization, and are therefore vulnerable to shifts in global trade and economic policies and outlook. Policies that result in countries withdrawing from trade pacts, increasing protectionism and undermining free trade could substantially affect our ability to operate as a global business. Additionally, negative sentiments towards foreign companies among our overseas customers and employees could adversely affect our sales as well as our ability to hire and retain talented people. A negative shift in either policies or sentiment with respect to global trade and foreign businesses could have a material adverse effect on our business, results of operations and financial condition.

Our business is seasonal in nature and a substantial decrease in our sales during certain quarters could have a material adverse impact on our financial performance.

The sales volumes and prices for our vehicles are influenced by the cyclicality and seasonality of demand for these products. The automotive industry has been cyclical in the past, and we expect this cyclicality to continue.

In the Indian market, demand for our vehicles generally peaks between January and March, although there is a decrease in demand in February just before release of the Indian fiscal budget. Demand is usually lean from April to July and picks up again in the festival season from September onwards, with a decline in December as customers defer purchases to the new year.

 

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Our Jaguar Land Rover business is impacted by the biannual registration of vehicles in the United Kingdom where the vehicle registration number changes every March and September, which leads to an increase in sales during these months, and, in turn, impacts the resale value of vehicles. This leads to an increase in sales during the period when the aforementioned change occurs. Most other markets, such as the United States, are influenced by the introduction of new-model-year products, which typically occurs in the autumn of each year. Furthermore, in the United States, there is some seasonality in the purchasing pattern of vehicles in the northern states for Jaguar when there is a concentration of vehicle sales in the spring and summer months and for Land Rover, where the trend for purchasing 4x4 vehicles is concentrated in the autumn and winter months. Markets in China tend to experience higher demand for vehicles around the Lunar New Year holiday in either January or February, the Chinese National Day and the Golden Week holiday in October. In addition, demand in Western European automotive markets tends to be softer during the summer and winter holidays. Jaguar Land Rover’s cash flows are impacted by the temporary shutdown of four of their manufacturing plants in the United Kingdom (including the EMC at Wolverhampton) during the summer and winter holidays.

Restrictive covenants in our financing agreements could limit our operations and financial flexibility and materially and adversely impact our financial condition, results of operations and prospects.

Some of our financing agreements and debt arrangements set limits on and/or require us to obtain lender consent before, among other things, pledging assets as security. In addition, certain financial covenants may limit our ability to borrow additional funds or to incur additional liens. In the past, we have been able to obtain required lender consent for such activities. However, there can be no assurance that we will be able to obtain such consents in the future. If our liquidity needs or growth plans require such consents and such consents are not obtained, we may be forced to forego or alter our plans, which could materially and adversely affect our results of operations and financial condition.

In the event we breach these covenants, the outstanding amounts due under such financing agreements could become due and payable immediately and/or result in increased costs. A default under one of these financing agreements may also result in cross-defaults under other financing agreements and result in the outstanding amounts under such other financing agreements becoming due and payable immediately. Defaults under one or more of our financing agreements could have a material adverse effect on our financial condition and results of operations.

Future pension obligations may prove more costly than currently anticipated and the market value of assets in our pension plans could decline.

We provide post-retirement and pension benefits to our employees, including defined benefit plans. Our pension liabilities are generally funded. However, lower returns on pension fund assets, changes in market conditions, interest rates or inflation rates, and adverse changes in other critical actuarial assumptions, may impact our pension liabilities or assets and consequently increase funding requirements. Further, any changes in government/regulations, may adversely impact the pension benefits payable to the employees, which could materially decrease our net income and cash flows.

Jaguar Land Rover provides post-retirement and pension benefits to its employees, some of which are defined benefit plans. As part of Jaguar Land Rover’s strategic business review process, it closed the Jaguar Land Rover defined benefit pension plan to new joiners as of April 19, 2010. All new Jaguar Land Rover employees from April 19, 2010 join a new defined contribution pension plan. Under the arrangements with the trustees of the defined benefit pension schemes, an actuarial valuation of the assets and liabilities of the schemes is undertaken every three years. The most recent valuation, as of April 2018, indicated a shortfall in the assets of the schemes as of that date, versus the actuarially determined liabilities as of that date of GBP554 million (compared to GBP789 million as of April 2015). The 2018 valuation was completed in December 2018. Following the 2018 actuarial valuation the company contributions for benefits accruing in the defined benefit plan reduces to approximately 22% (previously approximately 31%) reflecting the benefit restructure implemented as of April 5, 2017. As of March 31, 2019, Jaguar Land Rover’s UK defined benefit pension accounted deficit had increased to GBP667 million, as compared to GBP438 million as of March 31, 2018. This increase was primarily due to reductions in bond yields as well as increased inflation expectations. The increase also reflects the cost of guaranteed maximum price equalization and pension benefits for employees leaving under the Fiscal 2019 restructuring programs (together equal to GBP42 million).

Lower return on pension fund assets, changes in market conditions, changes in interest rates, changes in inflation rates and adverse changes in other critical actuarial assumptions, may impact our pension liabilities or assets and consequently increase funding requirements, which will adversely affect our financial condition and results of operations. The accounted deficit is assessed and reported on a quarterly basis and is driven by a number of factors including asset movements, discount rate movements (reflecting UK high quality corporate debt yields), mortality rates, inflation, as well as one-off events such as redundancy programs. As a result, the level of the pension deficit may vary substantially between periods.

 

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We may be materially and adversely affected by the divulgence of confidential information.

Although we have implemented policies and procedures to protect confidential information, such as key contractual provisions, future projects, financial information and customer records, such information may be divulged as a result of internal leaks, hacking, other threats from cyberspace or other factors. If confidential information is divulged, we could be subject to claims by affected parties, regulatory penalties, negative publicity and loss of proprietary information, all of which could have an adverse and material impact on our reputation, business, financial condition, results of operations and cash flows.

Our business could be negatively affected by the actions of activist shareholders.

Certain shareholders of the Company may from time to time advance shareholder proposals or otherwise attempt to effect changes at the Company, influence elections of the directors of the Company (“Directors”) or acquire control over our business. Our success largely depends on the ability of our current management team to operate and manage effectively. Campaigns by shareholders to effect changes at publicly listed companies are sometimes led by investors seeking to increase short-term shareholder value by advocating corporate actions such as financial restructuring, increased borrowing, special dividends, stock repurchases or even sales of assets or the entire company, or by voting against proposals put forward by the board of directors of the Company (the “Board”) and our management. If faced with actions by activist shareholders, we may not be able to respond effectively to such actions, which could be disruptive to our business.

We rely on licensing arrangements with Tata Sons Private Limited to use the “Tata” brand. Any improper use of the associated trademarks by our licensor or any other third parties could materially and adversely affect our business, financial condition and results of operations.

Our rights to our trade names and trademarks are a crucial factor in marketing our products. Establishment of the “TATA” word mark and logo mark in and outside India is material to our operations. We have licensed the use of the “TATA” brand from our Promoter, Tata Sons Private Limited (“Tata Sons”). If Tata Sons, or any of its subsidiaries or affiliated entities, or any third party uses the trade name “TATA” in ways that adversely affect such trade name or trademark, our reputation could suffer damage, which, in turn, could have a material adverse effect on our business, financial condition and results of operations.

We are subject to risks associated with the automobile financing business.

The sale of our Commercial Vehicles and Passenger Vehicles is heavily dependent on funding availability for our customers. Rising delinquencies and early defaults have contributed to a reduction in automobile financing, which, in turn, has had an adverse effect on funding availability for potential customers. This reduction in available financing may continue in the future and have a material adverse effect on our business, financial condition and results of operations.

Default by our customers or inability to repay installments as due could materially and adversely affect our business, financial condition, results of operations and cash flows. In addition, any downgrade in our credit ratings may increase our borrowing costs and restrict our access to the debt markets. Over time, and particularly in the event of any credit rating downgrade, market volatility, market disruption, regulatory changes or otherwise, we may need to reduce the amount of financing receivables we originate, which could severely disrupt our ability to support the sale of our vehicles.

Jaguar Land Rover has consumer finance arrangements in place with Lloyds Black Horse in the United Kingdom, FCA Bank S.p.A. in European markets and Chase Auto Finance in North America and has similar arrangements with local providers in a number of other key markets. Any reduction in the supply of available consumer financing for the purchase of new vehicles or an increase in the cost thereof would make it more difficult for some of its customers to purchase its vehicles, which could put Jaguar Land Rover under commercial pressure to offer new (or expand existing) retail or dealer incentives to maintain demand for its vehicles, thereby materially and adversely affecting our sales and results of operations. For example, during the global financial crisis, several providers of customer finance reduced their supply of consumer financing for the purchase of new vehicles. Additionally, base interest rates in developed economies are at historic lows. An increase in interest rates due to tightening monetary policy or for any other reason would result in increased costs for consumers.

Furthermore, Jaguar Land Rover offers residual value guarantees on the purchase of certain leases in some markets. The value of these guarantees is dependent on used car valuations in those markets at the end of the lease, which is subject to change. Consequently, we may be adversely affected by movements in used car valuations in these markets.

 

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Inability to protect or preserve our intellectual property could materially and adversely affect our business, financial condition and results of operations.

We own or otherwise have rights in respect of a number of patents and trademarks relating to the products we manufacture, which have been obtained over a period of years. In connection with the design and engineering of new vehicles and the enhancement of existing models, we seek to regularly develop new technical designs for use in our vehicles. We also use technical designs that are the intellectual property of third parties with such third parties’ consent. These patents and trademarks have been of value in the growth of our business and may continue to be of value in the future. Although we do not regard any of our businesses as being dependent upon any single patent or related group of patents, an inability to protect this intellectual property generally, or the illegal breach of some or a large group of our intellectual property rights, may have a materially adverse effect on our operations, business and/or financial condition. We may also be affected by restrictions on the use of intellectual property rights held by third parties, and we may be held legally liable for the infringement of the intellectual property rights of others in our products. Moreover, intellectual property laws of some foreign countries may not protect our intellectual property rights to the same extent as U.S. or UK laws.

We may incur significant costs to comply with, or face civil and criminal liability for infringements of, the European General Data Protection Regulation.

In April 2016, the European Union enacted the GDPR. The GDPR is a uniform framework setting out the principles for legitimate data processing and came into force on May 25, 2018. The introduction of the GDPR strengthens individuals’ rights and imposes stricter requirements on companies processing personal data. The new regime may impose a substantially higher compliance burden on us and limit our rights to process personal data, lead to cost intensive administration processes, oblige us to provide the personal data that we record to customers in a form that would require additional administrative processes or require substantial changes in our IT environment. Additionally, there are much greater sanctions in case of violations of the GDPR requirements compared to the previous regime. These sanctions depend on the nature of the infringed provision and may consist of civil liabilities and criminal sanctions. For example, criminal sanctions for compliance failures have increased in the United Kingdom to up to €20,000,000 or 4% of annual worldwide turnover (whichever is higher). Our failure to implement and comply with the GDPR could significantly affect our reputation and relationships with our customers and suppliers, and civil and criminal liabilities for the infringement of data protection rules could have a significant negative effect on our financial position.

Some of our vehicles will make use of lithium-ion battery cells, which have been observed in some non-automotive applications to catch fire or vent smoke and flames, and such events have raised concerns, and future events may lead to additional concerns, about the safety of the batteries used in automotive applications.

The battery packs that we use, and will use, in our electric vehicles make use of lithium-ion cells (such as the battery packs we currently use in the all new Jaguar I-PACE). On rare occasions, lithium-ion cells can rapidly release the energy they contain by venting smoke and flames in a manner that can ignite nearby materials as well as other lithium-ion cells.

While we have designed the battery pack to passively contain any single cell’s release of energy without spreading to neighboring cells, there can be no assurance that a field or testing failure of our vehicles will not occur, which could subject us to lawsuits, product recalls, or redesign efforts, all of which would be time consuming and expensive. Negative public perceptions regarding the suitability of lithium-ion cells for automotive applications, or any future incident involving lithium-ion cells such as a vehicle fire, even if such incident does not involve our vehicles, could seriously harm our business.

 

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In addition, we store a significant number of lithium ion cells at various warehouses and at some of our manufacturing facilities. Any mishandling of or accidents involving battery cells may cause disruption to the operation of our facilities. While we have implemented safety procedures related to the handling of the cells, there can be no assurance that a safety issue or fire related to the cells would not disrupt our operations. Such damage or injury could lead to adverse publicity and potentially a safety recall. Moreover, any failure of a competitor’s electric vehicle may cause indirect adverse publicity for us and our products. Such adverse publicity could harm our business, prospects, financial condition and operating results.

Any failures or weaknesses in our internal controls could materially and adversely affect our financial condition and results of operations.

As discussed in Item 15. “Controls and Procedures,” upon an evaluation of the effectiveness of the design and operation of our internal controls, we concluded that there was a material weakness such that our internal controls over financial reporting were not effective as of March 31, 2019. Although we have instituted remedial measures to address the material weakness identified and continually review and evaluate our internal control systems to allow management to report on the sufficiency of our internal controls, we cannot assure you that we will not discover additional weaknesses in our internal controls over financial reporting. Further, management continually improves, simplifies and rationalizes the Company’s internal control framework where possible within the constraints of existing IT systems. However, any additional weaknesses or failure to adequately remediate the existing weakness could materially and adversely affect our financial condition or results of operations.

Our insurance coverage may not be adequate to protect us against all potential losses to which we may be subject, which may have a material adverse effect on our business, financial condition and results of operations.

While we believe that the insurance coverage we maintain is reasonably adequate to cover all normal risks associated with the operation of our business. There can be no assurance that any claim under our insurance policies will be honored fully or timely, our insurance coverage will be sufficient in any respect or our insurance premiums will not change substantially. Accordingly, to the extent that we suffer loss or damage that is not covered by insurance or that exceeds our insurance coverage, or are required to pay higher insurance premiums, our business, financial condition and results of operations could be materially and adversely affected.

Political and Regulatory Risks

India’s obligations under the World Trade Organization Agreement could materially affect our business.

India’s obligations under its World Trade Organization agreement could reduce the present level of tariffs on imports of components and vehicles. Reductions of import tariffs could result in increased competition, which in turn could materially and adversely affect our sales, business, financial condition and results of operations.

New or changing laws, regulations and government policies regarding increased fuel economy, reduced greenhouse gas and other emissions, vehicle safety and taxes, tariffs or fiscal policies may have a significant impact on our business.

As an automobile company, we are subject to extensive governmental regulations regarding vehicle emission levels, noise, safety and levels of pollutants generated by our production facilities. In particular, the United States, Europe and China have stringent regulations relating to vehicle greenhouse gas and noxious emissions. Any tightening of vehicle emissions regulations will require significant costs for compliance. While we are pursuing various technologies in order to meet the required standards in the various countries in which we sell our vehicles, these regulations are likely to become more stringent and the resulting higher compliance costs may be significant to our operations and may adversely impact our business, financial condition and results of operations. They may also limit the type of vehicles we sell and where we sell them, which could affect our Revenues.

Recently, several jurisdictions, such as Norway, Germany, the United Kingdom, France, the Netherlands and China have announced the intention to eliminate the sale of conventionally fueled vehicles in their markets in the coming decades. Diesel technologies have also become the focus of legislators in the United States and European Union as a result of emission levels. This has led to various carmakers to announce programs to retrofit diesel vehicles with software that will allow them to reduce emissions. To maintain our competitiveness and compliance with applicable laws and regulations, we may be required to undertake increased research and development spending as well as other capital expenses.

 

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There is a risk that these research and development activities may not achieve their planned objectives or our competitors will develop better solutions and will be able to manufacture the resulting products more rapidly. This could result in loss of market share for us.

There is also a risk that investments in research and development of new technologies, including autonomous, connected and electrification technologies, and solutions to address future travel and transport challenges, may fail to generate sufficient returns because the technology developed or the products derived therefrom are unsuccessful in the market and/or because our competitors have developed better and/or less expensive products.

Additionally, in order to comply with current and future safety and environmental standards, we may have to incur additional capital expenditures and research and development expenditures to (i) operate, maintain and upgrade our production facilities, (ii) install new emissions controls or reduction technologies, (iii) purchase or otherwise obtain allowances to emit greenhouse gases, (iv) administer and manage our greenhouse gas emissions program, and (v) invest in research and development to upgrade products and manufacturing facilities. If we are unable to develop commercially viable technologies or otherwise unable to attain compliance within the time frames set by the new standards, we could face significant civil penalties or be forced to restrict product offerings significantly. For example, in the United States, manufacturers are subject to substantial civil penalties if they fail to meet federal CAFE standards. Please see Item 4.B “Information on the Company—Business Overview—Governmental Regulations—Environmental, fiscal and other governmental regulations around the world—Greenhouse gas/CO2/fuel economy legislation” for additional detail on these standards. These penalties are calculated at US$5.50 for each tenth of a mile below the required fuel-efficiency level for each vehicle sold in a model year in the U.S. market. Since 2010, Jaguar Land Rover has paid total penalties of US$46 million for its failure to meet CAFE standards. Moreover, safety and environmental standards may at times impose conflicting imperatives, which pose engineering challenges and would, among other things, increase our costs. While we are pursuing the development and implementation of various technologies in order to meet the required standards in the various countries in which we sell our vehicles, the costs for compliance with these required standards could be significant to our operations and may materially and adversely affect our business, financial condition and results of operations.

The Motor Vehicles (Amendment) Bill, 2019 (the “2019 Motor Vehicle Bill Amendment”) was passed in the Lok Sabha on July 23, 2019, but it is yet to be discussed and passed in the Rajya Sabha. The 2019 Motor Vehicle Bill Amendment addresses vehicle recalls, road safety, traffic management and accident insurance, among other matters. In its current form, the 2019 Motor Vehicle Bill Amendment imposes civil and criminal liability on manufacturers selling vehicles in contravention of the standards specified in the 2019 Motor Vehicle Bill Amendment, or required by the government to recall their vehicles. The 2019 Motor Vehicle Bill Amendment also proposes the creation of the National Road Safety Board to provide advice to the central and state governments on all aspects of road safety and traffic management.

Commencing July 1, 2017, the Indian tax regime underwent a systemic change. The Government of India, in conjunction with the state governments, implemented a comprehensive national goods and services tax (“GST”) regime to subsume a large number of central government and state government taxes into one unified tax structure. It is a dual GST with central government and state government simultaneously levying it on the common base. The tax is called Central GST, if levied by the central government; State/Union Territory GST, in instances where the state or union territory levy the tax; and Integrated GST, in instances where the GST is levied on the inter-state supply of goods and services. While both the central and state governments have publicly announced that all committed incentives will be protected following the implementation of the GST, given the limited availability of information or alignment of industrial policy of various state government to cover GST or to protect the quantum of incentive available to industries in pre-GST regime, we are unable to provide any assurance as to this or any other aspect of the tax regime, or guarantee that the implementation of GST will not materially or adversely affect our business or financial condition.

Imposition of any additional taxes and levies designed to limit the use of automobiles and changes in corporate and other taxation policies, as well as changes in export and other incentives given by various governments or import or tariff policies, could adversely affect the demand for our vehicles and our results of operations. For instance, the United Kingdom’s exit from the European Union would result in material changes to the United Kingdom’s tax, tariff and fiscal policies. In addition, the current U.S. presidential administration has called for changes to laws and policies governing international trade to further restrict free trade, including imposing tariffs on certain goods imported into the United States (e.g. a tariff was imposed on European aluminum and steel imports in June 2018). The administration has also specifically warned of its intention to impose a 20% tariff on European made vehicles imported into the United States, a levy that, if imposed, would increase the cost of our vehicles in the United States (as we have no manufacturing operations in the United States), which is likely to have a material adverse effect on our sales in the United States and our results of operations. Furthermore, in recent years, Brazil has increased import duty on foreign vehicles, which has put pressure on sales margins in Brazil and has prompted us to enter into discussions with the Brazilian government to exempt a certain number of imported vehicles from the increased tariff.

 

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Evaluating and estimating our provision and accruals for our taxes requires significant judgment. As we conduct our business, the final tax determination may be uncertain. We operate in multiple geographical markets and our operations in each market are susceptible to additional tax assessments and audits. Our collaborations with business partners are similarly susceptible to such tax assessments.

Authorities may engage in additional reviews, inquiries and audits that disrupt our operations or challenge our conclusions regarding tax matters. Any resulting tax assessment may be accompanied by a penalty or additional fee for failing to make the initial payment. Our tax rates may be affected by earnings estimation errors, losses in jurisdictions that do not grant a related tax benefit, changes in currency rates, acquisitions, investments, or changes in laws, regulations or practices. Additionally, government fiscal pressures may increase the likelihood of adverse or aggressive interpretations of tax laws or regulations or the imposition of arbitrary or onerous taxes, interest charges and penalties. Tax assessments may be initiated even where we consider our practices to be in compliance with tax laws and regulations. Should we challenge such taxes or believe them to be without merit, we may nonetheless be required to pay them. These amounts may be materially different from our expected tax assessments and could additionally result in expropriation of assets, attachment of additional securities, liens, imposition of royalties or new taxes and requirements for local ownership or beneficiation.

Regulations in the areas of investments, taxes and levies may also have an impact on Indian securities, including the Company’s Shares and ADSs. For more information, see Item 4.B “Information on the Company—Business Overview—Governmental Regulations” of this annual report on Form 20-F.

On March 29, 2017, the Supreme Court of India prohibited the sale and registration of Bharat Stage III vehicles from April 1, 2017. Bharat Stage emission standards are emission standards instituted by the Government of India to regulate the output of air pollutants from internal combustion engines and Spark-ignition engines equipment, including motor vehicles. These regulations are similar to European emission standards, and seeks to curb emission levels from motor vehicles. Bharat Stage III is similar to European standards (Euro III) which were in place between 2000 and 2005 in most western nations. The Supreme Court of India’s judgment overturned a government regulation, and was unexpected. The Petroleum Ministry of India in consultation with Public Oil Marketing Companies brought forward the date of Bharat Stage VI grade auto fuels in National Capital Territory of Delhi with effect from April 1, 2018 instead of April 1, 2020. The shortage of Bharat Stage VI fuel across India in the future could impact our business, results of operations and financial condition. We could be impacted by the change of emission standards in India from Bharat Stage IV to Bharat Stage VI, effective April 1, 2020, as Bharat Stage IV vehicles will not be allowed to be registered after that date, which could lead to an increase in our inventory of Bharat Stage IV vehicles if the inventory management is not well-managed during the transition period. The change in emission standards may also increase the cost of Bharat Stage VI vehicles.

Any future potential or real unexpected change in law could have could have a material adverse effect on our business prospects, results of operations and financial condition.

We may be affected by competition law in India and any adverse application or interpretation of the Competition Act could adversely affect our business.

The Indian Competition Act, 2002 (the “Competition Act”) oversees practices having an appreciable adverse effect on competition (“AAEC”) in a given relevant market in India. Under the Competition Act, any formal or informal arrangement, understanding or action in concert, which causes or is likely to cause an AAEC, is considered void and results in imposition of substantial penalties. Consequently, all agreements entered into by us could be within the purview of the Competition Act. Furthermore, any agreement among competitors which directly or indirectly involves determination of purchase or sale prices, limits or controls production, sharing the market by way of geographical area or number of subscribers in the relevant market or which directly or indirectly results in bid-rigging or collusive bidding is presumed to have an AAEC in the relevant market in India and is considered void. The Competition Act also prohibits abuse of a dominant position by any enterprise. We cannot predict with certainty the impact of the provisions of the Competition Act on our agreements at this stage.

On March 4, 2011, the Government of India issued and brought into force the combination regulation (merger control) provisions under the Competition Act with effect from June 1, 2011. These provisions require acquisitions of shares, voting rights, assets or control or mergers or amalgamations that cross the prescribed asset- and turnover-based thresholds to be mandatorily notified to and pre-approved by the Competition Commission of India (the “CCI”). Additionally, on May 11, 2011, the CCI issued the Competition Commission of India (Procedure for Transaction of Business Relating to Combinations) Regulations, 2011 (as amended), which sets out the mechanism for the implementation of the merger control regime in India.

 

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Furthermore, the CCI has extraterritorial powers and can investigate any agreements, abusive conduct or combination occurring outside India if such agreement, conduct or combination has an AAEC in India. The CCI has initiated an inquiry against us and other car manufacturers, collectively referred to hereinafter as original equipment manufacturers (the “OEMs”), pursuant to an allegation that genuine spare parts of automobiles manufactured by the OEMs were not made freely available in the open market in India and, accordingly, anti-competitive practices were carried out by the OEMs.

If we are adversely affected, directly or indirectly, by the application or interpretation of any provision of the Competition Act, or any enforcement proceedings initiated by the CCI, or any adverse publicity that may be generated due to scrutiny or prosecution by the CCI or if any prohibition or substantial penalties are levied under the Competition Act, it could adversely affect our business, financial condition and results of operations.

Compliance with new or changing corporate governance and public disclosure requirements adds uncertainty to our compliance policies and increases our costs of compliance.

We are subject to a complex and continuously changing regime of laws, rules, regulations and standards relating to accounting, corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and U.S. Securities and Exchange Commission (the “SEC”) regulations, Securities and Exchange Board of India (the “SEBI”) regulations, New York Stock Exchange (the “NYSE”) listing rules, and the Companies Act, as well as Indian stock market listing regulations. New or changed laws, rules, regulations and standards may lack specificity and are subject to varying interpretations. Under applicable Indian laws, for example, remuneration packages may, in certain circumstances, require shareholders’ approval. New guidance and revisions may be provided by regulatory and governing bodies, which could result in continuing uncertainty and higher costs of compliance. We are committed to maintaining high standards of corporate governance and public disclosure. However, our efforts to comply with evolving regulations have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management resources and time.

The Companies Act has effected significant changes to the existing Indian company law framework, such as in the provisions related to the issue of capital, disclosures in offering documents, corporate governance, accounting policies and audit matters, related party transactions, class action suits against companies by shareholders or depositors, prohibitions on loans to directors and insider trading, including restrictions on derivative transactions concerning a company’s securities by directors and key managerial personnel. The Companies Act may subject us to higher compliance requirements, increase our compliance costs and divert management’s attention. We are also required to spend, in each financial year, at least 2% of our average net profits during the three immediately preceding financial years, calculated for Tata Motors Limited on a standalone basis under Ind AS, toward corporate social responsibility activities. Furthermore, the Companies Act imposes greater monetary and other liability on the Company and its Directors for any non-compliance. Due to limited relevant jurisprudence, in the event that our interpretation of the Companies Act differs from, or contradicts with, any judicial pronouncements or clarifications issued by the Government of India in the future, we may face regulatory actions or be required to undertake remedial steps. In addition, some of the provisions of the Companies Act overlap with other existing laws and regulations (such as corporate governance provisions and insider trading regulations issued by SEBI). SEBI promulgated the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (the “Listing Regulations”) which are applicable to all Indian companies with listed securities or companies intending to list its securities on an Indian stock exchange, and the Listing Regulations became effective on December 1, 2015. Pursuant to the Listing Regulations, the Company is required to establish and maintain a vigilance mechanism for Directors and employees to report their concerns about unethical behavior, actual or suspected fraud or violation of the Company’s code of conduct (the “Tata Code of Conduct”) or ethics policy under our whistleblower policy (the “Whistleblower Policy”), to implement increased disclosure requirements for price sensitive information, to conduct detailed director familiarization programs and comprehensive disclosures thereof, in accordance with the Listing Regulations. The Company may face difficulties in complying with any such overlapping requirements. Furthermore, the Company cannot currently determine the impact of certain provisions of the Companies Act and the revised SEBI corporate governance standards. Any increase in the Company’s compliance requirements or in the Company’s compliance costs may have a material and adverse effect on the Company’s business, financial condition and results of operations.

 

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We are subject to risks associated with legal proceedings and governmental investigations, including potential adverse publicity as a result thereof.

We are and may be involved from time to time in civil, labor, administrative or tax proceedings arising in the ordinary course of business. It is not possible to predict the potential for, or the ultimate outcomes of, such proceedings, some of which may be unfavorable to us. In such cases, we may incur costs and any mitigating measures (including provisions taken on our balance sheet) adopted to protect against the impact of such costs may not be adequate or sufficient. In addition, adverse publicity surrounding legal proceedings, government investigations or allegations may also harm our reputation and brands.

In any of the geographical markets in which we operate, we could be subject to additional tax liabilities.

Evaluating and estimating our provision and accruals for our taxes requires significant judgement. As we conduct our business, the final tax determination may be uncertain. We operate in multiple geographical markets and our operations in each market are susceptible to additional tax assessments and audits. Our collaborations with business partners are similarly susceptible to such tax assessments. Authorities may engage in additional reviews, inquiries and audits that disrupt our operations or challenge our conclusions regarding tax matters. Any resulting tax assessment may be accompanied by a penalty (including revocation of a benefit or exemption from tax) or additional fee for failing to make the initial payment.

Our tax rates may be affected by earnings estimation errors, losses in jurisdictions that do not grant a related tax benefit, changes in currency rates, acquisitions, investments, or changes in laws, regulations, or practices. Additionally, government fiscal or political pressures may increase the likelihood of adverse or aggressive interpretations of tax laws or regulations or the imposition of arbitrary or onerous taxes, interest charges and penalties. Tax assessments may be levied even where we consider our practices to be in compliance with tax laws and regulations. Should we challenge such taxes or believe them to be without merit, we may nonetheless be required to pay them. These amounts may be materially different from our expected tax assessments and could additionally result in expropriation of assets, attachment of additional securities, liens, imposition of royalties or new taxes and requirements for local ownership or beneficiation.

We may have to comply with more stringent foreign investment regulations in India in the event of an increase in shareholding of non-residents or if we are considered as engaged in a sector in which foreign investment is restricted.

Indian companies, which are owned or controlled by non-resident persons, are subject to investment restrictions specified in the Consolidated Foreign Direct Investment Policy (“Consolidated FDI Policy”). Under the Consolidated FDI Policy issued in 2017, an Indian company is considered to be “owned” by non-resident persons if more than 50% of its equity interest is beneficially owned by non-resident persons. The non-resident equity shareholding in the Company may, in the near future, exceed 50%, thereby resulting in the Company being considered as being “owned” by non-resident entities under the Consolidated FDI Policy. In such an event, any investment by the Company in existing subsidiaries, associates or joint ventures and new subsidiaries, associates or joint ventures will be considered as indirect foreign investment and shall be subject to various requirements specified under the Consolidated FDI Policy, including sectoral limits, approval requirements and pricing guidelines, as may be applicable.

Furthermore, as part of our automotive business, we supply, and have in the past supplied, vehicles to Indian military and paramilitary forces and in the course of such activities have obtained an industrial license from the Department of Industrial Policy. The Consolidated FDI policy applies different foreign investment restrictions to companies based upon the sector in which they operate. While we believe we are an automobile company by virtue of the significance of our automobile operations, in the event that foreign investment regulations applicable to the defense sector (including under the Consolidated FDI Policy) are made applicable to us, we may face more stringent foreign investment restrictions and other compliance requirements compared to those applicable to us presently, which, in turn, could materially affect our business, financial condition and results of operations.

 

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We require certain approvals or licenses in the ordinary course of business, and the failure to obtain or retain them in a timely manner, or at all, could materially and adversely affect our operations.

We require certain statutory and regulatory permits, licenses and approvals to carry out our business operations and applications for their renewal need to be made within certain time frames. For some of the approvals that may have expired, we have either made, or are in the process of making, an application for obtaining the approval or its renewal. While we have applied for renewal for such approvals, registrations and permits, we cannot assure you that we will receive them in a timely manner, or at all. We can make no assurances that the approvals, licenses, registrations and permits issued to us would not be suspended or revoked in the event of non-compliance or alleged non-compliance with any terms or conditions thereof, or pursuant to any regulatory action. Furthermore, if we are unable to renew or obtain necessary permits, licenses and approvals on acceptable terms in a timely manner, or at all, our business, financial condition and results of operations could be materially and adversely affected.

Risks Associated with Investments in an Indian Company

Political changes in the Government of India could delay and/or affect the further liberalization of the Indian economy and materially and adversely affect economic conditions in India, generally, and our business, in particular.

Our business could be significantly influenced by economic policies adopted by the Government of India. Since 1991, successive governments have pursued policies of economic liberalization and financial sector reforms.

The Government of India has at various times announced its general intention to continue India’s current economic and financial liberalization and deregulation policies. However, protests against such policies, which have occurred in the past, could slow the pace of liberalization and deregulation. The rate of economic liberalization could change, and specific laws and policies affecting foreign investment, currency exchange rates and other matters affecting investment in India could change as well. While we expect any new government to continue the liberalization of India’s economic and financial sectors and deregulation policies, there can be no assurance that such policies will be continued.

The Government of India has traditionally exercised and continues to exercise influence over many aspects of the economy. Our business and the market price and liquidity of the Company’s Shares and ADSs may be affected by interest rates, changes in policy, taxation, social and civil unrest and other political, economic or other developments in or affecting India.

A change in the Government of India’s economic liberalization and deregulation policies could disrupt business and economic conditions in India generally, and specifically our business and operations, as a substantial portion of our assets are located in India. This could have a material adverse effect on our financial condition and results of operations.

Any downgrading of India’s debt rating by a domestic or international rating agency could negatively impact our business.

Any adverse revisions to India’s credit ratings for domestic and international debt by domestic or international rating agencies could adversely impact our ability to raise additional financing, as well as the interest rates and other commercial terms at which such additional financing is available. This could have a material adverse effect on our financial results, business prospects, ability to obtain financing for capital expenditures and the price of the Company’s Shares and ADSs.

We may be materially and adversely affected by Reserve Bank of India policies and actions.

The Indian stock exchanges are vulnerable to fluctuations based on changes in monetary policy formulated by the Reserve Bank of India (the “RBI”). We can make no assurances about future market reactions to RBI announcements and their impact on the price of the Company’s Shares and ADSs. Furthermore, our business could be significantly impacted were the RBI to make major alterations to monetary or fiscal policy. Certain changes, including the raising of interest rates, could negatively affect our sales and consequently our Revenue, any of which could have a material adverse effect on our financial condition and results of operations.

Rights of shareholders under Indian law may be more limited than under the laws of other jurisdictions.

The memorandum and articles of association of the Company (the “Articles of Association”) and Indian law govern the Company’s corporate affairs. Legal principles relating to these matters and the validity of corporate procedures, directors’ fiduciary duties and liabilities, and shareholders’ rights may differ from those that would apply to a company incorporated in another jurisdiction. Shareholders’ rights under Indian law may not be as extensive as shareholders’ rights under the laws of other countries or jurisdictions, including the United States. You may also have more difficulty in asserting your rights as a shareholder of the Company than you would as a shareholder of a corporation organized in another jurisdiction.

 

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The market value of your investment may fluctuate due to the volatility of the Indian securities market.

Stock exchanges in India, including BSE Limited (the “BSE”) have, in the past, experienced substantial fluctuations in the prices of their listed securities. Such fluctuations, if they continue or recur, could affect the market price and liquidity of the securities of Indian companies, including the Company’s Shares and ADSs. These problems have included temporary exchange closures, broker defaults, settlement delays and strikes by brokers. Volatility in other stock exchanges, including, but not limited to, those in the United Kingdom and China, may affect the prices of securities in India, including the Company’s Shares, which may in turn affect the price of the Company’s ADSs. In addition, the governing bodies of the stock exchanges in India have from time to time imposed restrictions on trading in certain securities, limitations on price movements and margin requirements. Furthermore, from time to time, disputes have occurred between listed companies and stock exchanges and other regulatory bodies, which in some cases may have had a negative effect on market sentiment.

There may be a differing level of regulation and monitoring of the Indian securities markets and the activities of investors, brokers and other participants, than in the United States. SEBI received statutory powers in 1992 to assist it in carrying out its responsibility for improving disclosure and other regulatory standards for the Indian securities markets. Subsequently, SEBI has prescribed regulations and guidelines in relation to disclosure requirements, insider dealing and other matters relevant to the Indian securities market. There may, however, be less publicly available information about Indian companies than is regularly made available by public companies in the United States.

Investors may have difficulty enforcing judgments against us or our management.

The Company is a public limited company incorporated in India. The majority of the Company’s Directors and executive officers are residents of India and substantially all of the assets of those persons and a substantial portion of the Company’s assets are located in India. As a result, it may not be possible for you to effect service of process within the United States upon those persons or the Company. In addition, you may be unable to enforce judgments obtained in courts of the United States against those persons outside the jurisdiction of their residence, including judgments predicated solely upon U.S. federal securities laws. Moreover, it is unlikely that a court in India would award damages on the same basis as a foreign court if an action were brought in India or that an Indian court would enforce foreign judgments if it viewed the amount of damages as excessive or inconsistent with public policy.

Section 44A of the Indian Code of Civil Procedure, 1908, as amended (the “Civil Code”) provides that where a foreign judgment has been rendered by a superior court (within the meaning of the section) in any country or territory outside of India which the Government of India has by notification declared to be a reciprocating territory, such foreign judgment may be enforced in India by proceedings in execution as if the judgment had been rendered by an appropriate court in India. However, the enforceability of such judgments is subject to the exceptions set forth in Section 13 of the Civil Code.

Section 44A of the Civil Code is applicable only to monetary decrees not being in the nature of amounts payable in respect of taxes or other charges of a similar nature or in respect of fines or other penalties and does not include arbitration awards.

If a judgment of a foreign court is not enforceable under Section 44A of the Civil Code as described above, it may be enforced in India only by a suit filed upon the judgment, subject to Section 13 of the Civil Code and not by proceedings in execution. Accordingly, as the United States has not been declared by the Government of India to be a reciprocating territory for the purposes of Section 44A, a judgment rendered by a court in the United States may not be enforced in India except by way of a suit filed upon the judgment.

The suit must be brought in India within three years from the date of the judgment in the same manner as any other suit filed to enforce a civil liability in India. Generally, there are considerable delays in the resolution of suits by Indian courts.

A party seeking to enforce a foreign judgment in India is required to obtain prior approval from the RBI, under the Foreign Exchange Management Act, 1999 (“FEMA”) to repatriate any amount recovered pursuant to such enforcement. Any judgment in a foreign currency would be converted into Indian rupees on the date of judgment and not on the date of payment.

 

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Risks Associated with the Company’s Shares and ADSs

Fluctuations in the exchange rate between the Indian rupee and the U.S. dollar may have a material adverse effect on the market value of the Company’s ADSs and Shares, independent of our operating results.

The exchange rate between the Indian rupee and the U.S. dollar has changed materially in the last two decades and may materially fluctuate in the future. Fluctuations in the exchange rate between the Indian rupee and the U.S. dollar will affect, among others things, the U.S. dollar equivalents of the price of the Company’s Shares in Indian rupees as quoted on stock exchanges in India and, as a result, may affect the market price of the ADSs. Such fluctuations will also affect the U.S. dollar equivalent of any cash dividends in Indian rupees received on the Shares represented by the ADSs and the U.S. dollar equivalent of the proceeds in Indian rupee of a sale of Shares in India.

Holders of ADSs have fewer rights than shareholders and must act through the depository to exercise those rights.

Although ADS holders have a right to receive any dividends declared in respect of the Shares underlying the ADSs, they cannot exercise voting or other direct rights as a shareholder with respect to the Shares underlying the ADSs. Citibank, N.A. as depository (the “depository”) is the registered shareholder of the deposited Shares underlying the Company’s ADSs, and only the depository may exercise the rights of shareholders in connection with the deposited Shares. The depository will notify ADS holders of upcoming votes and arrange to deliver our voting materials to ADS holders only if requested by the Company. The depository will try, insofar as practicable, subject to Indian laws and the provisions of the Articles of Association, to vote or have its agents vote the deposited securities as instructed by the ADS holders. If the depository receives voting instructions in time from an ADS holder which fails to specify the manner in which the depository is to vote the Shares underlying such ADS holder’s ADSs, such ADS holder will be deemed to have instructed the depository to vote in favor of the items set forth in such voting instructions. If the depository has not received timely instructions from an ADS holder, such ADS holder shall be deemed to have instructed the depository to give a discretionary proxy to a person designated by us, subject to the conditions set forth in the deposit agreement. If requested by the Company, the depository is required to represent all Shares underlying ADSs, regardless of whether timely instructions have been received from such ADS holders, for the sole purpose of establishing a quorum at a meeting of shareholders. In addition, in your capacity as an ADS holder, you will not be able to examine the Company’s accounting books and records, or exercise appraisal rights. Registered holders of the Company’s Shares withdrawn from the depository arrangements will be entitled to vote and exercise other direct shareholder rights in accordance with Indian law. However, a holder may not know about a meeting sufficiently in advance to withdraw the underlying Shares in time. Furthermore, an ADS holder may not receive voting materials, if the Company does not instruct the depository to distribute such materials, or may not receive such voting materials in time to instruct the depository to vote.

For further details on the terms and conditions of the Company’s ADSs and the rights and obligations of the Company’s ADS holders, please see the amended and restated deposit agreement, dated as of September 27, 2004 among the Company, Citibank, N.A., as depository, and all holders and beneficial owners of ADSs issued thereunder, as amended and supplemented by Amendment No. 1, dated as of December 16, 2009, hereinafter referred to as the “deposit agreement,” which is incorporated by reference into this annual report on Form 20-F.

Moreover, pursuant to Indian regulations, the Company is required to offer its shareholders preemptive rights to subscribe for a proportionate number of Shares to maintain their existing ownership percentages prior to the issue of new Shares. These rights may be waived by a resolution passed by at least 75% of the shareholders of the Company present and voting at a general meeting. ADS holders may be unable to exercise preemptive rights for subscribing to these new Shares unless a registration statement under the Securities Act is effective or an exemption from the registration requirements is available to us. The Company’s decision to file a registration statement would be based on the costs, timing, potential liabilities and the perceived benefits associated with any such registration statement and the Company does not commit that it would file such a registration statement. If any issue of securities is made to the shareholders of the Company in the future, such securities may also be issued to the depository, which may sell such securities in the Indian securities market for the benefit of the holders of ADSs. There can be no assurance as to the value, if any, the depository would receive upon the sale of such rights or securities. To the extent that ADS holders are unable to exercise preemptive rights, their proportionate ownership interest in our company would be reduced.

 

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The Government of India’s regulation of foreign ownership could materially reduce the price of the ADSs.

Foreign ownership of Indian securities is regulated and is partially restricted. In addition, there are restrictions on the deposit of Shares into the Company’s ADS facilities. ADSs issued by companies in certain emerging markets, including India, may trade at a discount to the market price of the underlying Shares, in part because of the restrictions on foreign ownership of the underlying Shares and in part because ADSs are sometimes perceived to offer less liquidity than underlying Shares that can be traded freely in local markets by both local and international investors. See Item 10.D “Additional Information—Exchange Controls.”

There are restrictions on daily movements in the price of the Shares, which may constrain a shareholder’s ability to sell, or the price at which a shareholder can sell, Shares at a particular point in time.

The Shares are subject to a daily circuit breaker imposed by stock exchanges in India on publicly listed companies, including the Company, which does not allow transactions causing volatility in the price of the Shares above a certain threshold. This circuit breaker operates independently from the index-based market-wide circuit breakers generally imposed by SEBI on Indian stock exchanges. The percentage limit on the Company’s circuit breaker is set by the stock exchanges in India based on the historical volatility in the price and trading volume of the Company’s Shares. The stock exchanges in India are not required to inform the Company of the percentage limit of the circuit breaker from time to time, and may change it without the Company’s knowledge. This circuit breaker effectively acts to limit the upward and downward movements in the price of the Company’s Shares. As a result of this circuit breaker, the Company cannot make any assurance regarding the ability of the shareholders of the Company to sell their Shares or the price at which such shareholders may be able to sell their Shares.

With effect from April 1, 2018, any gain realized on the sale of the Shares will be subject to capital gains tax in India. See Item 10.E “Additional Information—Taxation—Taxation of Capital Gains and Losses—Indian Taxation—Capital Gains” of this annual report on Form 20-F for further information on the application of capital gains tax in India to the shareholders of the Company and ADS holders of the Company.

 

Item 4.

Information on the Company

A. History and Development of the Company

The Company was incorporated on September 1, 1945 as a public limited company under the Indian Companies Act VII of 1913 as Tata Locomotive and Engineering Company Limited, and it received a certificate of commencement of business on November 20, 1945. The Company’s name was changed to Tata Engineering and Locomotive Company Limited on September 24, 1960, and to Tata Motors Limited on July 29, 2003. Tata Motors Limited is incorporated and domiciled in India. We commenced operations as a steam locomotive manufacturer, but this business was discontinued in 1971. Since 1954, we have been manufacturing automotive vehicles. The automotive vehicle business commenced with the manufacture of Commercial Vehicles under financial and technical collaboration with Daimler-Benz AG (now Daimler AG) of Germany. This agreement ended in 1969. We produced only Commercial Vehicles until 1991, when we started producing Passenger Vehicles as well. Together with its consolidated subsidiaries, the Company forms the Tata Motors Group.

In March 2004, we acquired Daewoo Commercial Vehicle Co. Ltd., (now known as Tata Daewoo Commercial Vehicle Co. Ltd. (“TDCV”)) at Gunsan in South Korea. TDCV is engaged in the business of manufacturing heavy vehicles such as cargo, trucks, dump trucks, tractor trailers and special purpose vehicle mixers.

In September 2004, the Company became the first company from India’s automotive sector to be listed on the NYSE. The Company’s ADSs are traded on the NYSE under the symbol “TTM”. The Company’s Ordinary Shares and ‘A’ Ordinary Shares are traded on the BSE under the codes 500570 and 570001, respectively, and the National Stock Exchange of India Ltd. (the “NSE”) under the symbols “TATAMOTORS” and “TATAMTRDVR”, respectively.

 

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In June 2008, we acquired the Jaguar Land Rover business from Ford. Jaguar Land Rover is a global automotive business, which designs, manufactures and sells Jaguar luxury sedans, sports cars and luxury performance SUVs and Land Rover premium all-terrain vehicles, as well as related parts, accessories and merchandise. The Jaguar Land Rover business has internationally recognized brands, a product portfolio of award-winning luxury performance cars, luxury performance SUVs and premium all-terrain vehicles, brand-specific global distribution networks and research and development capabilities. As a part of our acquisition of the Jaguar Land Rover business, we acquired three major manufacturing facilities located in Halewood, Solihull and Castle Bromwich and two advanced design and engineering facilities located at Whitley and Gaydon, all in the United Kingdom, together with national sales companies in several countries.

We offer a broad portfolio of automotive products, ranging from sub-1 ton to 49 ton GVW trucks (including pickup trucks) to small, medium, and large buses and coaches to Passenger Cars, premium luxury cars and SUVs.

We have a substantial presence in India and also have global operations in connection with production and sale of Jaguar and Land Rover brand Passenger Vehicles. We were the largest Commercial Vehicle manufacturer in terms of Revenue in India and ranked among the top four Passenger Vehicle manufacturers in terms of units sold in India during Fiscal 2019 (according to SIAM). We estimate that over 9 million vehicles produced by us are being operated in India as of the date of this annual report on Form 20-F.

We operate six principal automotive manufacturing facilities in India, including at: (i) Jamshedpur in the state of Jharkhand, (ii) Pune in the state of Maharashtra, (iii) Lucknow in the state of Uttar Pradesh, (iv) Pantnagar in the state of Uttarakhand, (v) Sanand in the state of Gujarat and (vi) Dharwad in the state of Karnataka. We also operate four principal automotive manufacturing facilities in the United Kingdom through our Jaguar Land Rover business, including at: (i) Solihull in the West Midlands (ii) Castle Bromwich also in the West Midlands, (iii) Halewood in Liverpool and (iv) engine plant at Wolverhampton in the West Midlands. In Fiscal 2015, Jaguar Land Rover opened its inaugural overseas manufacturing facility in China, the China Joint Venture. In June 2016, Jaguar Land Rover opened a new manufacturing plant in Itatiaia, Brazil, with an annual production capacity of 24,000 units. Jaguar Land Rover now produces the I-PACE battery electric vehicle and the new Jaguar E-PACE in Graz, Austria under its manufacturing partnership with Magna Steyr. Furthermore, Jaguar Land Rover’s new 150,000 units per annum manufacturing plant in Nitra, Slovakia opened in October 2018 and is currently producing the Land Rover Discovery. In Fiscal 2019 Jaguar Land Rover announced that next-generation Electric Drive Units (“EDU”), developed in collaboration with BMW, will be produced at the company’s EMC in Wolverhampton. At the same time Jaguar Land Rover announced that these EDUs will be powered by batteries assembled at a new Jaguar Land Rover Battery Assembly Centre located at Hams Hall, North Warwickshire.

We expanded our international operations through mergers and acquisitions, and in India made strategic alliances involving non-Indian companies in recent years, including, but not limited to, the following:

 

   

We have a joint venture agreement with FCA Italy Spa (previously known as Fiat Group Automobiles S.p.A., Italy), which is part of the Fiat Chrysler Automobiles Group (“FCA”). Together with the FCA, we operate a facility located at Ranjangaon in Maharashtra to manufacture Passenger Cars, engines and transmissions for the Indian and overseas markets. Established in April 2008, the plant currently manufactures the Fiat Linea, Fiat Punto, Tata Indica, Jeep, Nexon, Tata Bolt and Tata Zest vehicles, as well as components for such vehicles, such as engines and transmissions. During May 2012, both the joint-venture partners decided to re-align their Indian joint venture. Accordingly, in March 2013, we and Fiat Group signed a restructuring framework agreement (the “RFA”). Under the RFA:

 

     

The joint arrangement to manufacture and assemble Fiat-branded products, Tata products and any new products (including for third parties) in accordance with the terms and conditions settled in the RFA. The current third-party orders to continue in accordance with current terms.

 

     

The distribution company, owned by FCA, is responsible for distribution of the Fiat vehicles and parts from April 1, 2013.

 

   

In December 2006, we entered into a joint venture agreement with Thonburi Automotive Assembly Plant Co. Ltd. (the “Thonburi Group”) to manufacture pickup trucks in Thailand. As of March 31, 2019, we own 95.87% of the joint venture, while the Thonburi Group owns the remaining 4.13%. The joint venture, which began vehicle production in March 2008, enabled us to access the Thailand market, which is a major market for pickup trucks, as well as other potential markets in the ASEAN region.

 

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In October 2010, TML acquired an 80% equity interest in Trilix Srl. (“Trilix”), a design and engineering company, in line with our objective to enhance our styling/design capabilities to meet global standards. With effect from December 6, 2018, TML increased its equity interest in Trilix to 100%. Trilix offers design and engineering services in the automotive sector, including styling, architecture, packaging, surfacing, macro and micro-feasibility studies and detailed engineering development. Trilix continues to implement a strategic growth policy and in March 2013 moved to a new facility as part of its ongoing implementation of this growth policy.

 

   

Jaguar Land Rover opened a manufacturing plant for the China Joint Venture in Changshu, China in October 2014 and began manufacturing the Range Rover Evoque shortly thereafter. Manufacture of the Land Rover Discovery Sport commenced in the third quarter of Fiscal 2016 followed by the long wheel base Jaguar XFL in the first half of Fiscal 2017 that went on sale in September 2016 and subsequently the long wheel base XEL that went on sale in December 2017. Total phase one investment in the joint venture was approximately RMB10.9 billion, which contributed toward the establishment of the manufacturing plant, research and development center and engine production facility. Jaguar Land Rover committed to invest RMB3.5 billion of equity capital in the China Joint Venture, representing 50% of the share capital and voting rights of the joint venture company. Investment to support phase two, which will add additional manufacturing capacity, may be supported by further capital injections from Jaguar Land Rover and Chery. In July 2017, the China Joint Venture opened an engine manufacturing facility to produce the Jaguar Land Rover 2.0-Liter petrol Ingenium engine for installation into vehicles produced locally at the joint venture plant in Changshu.

 

   

In July 2015, Jaguar Land Rover agreed to a manufacturing partnership with Magna Steyr, an operating unit of Magna International Inc,. to build certain future Jaguar Land Rover models in Graz, Austria to support Jaguar Land Rover’s growth plans. We believe that Magna Steyr has extensive contract manufacturing expertise working with many other car manufacturers globally. The Jaguar I-PACE battery electric vehicle and the Jaguar E-PACE are currently manufactured at the plant in Graz, Austria.

 

   

In December 2015, Jaguar Land Rover concluded an agreement with the Government of the Slovak Republic for the development of a new manufacturing plant in western Slovakia with the first cars expected to be produced in 2018. The facility represents an investment of GBP1 billion and initial annual capacity of up to 150,000 units. The plant opened in October 2018 and currently produces the Land Rover Discovery.

 

   

As previously disclosed in our Fiscal 2017 annual report on Form 20-F filed on July 28, 2017, TML signed an agreement with Warburg Pincus in June 2017 to divest an approximately 30% stake in Tata Technologies Limited (“TTL”) held by it along with its subsidiary Sheba Properties Limited (“Sheba”), following which Warburg Pincus would have owned a 43% equity interest in TTL. However, due to delays in securing regulatory approvals required for the closing of the transaction as well as the inability of TTL to meet certain contractually-agreed to performance thresholds because of market challenges, the parties to the transaction have mutually decided not to proceed with the closing of the transaction.

 

   

On March 30, 2017, the Board approved a scheme of merger and arrangement between TML and TML Drivelines Limited (“TMLDL”), a wholly-owned subsidiary of TML. The merger was completed on April 30, 2018. The merger had no impact on our consolidated financial statements.

 

   

On May 23, 2018, the Board approved the sale of TML’s shareholding in its wholly-owned subsidiary, TAL Manufacturing Solutions Limited, to Tata Advanced Systems Ltd., a Tata group company. The divestment of TAL Manufacturing Solutions Limited was closed on March 29, 2019 and TML has received Rs.5,334 million, and has acquired the non-aerospace business of TAL Manufacturing Solutions Limited for Rs.1 million. The acquisition of non-aerospace business had no impact on our consolidated financial statements.

Please see Item 4.B “Information on the Company—Business Overview—Our Strategy—Capital and Product Development Expenditures” and Item 5.B “Operating and Financial Review and Prospect—Liquidity and Capital Resources—Capital Expenditures” of this annual report on Form 20-F for details on our principal capital expenditures.

Through our other subsidiary and associate companies, we are engaged in providing engineering and automotive solutions, construction equipment manufacturing, automotive vehicle components manufacturing and supply chain activities, machine tools and factory automation solutions, high-precision tooling and plastic and electronic components for automotive and computer applications, and automotive retailing and service operations. TTL is engaged in providing specialized engineering and design services, product lifecycle management (“PLM”) and product-centric IT services to leading global manufacturers. TTL’s customers are among the world’s premier automotive, aerospace, industrial heavy machinery and consumer durables manufacturers. As of March 31, 2019, 72.28% of TTL was owned by the Company, and TTL had 12 subsidiaries and one joint venture.

 

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TML Distribution Company Limited (“TDCL”), TML’s wholly-owned subsidiary, was incorporated on March 28, 2008. TDCL provides distribution and logistics support for distribution of our products throughout India. TDCL commenced its operations in Fiscal 2009.

TML’s subsidiary, Tata Motors Finance Limited (“TMFL”), was incorporated on June 1, 2006, with the objective of becoming a preferred financing provider for our dealers’ customers by capturing customer spending over the vehicle life-cycle relating to vehicles sold by us. In India, TMFL is registered with the RBI as a systemically important non-deposit taking NBFC and is classified as an asset finance company under the RBI’s regulations on NBFCs. In Fiscal 2015, TMFL acquired 100% shareholding of Rajasthan Leasing Private Ltd., which subsequently changed its name to Tata Motors Finance Solutions Private Ltd., an NBFC registered with the RBI. On June 4, 2015, Tata Motors Finance Solutions Private Ltd. was converted into a public limited company, named Tata Motors Finance Solutions Limited (“TMFSL”). TMFSL focuses on the used vehicle financing business. On March 31, 2016, TMFL acquired 100% shareholding in Sheba, a wholly-owned subsidiary of TML and an NBFC-registered entity with the RBI, as a part of restructuring and consolidation of financial services companies under TMFL. Pursuant to restructuring arrangements, TMFL transferred its new vehicle finance business to Sheba on January 31, 2017. During Fiscal 2018, TMFL changed its name to TMF Holdings Limited (“TMFHL”) and Sheba changed its name to TMFL. During Fiscal 2019, TMFHL had acquired 26% of the share capital of Loginomic Tech Solutions Pvt. Limited, a tech based freight aggregator.

TML’s wholly-owned subsidiary, Tata Motors Insurance Broking and Advisory Services Limited (“TMIBASL”) is a licensed direct general insurance broker with the Insurance Regulatory and Development Authority of India that operates in the Indian market and has plans to branch out globally to seek additional business opportunities. TMIBASL commenced business in Fiscal 2008 and provides end-to-end insurance solutions in the retail sector with a focus on the automobile sector. TMIBASL offers services to various OEMs in the Passenger Vehicle, commercial and construction equipment markets, including to TML.

In May 2018, the Board approved the sale of TML’s defense business, to Tata Advanced Systems Limited, a Tata group company. TML will receive an upfront consideration of Rs.1,000 million and a deferred consideration of 3% of the Revenue generated from certain projects for up to 15 years, starting in Fiscal 2020, subject to a maximum deferred consideration of Rs.17,500 million.

As of March 31, 2019, our operations included 99 consolidated subsidiaries, 2 joint operations, 3 joint ventures and 30 equity method affiliates, in respect of which we exercise significant influence. As of March 31, 2019, we had approximately 82,797 permanent employees, including approximately 55,225 permanent employees at our consolidated subsidiaries and joint operations.

Tata Incorporated serves as the Company’s authorized U.S. representative. The address of Tata Incorporated is 101 Park Avenue, New York, NY 10178, the United States of America.

The Company’s registered office is located at Bombay House, 24, Homi Mody Street, Mumbai 400 001, India. The Company’s telephone number is +91-22-6665-8282 and the Company’s website address is www.tatamotors.com. The Company’s website does not constitute a part of this annual report on Form 20-F.

B. Business Overview

We primarily operate in the automotive segment. Our automotive segment includes all activities relating to the development, design, manufacture, assembly and sale of vehicles, including financing thereof, as well as sale of related parts and accessories. The acquisition of the Jaguar Land Rover business has enabled us to enter the premium car market in developed markets, such as the United Kingdom, the United States, Europe and China, as well as several emerging markets, such as Russia, Brazil and South Africa, amongst others. Going forward, we expect to focus on profitable growth opportunities in our global automotive business, through new products and market expansion. Within our automotive operations, we continue to focus on integration and synergy through sharing of resources, platforms, facilities for product development and manufacturing, sourcing strategy and mutual sharing of best practices.

 

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A core initiative of ours was the implementation of the Organization Effectiveness (“OE”) program, a strategic program designed to overhaul and transform the Tata Motors Group. Pursuant to the changes implemented as a result of the OE program, the Tata Motors Group has drawn separate strategies for Commercial Vehicles, Passenger Vehicles and financing business from Fiscal 2019. Commencing Fiscal 2019, the reportable segments are as follows:

 

   

Automotive operations: Our automotive segment consists of the following four reportable sub-segments:

 

     

Tata Commercial Vehicles”: Includes Commercial Vehicles (SCV & Pickups, Medium and Heavy Commercial Vehicles and Intermediate Light Commercial Vehicle and CV Passenger Vehicles) manufactured under the Tata and Daewoo brands (and excludes vehicles manufactured under the Jaguar Land Rover brand);

 

     

Tata Passenger Vehicles”: Includes Passenger Vehicles and Utility Vehicles manufactured under the Tata and Fiat brands (and excludes vehicles manufactured under the Jaguar Land Rover brand);

 

     

Jaguar Land Rover: Includes vehicles manufactured under the Jaguar Land Rover brand (and excludes vehicles manufactured under the Tata, Fiat, Daewoo and other brands); and

 

     

Vehicle Financing”: Includes financing of TML and Jaguar Land Rover new vehicles, pre-owned vehicles including other OEMs brands and corporate lending to our channel partners,

 

   

Other operations: Other operations consist of IT services and machine tools and factory automation solutions.

We believe that this structure improves speed, agility and simplicity within our business units, and enable strong functional leadership, improved decision-making, quicker responses to changing market conditions and clear accountability.

We produce a wide range of automotive products, including:

 

   

Passenger Vehicles: Our range of Tata-branded Passenger Cars includes the Nano (micro), the Bolt and the Tiago (compact) in the hatchback category, and the Tigor and the Zest (mid-sized) in the sedan category. We have expanded our Passenger Car range with several variants and fuel options designed to suit various customer preferences. Our Jaguar Land Rover operations have an established presence in the premium Passenger Car market under the Jaguar brand name. There are seven car lines currently manufactured under the Jaguar brand name, including the F-TYPE two-seater sports coupe and convertible, the XF sedan (including the long wheel base XFL at the China Joint Venture), the XJ saloon, the XE sports saloon (including long wheel base XEL at the China Joint Venture), the F-PACE Jaguar’s luxury performance SUV), the Jaguar E-PACE compact SUV (also manufactured at the China Joint Venture), and the Jaguar I-PACE (an all-electric performance SUV and Jaguar’s first battery electric vehicle).

 

   

Utility Vehicles: We manufacture a range of Tata brand Utility Vehicles, including the Harrier, the Hexa, the Nexon, the Sumo and the Safari Storme. We offer two variants of the Safari: the Dicor and the Storme. We also offer a variant of the Sumo, the Sumo Gold, which is an entry level UV. There are six car lines under the Land Rover brand, comprising the Range Rover, Range Rover Sport, Range Rover Evoque, the Land Rover Discovery, Land Rover Discovery Sport and the Range Rover Velar.

 

   

SCVs & Pickups: We manufacture a variety of small Commercial Vehicles (less than 3.5 ton), including pickup trucks. This includes the Tata Ace, India’s first indigenously developed mini-truck, with a 0.7 ton payload with different fuel options; the Super Ace & Ace Mega, with a 1-ton payload; the Ace Zip, with a 0.6 ton payload. In addition, we launched the Xenon Yodha pickup truck range with single cab and double cab variants and 4X2, 4X4 Options.

 

   

MHCVs and ILCVs: We manufacture a variety of MHCVs, and ILCVs, which include trucks, tractors, tippers, multi-axle vehicles and pickups with GVWs (including payload) of between 3.5 tons and 55 tons. We also provide fully built solutions for special applications like garbage compactors, containers, tankers, reefers, and diesel bowser to customers and various government organizations including solutions related to national defense. In addition, through TDCV, we manufacture a wide array of trucks ranging from 215 horsepower to 560 horsepower, including dump trucks, tractor-trailers, mixers and cargo vehicles. Our signature product is the Prima and Prima LX range of trucks, which are sold in India and South Korea as well as exported to a number of countries in South Asia, the Middle East and Africa. The SIGNA range of new MHCV trucks launched in 2016 has been extended to several additional tractor and tipper variants. The newest addition to this portfolio is the Ultra range panning from 7-ton Light Commercial Vehicles (“LCV”) to 30-ton tractors. All these platforms seamlessly integrate into the pre-increased axle load (16-49 tons) and post-increased axle load (18.5 tons to 55 tons) ranges.

 

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CV Passenger Vehicles: We manufacture a variety of passenger carriers including buses. Our products include Magic and the Magic Iris, including an electric variant, both of which are passenger variants for commercial transportation developed on the Tata Ace platform; and the Winger. We also offer a range of buses, which includes the Semi Deluxe Starbus Ultra Contract Bus and the new Starbus Ultra. Our range of buses is intended for a variety of uses, including as intercity coaches (with both air-conditioned and non-air-conditioned luxury variants), as school transportation and as ambulances. In Fiscal 2019, we started deliveries of electric buses to various state road transport undertakings in India.

Our Strategy

We intend to further strengthen our position in the Indian automobile industry by investing in new products that exceed customer expectations, improving customer experiences across all our touchpoints, making rigorous cost improvements across our product range, and optimizing our manufacturing and distribution strategy. We have pursued a strategy of increasing our presence in the global automotive markets and enhancing our product range and capabilities through strategic acquisitions and alliances. Building on the success of our ‘Turnaround’ action plan, we have introduced ‘Turnaround 2.0’. Turnaround 2.0 aims at ‘Winning Decisively’ in the Commercial Vehicle business, ‘Winning Sustainably’ in the Passenger Vehicle business and embedding ‘Turnaround’ into our corporate culture. We aim to achieve consistent, competitive, cash accretive growth. Jaguar Land Rover is committed to achieving sustainable, profitable growth with positive cash flows in the medium to long term with the strong focus on cost reduction and affordability of capital investments, supported by the Projects Charge and Accelerate cash management initiatives. Our goal is to position ourselves as a major international automotive company, offering the widest range of products across product segments and applications. Our strategy to achieve these goals consists of the following elements:

Continued focus on new product development

Our recent product launches and anticipated product launches include the following:

 

   

Several new variants across the Prima and Signa ranges of medium and heavy trucks were launched during Fiscal 2019. These include LPT 1618 5L Turbotronn – the first 4-cylinder engine offering in the MHCV range, Signa 4923.T and 4823.T – India’s first range of 16 wheeler trucks @ 49T and 47.5T GVW, the entire range of increased axle load range of products from 18.5T to 55T GVW across trucks, tractors and a new range of Tippers: - 1913.T and 1918.T, 2818.T, 3518.T, 4223.T, 4623.S, 5523.S, 2823.TK/K, 1918K, and 1923K.

 

   

In our Ultra range of ILCVs, in Fiscal 2019, we launched the Ultra 1518.T, Ultra 1412, Ultra T.7 with smaller cabin design suitable for intercity operations in domestic and international market. While in the regular Intermediate Commercial Vehicle (“ICV”) range LPT407/27 FE, LPT 1412SLP, LPT 1212CRX, LPT1512 CRX, SFC 909, LPT 909/49 CNG and India’s first 13.8T CNG vehicle LPT1412 CNG were launched. We also launched in the year specialized e-commerce containers range with advanced features like surveillance cameras, OTP-based lock, and load sensors in three major cities (Gurugram, Bengaluru and Mumbai).

 

   

Tata Ace Gold, popular among the target customer group, was launched this year and added to our strength in the Ace family of small Commercial Vehicles which saw last year the launch of the XL series (Ace XL, Zip XL and Mega XL) with increased load body sizes and reduced total cost of ownership.

 

   

In the passenger segment, we launched the Winger 15 seater and 12 seater to cater to the ever-increasing tour and travel segment. We also introduced the 1623 model, a 230 horsepower 12 meter bus typically used for intercity coaches. Fiscal 2019 saw the introduction of EGR vehicles on the 1515 range and 1212 range, a bus model meant to cater to the higher seating capacity rugged application, which is very prevalent in India today. On the other end of the spectrum, we introduced the 407 model on the smaller WB (2900 WB) as a perfect fit to intercity congested roads for both school and staff applications.

 

   

We became the first OEM in India to deploy ADAS, which we did in our Prima and Signa range in Fiscal 2018. This package includes electronic stability control, automatic traction control, hill start aid, a collision mitigation system and a lane departure warning system. Several key products were launched in international markets in Fiscal 2019 such as Ultra in Malaysia, LPT 1212 in Bangladesh, CR range of ILCVs in Bhutan, Signa series in Bangladesh and Mozambique, Prima 3338 range of tippers in Indonesia, Super Ace mint E4 in the Philippines and Vietnam, Ace Mega XL in SAARC and Southeast African markets, Magna in Bangladesh and Tanzania, Elanza in Oman, Ultra 3 L bus in SAARC and Southeast African markets and E4 models in Sri Lanka.

 

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Nexon, our subcompact SUV, was launched in September 2017.

 

   

H5X and 45X, our two models, unveiled in February 2018, are based on the new Optimal Modular Efficient Global Advanced (“Omega”) architecture, which is derived from Land Rover’s D8 platform and Agile, Light, Flexible and Advanced (“ALFA”) platform.

 

   

Harrier, the first model from Omega architecture, was launched in January 2019.

 

   

Jaguar Land Rover’s first battery electric vehicle, the Jaguar I-PACE went on sale in June 2018 (and was named the 2019 World Car of the Year, 2019 World Car Design of the Year, 2019 World Green Car and 2019 European Car of the Year).

 

   

E-Pace launched and went on sale from the China Joint Venture in September 2018.

 

   

An all new Range Rover Evoque went on sale in Q4 Fiscal 2019 (with hybrid options to follow later in 2019).

 

   

A refreshed Jaguar XE launched in Q4 Fiscal 2019 with exterior design updates and a significantly improved infotainment system.

 

   

In July 2018, we announced the reveal of the all new Land Rover Defender for later in 2019.

 

   

In October 2018, we announced Project Charge to deliver GBP2.5 billion of cost, cash and profit improvements by the end of Fiscal 2020, and Project Accelerate to support long-term sustainable profitable growth.

 

   

In January 2019, we announced the production of next-generation EDUs at the EMC in Wolverhampton later in 2019.

 

   

In January 2019, we announced that the batteries to power the EDU’s will assembled at a new Jaguar Land Rover Battery Assembly Centre located at Hams Hall, North Warwickshire in the United Kingdom.

 

   

In February 2019, we announced the 6 cylinder Ingenium 3.0 Liter petrol engine to be manufactured at the EMC in Wolverhampton, the United Kingdom and to be introduced into Range Rover Sport.

We have plans to expand the range of our product base further, supported by our strong brand recognition in India, understanding of local consumer preferences, in-house engineering capabilities and extensive distribution network. Facing growing competition, changing technologies and evolving customer expectations, we understand the importance of bringing new platforms to address market gaps and further enhance our existing range of vehicles to ensure customer satisfaction. Our capital expenditures totaled Rs.342,236 million, Rs.415,103 million and Rs.311,627 million during Fiscal 2019, Fiscal 2018 and Fiscal 2017, respectively, and we currently plan to invest approximately of Rs.400 billion in Fiscal 2020 in capacity, new products and technologies.

Jaguar Land Rover continues to invest in enhancing its technological strengths through in-house research and development activities, including the development of its engineering and design centers which centralize Jaguar Land Rover’s capabilities in product design and engineering. Jaguar Land Rover also participates in advanced research consortia that bring together leading manufacturers, suppliers or academic specialists in the United Kingdom and are supported by funding from the UK Government’s Technology Strategy Board.

Leveraging our capabilities

We have manufacturing facilities across five locations in India, which deliver mobility solutions to four product lines with products ranging from 0.5 tons to 55 tons. These state-of-art facilities cater to not the only domestic and international market but also defense markets. To date, over a history of 65 years, we have manufactured more than 9.3 million Commercial Vehicles. In Fiscal 2019, we have delivered more than 0.5 million vehicles while driving our operating costs towards benchmark levels through various initiatives and levers. We also endeavor to make our operations sustainable in terms of safety and health, corporate responsibility, and environment friendly with stringent targets in these areas enabled by various initiatives and guided by strong governance committees

Our product portfolio of Tata-brand vehicles includes the Nano, Tiago, Tigor, Zest, Bolt, Nexon, Hexa, Harrier, Sumo and Safari Storme, which enable us to compete in various Passenger Vehicle market categories. We also offer alternative fuel vehicles. We also intend to expand our sales reach and volumes in rural areas, where an increase in wealth has resulted in a declining difference between urban and rural automobile purchase volumes.

 

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We believe that the foundation of our growth over the last five decades has been a deep understanding of economic conditions and customer needs, and the ability to translate this understanding into desirable products though research and development. In India, our engineering research centre (the “ERC”), established in 1966, has enabled us to successfully design, develop and produce our own range of vehicles. Jaguar Land Rover’s research and development operations are built around state-of-the-art engineering facilities, extensive test tracks, testing centers, design hubs and a virtual innovation center. The ERC in India and Jaguar Land Rover engineering and development operations in the United Kingdom have identified areas to leverage the facilities and resources to enhance the product development process and achieve economies of scale. Furthermore, the Company has a wholly-owned subsidiary, Tata Motors European Technical Centre PLC (“TMETC”), in the United Kingdom, which is engaged in automobile research and engineering.

We believe that our in-house research and development capabilities, including those of our subsidiaries Jaguar Land Rover, TDCV and Trilix in Italy, TMETC in the United Kingdom and our joint ventures with Marcopolo S.A. of Brazil in India, with Thonburi in Thailand and Tata Africa Holdings (SA) (Proprietary) Ltd. in South Africa, will enable us to expand our product range and extend our geographical reach. We continually strive to achieve synergy wherever possible with our subsidiaries and joint ventures.

We have continued modernizing our facilities to meet demand for our vehicles. Our Jamshedpur plant, which manufactures our entire range MHCVs, including the Prima, both for civilian and defense uses, was our first plant, set up in 1945 to manufacture steam locomotives. It led our entry into Commercial Vehicles in 1954. The Jamshedpur plant has been modernized over the years and in Fiscal 2015, we celebrated 60 years of truck manufacturing at our first manufacturing and engineering facility in Jamshedpur.

Jaguar Land Rover invests substantially in the development of new products for new and existing segments by introducing new powertrains and technologies, including CO2 reduction and electrification that satisfy both customer preferences and regulatory requirements. Jaguar Land Rover expects investment spending of up to GBP4.0 billion in Fiscal 2020. Around half of that investment is expected to be spent on research and development with the other half expected to be spent on tangible fixed assets such as facilities, tools and equipment as well as other investments.

In October 2014, Jaguar Land Rover opened its EMC at Wolverhampton, in the West Midlands. The plant currently manufactures Jaguar Land Rover’s own in-house 2.0-Liter diesel and gasoline engines which are now available across the majority of models. Jaguar Land Rover’s in-house engines have been engineered to ensure maximum manufacturing efficiency, flexibility to increase the number of engine variants and consistently high quality. In July 2017, the China Joint Venture opened its engine manufacturing facility which produces Jaguar Land Rover own in-house 2.0-Liter petrol Ingenium engine for installation into vehicles produced locally at the joint venture plant in Changshu. In January 2019, Jaguar Land Rover announced that next-generation EDU, developed in collaboration with BMW, will be produced at the company’s EMC in Wolverhampton. At the same time Jaguar Land Rover announced that these EDUs will be powered by batteries assembled at a new Jaguar Land Rover Battery Assembly Centre located at Hams Hall, North Warwickshire. In February 2019, Jaguar Land Rover announced that a 6 cylinder Ingenium 3.0 Liter petrol engine will be manufactured at the EMC in Wolverhampton.

The Jaguar E-PACE and the all-electric Jaguar I-PACE battery electric vehicle are produced under the manufacturing partnership with Magna Steyr, in Graz, Austria. Jaguar Land Rover’s new manufacturing facility in Nitra, Slovakia (Europe), with annual capacity of 150,000 units, opened in October 2018 and is currently producing the Land Rover Discovery. Subject to feasibility studies, Jaguar Land Rover has the option to invest a further GBP500 million to expand capacity to 300,000 units annually. In June 2016, Jaguar Land Rover opened its first wholly-owned international manufacturing plant in Brazil, which manufactures the Range Rover Evoque, Land Rover Discovery Sport and the Jaguar E-PACE for the local market.

Continuing focus on high quality and enhancing customer satisfaction

The Company also collaborated with a major automobile oil manufacturer, Indian Oil Corporation Limited, to launch Tata Motors Genuine Oil, a single brand of affordable lubricating oils that is guaranteed by the Company for use across our product lines.

Our various efforts to improve customer satisfaction levels have begun to receive recognition. In a recent Net Promoter Score Brand Health Track survey conducted by Millward Brown Market Research Services India Pvt. Ltd., TML Commercial Vehicles received an industry-leading score of +61, significantly ahead of the competition. In addition, the Company stood first amongst the competition in both sales and service satisfaction scores in the Sales Satisfaction Study survey conducted by Nielsen (India) Private Limited in Fiscal 2019.

 

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During Fiscal 2019, we won many prestigious awards at various commercial vehicle forums. We won seven awards at the Apollo CV Awards 2019 including the CV maker of the year, CV of the year for 9m Electric Bus and five other best in segment awards in the form of MCV Cargo carrier of the year for LPT1618. The Ultra 9m electric bus also won the CV people mover of the year award, Tata LPT 2518 e-commerce won the special application award, Prima 2530.K Lx(6x4) won the MCV tipper of the year award, while the ICV cargo carrier of the year was awarded to the Company for the Ultra 1412. We also received nine prestigious awards at ET Now CV awards and five awards at Flywheel Auto Awards.

One of our principal goals is to achieve international quality standards for our products and services. We have established a comprehensive purchasing and quality control system that is designed to consistently deliver quality products and superior service. We also have a program for assisting vendors from whom we purchase raw materials or components to maintain quality. Each vendor is reviewed on a quarterly basis on parameters of quality, cost and delivery, and preference is given to vendors with TS 16949 certification.

Through close coordination supported by our IT systems, we monitor quality performance in the field and implement corrections on an ongoing basis to improve the performance of our products, thereby improving customer satisfaction. We believe our extensive sales and service network has also enabled us to provide quality and timely customer service. We are encouraging focused initiatives at both sales and service touch points to enhance customer experience and strive to be the best in class, and we believe that the reach of our sales, service and maintenance network provides us with a significant advantage over our competitors. We ranked a clear second for the consecutive second year in the J.D. Power Asia Pacific 2018 India customer service index study score.

In our Passenger Vehicle segment, we received a strong response and accolades with 11 awards during the year.

 

No.

  

Media

  

Category

  

Product

1.    Autoportal    Best New Variant of the Year 2018    Tiago JTP
2.    Auto Tech Review IATIA 2018    Engine of the Year- Performance Engine of the Year    Tigor JTP
3.    Autocar India    Best Manufacturer of the Year    Tata Motors
4.    News18   

Hatchback of The Year

Sedan of the Year

  

Tiago JTP

Tigor JTP

5.    Quarter Mile Awards    Performance Car of the Year    Tiago JTP and Tigor JTP
6.    Auto Components India    JV/Partnership of the Year    JTSV
7.    Car India    Manufacturer of the Year    Tata Motors
8.    Exhibit    Upcoming Car of the Year 2019    Tata Harrier
9.    Afaqs    Top 10 Brands Overall    Tata Motors (Passenger Vehicles)
10.

11.

  

Times Auto Awards

Motor Vikatan

  

Manufacturer of the Year

Performance Car of the Year

Best Manufacturer of the Year

  

Tata Motors

Tiago JTP and Tigor JTP

Tata Motors

During Fiscal 2019, The TML Commercial Vehicles Business Unit won numerous awards, including:

ET NOW RETAILS AWARDS

 

No.

  

Award Category

  

Awarded Model

1.   

CV of the Year

  

Ultra 1412

2.   

LCV Cargo Mover of the Year:

  

LPT407 EX FE

3.   

HCV Rigid Cargo of the Year

  

Tata 4223

4.   

MCV Cargo Carrier of the Year

  

Tata LPT 1618 5L Turbotronn

5.   

Small People Mover of the Year

  

Winger

6.   

MHCV People Mover of the Year

  

Magna

7.   

Promising Debut of the Year

  

Signa 4923.T

8.   

Marketing Campaign of the Year Award

  

Tata Ace Gold

 

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APOLLO CV AWARDS

 

No.

  

Award Category

  

Awarded Model/OEM

1.   

CV Maker of the Year

  

Tata Motors Limited

2.   

CV / ICV People Mover of the Year

  

Ultra 9m Electric Bus

3.   

MCV Cargo Carrier of the Year

  

LPT 1618 Turbotronn

4.   

Special Application of the Year

  

LPT 2518 E Commerce

5.   

MCV Tipper of the Year

  

Prima 2530.K Lx(6x4)

6.   

ICV Cargo Carrier of the Year

  

ULTRA 1412

FLYWHEEL AWARDS

 

No.

  

Award Category

  

Awarded Model/OEM

1.   

Flywheel Commercial Vehicle/Medium Duty Truck of the Year

  

Tata Ultra 1412

2.   

Flywheel CV Manufacturer of the Year

  

Tata Motors

3.   

Flywheel Heavy Duty Truck of the Year

  

Tata Prima

4.   

Flywheel Light Duty Truck of the Year

  

Tata Ace Gold

Jaguar and Land Rover has received over 200 awards from leading international motoring writers, magazines and opinion leaders during Fiscal 2019, reflecting the strength of its model line-up, design and engineering capabilities. A selection of recent awards is listed below.

 

Award

  

Model

  

Awarding Institution

  

Date

World Car of the Year    I-PACE    World Car of the Year Awards    April 2019
World Car Design of the Year    I-PACE    World Car of the Year Awards    April 2019
World Green Car of the Year    I-PACE    World Car of the Year Awards    April 2019
European Car of the Year    I-PACE    European Car of the Year Awards    March 2019
Best Compact SUV    Range Rover Evoque    GQ Car Awards    February 2019
Best Design and Styling Award    Range Rover Velar    Autocar India    January 2019

Environmental performance

Jaguar Land Rover’s strategy is to invest in products and technologies that are ahead of expected stricter environmental regulations and ensure that it benefits from a shift in consumer awareness of the environmental impact of their vehicles. Jaguar Land Rover’s environmental vehicle strategy focuses on developing new propulsion technology, overall vehicle weight reduction and reducing parasitic losses through the driveline. It has developed plug-in hybrid electric vehicle (“PHEV”) versions of the Range Rover and Range Rover Sport, without compromising the vehicles’ off-road capability or load space.

Jaguar Land Rover uses aluminum and other lightweight materials to reduce overall vehicle weight and improve fuel and CO2 efficiency. For example, the Jaguar XE is the only vehicle in its class to use an aluminum-intensive monocoque. Jaguar Land Rover plans to continue to build on this expertise and extend the application of aluminum construction as they develop a range of new products. The aluminum body architecture introduced on the Jaguar XE is also used in the lightweight Jaguar XF, Jaguar F-PACE and Range Rover Velar. The Land Rover Discovery uses the same lightweight architecture as the Range Rover and Range Rover Sport. Jaguar Land Rover is developing a new modular longitudinal architecture for future models.

Jaguar Land Rover has also developed more efficient powertrains and other related technologies. This includes smaller and more efficient 2.0-Liter diesel and gasoline engines (now available across the majority of its models range), stop-start, PHEVs, as well as battery electric propulsion technologies. Jaguar Land Rover’s smaller and more efficient family of Ingenium diesel and gasoline engines, as well as the Range Rover and Range Rover Sport PHEVs, alternative powertrains such as the Jaguar I-PACE battery electric vehicle, and the further rollout of electrification across the model range is anticipated to contribute to improved environmental performance.

Jaguar Land Rover is also taking measures to reduce emissions, waste and the use of natural resources in all of its operations.

 

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Mitigating cyclicality

The automobile industry is impacted by cyclicality. To mitigate the impact of cyclicality, we plan to continually strengthen our operations through gaining market share across different segments, and offering a wide range of products in diverse geographies. We also plan to continue to strengthen our business operations other than vehicle sales, such as financing of our vehicles, spare part sales, service and maintenance contracts, sales of aggregates for non-vehicle businesses, reconditioning of aggregates and sale of castings, production aids and tooling/fixtures in order to reduce the impact of cyclicality of the automotive industry.

Expanding our international business

Our international expansion strategy involves entering into new markets where we have an opportunity to grow and introduce new products to existing markets in order to grow our presence in such markets. Our international business strategy has already resulted in the growth of our international operations in select markets and chosen segments over the last five years. Based on our internal assessments, in recent years, we have grown our market share across various African and Middle East markets such as Tanzania, Saudi Arabia, and United Arab Emirates, in addition to maintaining our dominant market position in the South Asian markets of Bangladesh, Nepal and Sri Lanka based on data compiled by our country managers. In keeping with our strategy to enter and grow in new regions, we have focused on business in the ASEAN countries, where in recent years we entered Indonesia, Malaysia, Vietnam and the Philippines. We entered Tunisia two years ago, and are already a major player in the pickup truck market.

We have also expanded our international presence through acquisitions and joint ventures. Our acquisition of Jaguar Land Rover significantly expanded our presence in overseas markets. Through Jaguar Land Rover, we offer products in the premium performance car and premium all-terrain vehicle categories with globally recognized brands, and we have diversified our business across markets and product categories as a result. We intend to build upon the internationally recognized brands of Jaguar Land Rover. The production of the Range Rover Evoque commenced at the China Joint Venture in October 2014 and went on general retail sale in China in February 2015. Production of the Discovery Sport was also added as the second vehicle to be manufactured at the China Joint Venture in Fiscal 2016, which went on general retail sale in November 2015. In September 2016, the long wheelbase Jaguar XFL went on sale followed by the long wheel base Jaguar XEL in December 2017. The E-PACE also went on sale in November 2017 and commenced sales from the China Joint Venture in September 2018. The all new Land Rover Discovery went on sale in February 2017 and the new Range Rover Velar went on sale in July 2017 with the refreshed 18 model year Range Rover and Range Rover Sport (including PHEV models) going on sale from November 2017. The multi award winning Jaguar I-PACE went on sale in June 2018 and the all new Evoque went on sale in February 2019. The new refreshed Jaguar XE is now available to order and the refreshed Land Rover Discovery Sport was revealed in May 2019.

During Fiscal 2008, we established a joint venture company to undertake manufacture and assembly operations in South Africa, which has been one of our largest export markets from India in terms of unit volume. The joint venture company, Tata Motors (SA) (Proprietary) Limited, commenced operations in July 2011. Currently, Tata Motors (SA) (Proprietary) Limited caters to the South African and Mozambique markets and, in Fiscal 2019, sold 963 units.

Reducing operating costs

We believe that our scale of operations provides us with a significant advantage in reducing costs and we plan to continue to sustain and enhance this cost advantage.

Our ability to leverage our technological capabilities and our manufacturing facilities among our Commercial Vehicles and Passenger Vehicles businesses enables us to reduce cost. For example, the diesel engine used in our Indica was modified to engineer a new variant for use in the Ace platform, which helped to reduce the project cost. Similarly, platform sharing for the manufacture of pickup trucks and UVs enables us to reduce capital investment that would otherwise be required, while allowing us to improve the utilization levels at our manufacturing facilities. Where appropriate, we intend to apply our existing low-cost engineering and sourcing capability to Jaguar Land Rover vehicles.

We are working towards the consolidation of our future Passenger Vehicles on two architectures: the ALFA architecture and the Omega architecture. With all products coming out of these two platforms, we plan to utilize cost benefits coming out of common parts and economies of scale to continue our Passenger Vehicles turnaround. Similar efforts are being taken with our Commercial Vehicles as well.

 

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Our vendor relationships also contribute to our cost reductions. For example, we believe that the vendor rationalization program that we are undertaking will provide economies of scale to our vendors, which would benefit our cost programs. We are also undertaking various internal and external benchmarking exercises that would enable us to improve the cost effectiveness of our components, systems and sub-systems.

We have intensified efforts to review and realign our cost structure through a number of measures such as reduction of manpower costs and rationalization of other fixed costs. Our Jaguar Land Rover business continues to focus on cost management initiatives including Project Charge and Project Accelerate launched in Fiscal 2019, as well as streamlining its purchasing processes and building on its strong relationships with suppliers while increasing employee deployment and flexibility across its sites. In addition, as explained above, our Jaguar Land Rover business is developing its new modular longitudinal architecture for application on future models.

Enhancing capabilities through the adoption of superior processes

Tata Sons and the entities promoted by Tata Sons, including us, aim at improving quality of life through leadership in various sectors of national economic significance. In pursuit of this goal, Tata Sons and the Tata Sons-promoted entities have institutionalized an approach, called the ‘Tata Business Excellence Model’, which has been formulated along the lines of the Malcolm Baldridge National Quality Award to enable us to improve performance and attain higher levels of efficiency in our businesses and in discharging our social responsibility. The model aims to nurture core values and concepts embodied in various focus areas such as leadership, strategic planning, customers, markets and human resources, and to translate them to operational performance. Our adoption and implementation of this model seeks to ensure that our business is conducted through superior processes.

We have deployed a balance score card system for measurement-based management and feedback. We have also deployed a new product introduction process for systematic product development and a PLM system for effective product data management across our organization. We have adopted various processes to enhance the skills and competencies of our employees. We have also enhanced our performance management system, with appropriate mechanisms to recognize talent and sustain our leadership base. We believe these will enhance our way of doing business, given the dynamic and demanding global business environment.

Expanding customer financing activities

Given that financing is a critical factor in vehicle purchases, and in light of the rising consumer aspirations in India, we intend to expand our vehicle financing activities to enhance our sales. In addition to improving our competitiveness in customer attraction and retention, we believe that expanding the financing business may also contribute toward moderating the impact on our financial results from the cyclical nature of vehicle sales. As part of our efforts, we have teamed up with various public sector, cooperative and Grameen banks to introduce new financing schemes. TMFL has increased its reach by opening a number of limited services branches in cities classified as tier 2 and tier 3 by the Government of India. During Fiscal 2017, 49 spoke branches were introduced. These branches are attached to hub branches, which increase customer touchpoint and expedite loan processing times. This has reduced turnaround times and, we believe, improved customer satisfaction. In addition to TML dealer sales outlets and direct sales agents, TMFL has 267 branches throughout India. TMFSL’s channel finance initiative and fee-based income have also helped improve profitability. To facilitate increased sales, we are also working on arranging financing tie-ups in our international markets.

Continuing to invest in technology and technical skills

We believe we are one of the most technologically advanced indigenous vehicle manufacturers in India. Over the years, we have enhanced our technological strengths through extensive in-house research and development activities. Further, our research and development facilities at our subsidiaries, such as TMETC, TDCV, TTL, and Trilix, together with the two advanced engineering and design centers of Jaguar Land Rover, have increased our capabilities in product design and engineering. In our Jaguar Land Rover business, we are committed to investments in new technologies to develop products that meet the challenges and opportunities of the premium market, including developing sustainable technologies, like electric propulsion, to improve fuel economy and reduce CO2 emissions and new modular longitudinal architecture. We consider technological leadership to be a significant factor in continued success, and therefore intend to continue to devote significant resources to upgrade our technological base.

 

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Maintaining financial strength

Our cash flow from operating activities in Fiscal 2019 and Fiscal 2018 was Rs.188,890 million and Rs.238,574 million, respectively. Our operating cash flows are primarily due to our Jaguar Land Rover business, implementation of cost reduction programs, and prudent working capital management at Tata Motors Limited. We have established processes for project evaluation and capital investment decisions with an objective to enhance our long-term profitability.

Leveraging brand equity

Our Commercial Vehicle initiative, Project Neev, provides a growth program for rural India designed to promote self-employment. Local unemployed rural youth have been enrolled and trained to work from home as promoters of our Commercial Vehicles. Project Neev is currently operational in 25 states in India and has engagements in 448 districts. The rural penetration drive initiated through Project Neev has deployed an approximately 9,500-member dedicated team in towns and villages with populations of less than 50,000. Project Neev currently completed its sixth wave of expansion and reorganization called NEEV Overdrive, and we intend to expand its operations in all major states across India. This program has been appreciated and recognized in various forums.

In April 2018, we conducted the “National Ultra Launch” where we displayed the entire Ultra range with ready-to-use fully-built vehicles. Over 3,000 key people from the industry, including key customers, financiers and manufacturers witnessed the launch at Pune. For the intermediate and light truck range, we organized 51 ILCV Expos showcasing the complete ILCV range from TML, across 17 states with a total of more than 6,000 customers attending. In addition, we also organized three e-commerce expos for the e-commerce industry in Gurugram, Bengaluru and Mumbai. Over 5,000 customers and representatives from entities such as ecommerce companies and financiers participated.

In Fiscal 2019, the Company was the principal sponsor for Busworld organized by the Bus Operators Confederation of India at Bengaluru, which saw participation for Indian and international brands from suppliers, OEMs and customers related to passenger movement.

Another initiative through our Commercial Vehicles business is TATA-OK. TATA-OK seeks to promote our Commercial Vehicles by capturing new customer segments (such as economical and used vehicle buyers), promoting the sale of new vehicles through the exchange of used Commercial Vehicles at our dealerships, increasing the resale value of its Commercial Vehicles products, and facilitating deeper customer engagement and thereby promoting brand loyalty.

We offer a variety of support products and services for our customers. Tata FleetMan, our telematics and fleet management service, is designed to enable the commercial sector to boost productivity and profitability. With the goal of bringing the most advanced technology in this area to our customers, we have entered into a partnership with UK-based Microlise Limited to introduce global standards of telematics and fleet management solutions into the Indian logistics and transport industry, to enhance Tata FleetMan’s telematics systems through upgrades of the underlying technology and to develop the next generation of fleet telematics solutions for the Indian transport industry. Original equipment fitment of Tata Fleetman commenced in Fiscal 2016, and as of Fiscal 2018, we have covered the entire MHCV range.

In order to support our customers throughout the life of their vehicles, we have introduced a range of value-added services under the brand “Sampoorna Seva”. The Tata Alert breakdown service promises to respond to the breakdown site within four hours of notification and to return the vehicle to the road within 48 hours, covering some 3 million kilometers of Indian roads. Other key elements include a six-year, 600,000 kilometer warranty on the MHCV range and the Tata Delight loyalty program. This was coupled with the introduction of new services, such as the Tata on-site service and parts support using container workshops. These workshops are an on-site service support system that deploy a container on-site, which houses the repair equipment to carry out most routine maintenance activities for a fleet. In addition, we offer on-demand annual maintenance contracts, which provide maintenance solutions to all customers for a wide range of vehicles, including large fleet owners.

In Fiscal 2019, the Ace Gold campaign won two prestigious awards at the ET-Now CV Awards, where it was recognized as the marketing campaign of the year. It also won the social medial campaign of the year award for “Ghar Lao Gold”, which was first automotive campaign to win an award in this category.

 

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We believe customers associate the Tata name with reliability, trust and ethical value, and that our brand name is gaining significant international recognition due to the international growth strategies of various Tata companies. The Tata brand is used and its benefits are leveraged by Tata companies to their mutual advantage. We recognize the need for enhancing our brand recognition in highly competitive markets in which we compete with internationally recognized brands. We, along with Tata Sons and other Tata companies, will continue to promote the Tata brand and leverage its use in India, as well as in various international markets where we plan to increase our presence. Supported by the Tata brand, we believe our product brands, such as the Tiago, Tigor, Bolt, Zest, Nexon, Hexa, Harrier, Sumo, Safari, Nano, Ace, Magic, Prima, Daewoo, Jaguar, Range Rover and Land Rover are highly regarded, which we intend to continue to nurture and promote.

Overview of Automotive Operations

We sold 1,274,072, 1,221,124 and 1,091,748 units worldwide in Fiscal 2019, Fiscal 2018 and Fiscal 2017, respectively, consisting of 761,786 units of Tata Commercial Vehicles and Tata Passenger Vehicles and 512,286 units (excluding wholesales from the China Joint Venture) of Jaguar Land Rover vehicles in Fiscal 2019. In terms of units sold, our largest market was India where we sold 693,756 and 616,801 units during Fiscal 2019 and Fiscal 2018, respectively (constituting 54.5% and 50.5% of total sales in Fiscal 2019 and Fiscal 2018, respectively), followed by North America, where we sold 133,237 units and 136,447 units in Fiscal 2019 and Fiscal 2018, respectively (constituting 10.5% and 11.2% of total sales in Fiscal 2019 and Fiscal 2018, respectively).

Our total sales worldwide (including international business sales, Jaguar Land Rover sales and excluding sales by our China Joint Venture) in Fiscal 2019, Fiscal 2018 and Fiscal 2017 are set forth in the table below:

 

Category

   Year ended March 31  
     2019     2018     2017  
     Units      %     Units      %     Units      %  

Passenger Cars

     286,730        22.5     291,299        23.9     310,171        28.4

Utility Vehicles

     460,056        36.1     473,273        38.7     385,480        35.3

Commercial Vehicles

     527,286        41.4     456,552        37.4     396,097        36.3
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

     1,274,072        100.0     1,221,124        100.0     1,091,748        100.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Tata Commercial Vehicles and Tata Passenger Vehicles

The following table sets forth our total sales worldwide of Tata Commercial Vehicles and Tata Passenger Vehicles:

 

Category

   Year ended March 31  
     2019     2018     2017  
     Units      %     Units      %     Units      %  

Tata Passenger Cars 

     234,500        30.8     219,274        32.4     160,905        28.9

Tata Commercial Vehicles

     527,286        69.2     456,552        67.6     396,097        71.1
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

     761,786        100.0     675,826        100.0     557,002        100.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Our overall vehicle sales for Tata Commercial Vehicles and Tata Passenger Vehicles increased by 12.7% to 761,786 units in Fiscal 2019 from 675,826 units in Fiscal 2018. The revenue attributable to Tata Commercial Vehicles and Tata Passenger Vehicles (before inter-segment elimination) increased by 16% to Rs.721,146 million in Fiscal 2019, compared to Rs.623,932 million in Fiscal 2018.

According to data released by SIAM, in Fiscal 2019, the Indian automotive industry (Passenger Vehicles and Commercial Vehicles) recorded a 5.9% growth in domestic sales as compared to a 10.1% growth in Fiscal 2018. The Passenger Vehicle segment grew 2.8% in Fiscal 2019 (as compared to 7.3% in Fiscal 2018) due to continued consumption demand and strong rural growth. The Commercial Vehicle industry in India registered a 17.1% growth in Fiscal 2019 as compared to 21.7% growth in the previous fiscal year, as a result of the implementation of GST, restrictions on overloading and infrastructure growth supported by the Government of India, high investments in e-commerce segment driving the demand for last mile transportation requirements, growth in replacement demand and improved financing and recovery in rural demand.

 

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We sold 761,786, 675,826 and 557,002 units worldwide of Tata Commercial Vehicles and Tata Passenger Vehicles in Fiscal 2019, Fiscal 2018 and Fiscal 2017, respectively. Of the 761,786 units sold overall in Fiscal 2019, we sold 693,756 units of Tata Commercial Vehicles and Tata Passenger Vehicles in India, while 68,030 units were sold outside of India, compared to 616,801 units and 59,025 units, respectively, in Fiscal 2018. We maintained our leadership position in the Commercial Vehicle category in the industry in India, which was characterized by increased competition during the year. The Passenger Vehicle market also continued to be subject to intense competition.

A principal reason for the increase in the volume of sales in India of Tata Commercial Vehicles and Tata Passenger Vehicles, mainly MHCVs, is the revival of the demand with the entry of new products and strong demand supported by economic growth.

The following table sets forth our market share in various categories in the Indian market based on wholesale volumes:

 

Category

   Year ended March 31  
     2019     2018     2017  

Passenger Cars

     5.9     6.2     6.5

Utility Vehicles1

     7.0     4.6     2.0

Intermediate and Light Commercial Vehicles2

     45.4     44.9     42.4

Medium and Heavy Commercial Vehicles

     55.0     54.3     55.1

SCVs & Pickups

     40.1     39.6     37.5

CV Passenger Vehicles

     44.0     45.3     46.0

Total Four-Wheel Vehicles

     15.5     14.1     12.7
  

 

 

   

 

 

   

 

 

 

 

Source: Society of Indian Automobile Manufacturers Report and our internal analysis.

 

1 

Utility Vehicles market share data includes the market share for Vans V1 category (i.e., Tata Venture) and excludes Vans V2 segment (i.e., Tata Ace Magic).

2 

Light Commercial Vehicles market share data includes the market shares for Vans V2 category (i.e., Tata Ace Magic) in accordance with SIAM’s classification of Passenger Vehicles. It includes Intermediate Commercial Vehicles for Fiscal 2018.

Passenger Vehicles in India

Industry-wide sales of Passenger Vehicles in India increased by 2.8% in Fiscal 2019, compared to a 7.3% growth in Fiscal 2018, and Utility Vehicles sales also witnessed growth during Fiscal 2019 due to continued consumption demand and strong rural growth. Reflecting the growth in the Indian Passenger Vehicles sector, our Passenger Vehicles sales in India increased by 13.9% to 210,500 units in Fiscal 2019 from 184,743 units in Fiscal 2018, due to new product offerings by us.

Passenger Cars in India

We sold 131,035 units in the Passenger Cars category (Tata-brand vehicles in India) in Fiscal 2019, compared to 134,860 units in Fiscal 2018. Our market share for Passenger Cars in India was lower at 5.9% in Fiscal 2019, as compared to 6.2% in Fiscal 2018.

Utility Vehicles in India

In the Utility Vehicles category, we sold 79,465 units in India in Fiscal 2019, representing an increase of 59.3% from 49,883 units in Fiscal 2018. During Fiscal 2019, we launched Harrier, an SUV and the first model from the Omega architecture, which sold 4,363 units. Our market share of Utility Vehicles in India improved and currently stands at 7.0% in Fiscal 2019, compared to 4.6% in Fiscal 2018, primarily due to the popularity of the Nexon.

During Fiscal 2019, Fiat-branded vehicles sold was 23,237 units, as compared to 29,807 units in Fiscal 2018.

 

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Commercial Vehicles in India

Industry sales of Commercial Vehicles in India increased by 17.1% to 1,038,834 units in Fiscal 2019 from 887,316 units in Fiscal 2018. Industry sales in the MHCV segment have grown by 10.9 % at 274,750 units in Fiscal 2019, as compared to 247,659 in Fiscal 2018. The MHCV industry in India has shown signs of recovery since July 2017. The implementation of GST, restrictions on overloading and infrastructure growth supported by the government has boosted demand. Industry sales of ILCV reported an increase of 21.7% to 125,471 units in Fiscal 2019, from 103,131 units in Fiscal 2018. Industry sales of SCVs & Pickups reported an increase by 22.4% to 515,491 units in Fiscal 2019, from 421,084 units in Fiscal 2018. The ILCV and SCV industry growth is mainly due to high investments in e-commerce segments, which is driving demand for last-mile transportation requirements, growth in replacement demand, improved financing and recovery in rural demand. Industry sales of CV Passenger Vehicles reported a marginal increase of 6.7% to 123,122 units in Fiscal 2019, from 115,442 units in Fiscal 2018 due to muted demand from state transportation undertakings.

The sales of our Commercial Vehicles in India outperformed the industry with a growth rate of 17.2% to 468,788 units in Fiscal 2019 from 399,821 units in Fiscal 2018.

MHCVs in India

Our sales in the MHCV category in India increased by 12.3% to 151,004 units in Fiscal 2019, as compared to sales of 134,455 units in Fiscal 2018. The implementation of GST, restrictions on overloading and infrastructure growth supported by the Government of India boosted demand for MHCVs.

ILCVs in India

Our sales in the ILCV in India segment increased by 23% to 57,015 units in Fiscal 2019, from 46,343 units in Fiscal 2018. The ILCV industry in India growth is mainly due to high investments in e-commerce segments, which is driving demand for last-mile transportation requirements, growth in replacement demand, improved financing and recovery in rural demand.

SCVs & Pickups in India

Our sales in SCVs & Pickups segment in India increased by 23.9% to 206,655 units in Fiscal 2019 from 166,746 units in Fiscal 2018. The SCV growth is mainly due to high investments in e-commerce segments, which is driving demand for last-mile transportation requirements, growth in replacement demand, improved financing and recovery in rural demand.

CV Passenger Vehicles in India

Our sales in CV Passenger Vehicles segment remained flat with a growth of 3.5% to 54,114 units in Fiscal 2019 from 52,277 units in Fiscal 2018.

Tata Commercial Vehicles and Tata Passenger Vehicles—Exports

International business has consistently expanded since its inception in 1961. We have a global presence in more than 46 countries, including all SAARC countries, South Africa, Africa, Middle East, Southeast Asia and Ukraine. We market a range of products including MHCV trucks, LCV trucks, buses, pickups and small Commercial Vehicles.

Our overall sales in international markets increased by 1.4% to 53,140 units in Fiscal 2019 from 52,404 units in Fiscal 2018. Our exports of vehicles manufactured in India increased by 3.4% in Fiscal 2019 to 51,344 units from 47,693 units in Fiscal 2018. Our top five export destinations for vehicles manufactured in India, were Bangladesh, Nepal, Sri Lanka, Tanzania and Senegal, which accounted for 82% and 98% of the exports of Commercial Vehicles and Passenger Vehicles, respectively. We intend to strengthen our position in the geographic areas we are currently operating in and explore possibilities of entering new markets with similar market characteristics to the Indian market. We received several significant orders in Fiscal 2019. Commercial Vehicles exports were 51,119 units in Fiscal 2019, as compared to 50,106 units in Fiscal 2018. The new regulations and political uncertainty in Sri Lanka and the slump in the Middle East resulted in the significant drop in the market affecting our sales. However, our market share improved in both markets. Passenger Vehicles exports were 2,021 units in Fiscal 2019 as compared to 2,298 in Fiscal 2018. Two large markets remained non-operational: Sri Lanka due to high import duties and tight retail financing and South Africa due to closure of the distribution channel. We made the first ever supply to the Bangladesh army with 18 units of Hexa.

 

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TDCV, a TML subsidiary company, engaged in the design, development and manufacturing of MHCVs, witnessed a decrease in the overall sales by 24.8% to 6,672 units in Fiscal 2019 from 8,870 units in Fiscal 2018. In its domestic market (South Korea), TDCV’s sales decreased by 36.3% from 6,859 units in Fiscal 2018 to 4,371 units in Fiscal 2019, primarily due to lower industry volumes and aggressive discounting and marketing strategies of importers. The combined market share was 21.1% in Fiscal 2019 as compared to 26.5% in Fiscal 2018. The export market scenario continued to remain challenging in Fiscal 2019 due to factors such as local currency depreciation against the U.S. dollar, continuing statutory regulations to reduce imports, the slowdown in Chinese economy impacting commodity exporting countries and increased dealer inventory and impact of U.S. sanction on Iran. However, TDCV could increase its export sales to 2,301 units, 14.4% higher compared to 2,011 units in Fiscal 2018. TDCV is working on an aggressive turnaround plan to get back to sustainable profitable growth in the coming years.

Tata Commercial Vehicles and Tata Passenger Vehicles—Sales and Distribution

Our sales and distribution network in India as of March 2019 comprised over 6,600 touch contact points for sales and service for our Passenger Vehicles and Commercial Vehicles businesses. TML’s subsidiary, TDCL, acts as a dedicated distribution and logistics management company to support the sales and distribution operations of our vehicles in India. We believe this has improved the efficiency of our selling and distribution operations and processes. We use a network of service centers on highways and a toll-free customer assistance center to provide 24-hour on-road side assistance, including replacement of parts, to vehicle owners.

TDCL provides distribution and logistics support for vehicles manufactured at our facilities and has set up stocking points at some of our plants and at different places throughout India. TDCL helps us improve planning, inventory management, transport management and timing of delivery. We have a customer relations management system (“CRM”) at all of our dealerships and offices across the country, which supports users both at our company and among our distributors in India and abroad.

We market our Commercial Vehicles and Passenger Vehicles in several countries in Africa, the Middle East, South East Asia, South Asia and Latin America, as well as in Australia, Russia and the Commonwealth of Independent States countries. We have a network of distributors in all such countries, where we export our vehicles. Such distributors have created a network of dealers and branch offices and facilities for sales and after-sales servicing of our products in their respective markets. We have also stationed overseas resident sales and service representatives in various countries to oversee our operations in the respective territories.

 

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Tata Commercial Vehicles and Tata Passenger Vehicles—Competition

We face competition from various domestic and foreign automotive manufacturers in the Indian automotive market. Improving infrastructure and robust growth prospects compared to other mature markets have attracted a number of international companies to India who have either formed joint ventures with local partners or have established independently owned operations in India. Global competitors bring with them decades of international experience, global scale, advanced technology and significant financial resources, and as a result, competition is likely to further intensify in the future. We have designed our products to suit the requirements of the Indian market based on specific customer needs, such as safety, driving comfort, fuel-efficiency and durability. We believe that our vehicles are suited to the general conditions of Indian roads and the local climate. The vehicles have also been designed to comply with applicable environmental regulations currently in effect. We also offer a wide range of optional configurations to meet the specific needs of our customers. We intend to develop and are developing products to strengthen our product portfolio in order to meet the increasing customer expectation of owning world-class products.

Tata Commercial Vehicles and Tata Passenger Vehicles—Seasonality

Demand for our vehicles in the Indian market is subject to seasonal variations. Demand generally peaks between January and March, although there is a decrease in demand in February just before release of the Government of India’s fiscal budget. Demand is usually lean from April to July and picks up again in the festival season from September onwards, with a decline in December due to year end.

Tata Commercial Vehicles and Tata Passenger Vehicles—Vehicle Financing

Through TML’s wholly-owned subsidiary, TMFHL and its step down subsidiaries TMFL and TMFSL, we provide financing services to purchasers of our vehicles through our independent dealers, who act as our agents for financing transactions, and through our branch network. TMFL disbursed Rs.219,930 million and Rs.154,060 million in vehicle financing in India during Fiscal 2019 and Fiscal 2018, respectively. During Fiscal 2019 and Fiscal 2018, 26% and 25%, respectively, of our vehicle sales in India were made by the dealers through financing arrangements with Company’s captive financing subsidiary. As of March 31, 2019 and 2018, the customer finance receivable portfolio comprised 577,399 and 488,456 contracts, respectively. We follow specified internal procedures, including quantitative guidelines, for selection of our finance customers and assist in managing default and repayment risk in our portfolio. We originate all contracts through our authorized dealers and direct marketing agents with whom we have agreements. All of our marketing, sales and collection activities are undertaken through dealers or by the TMF group.

We securitize or sell our finance receivables on the basis of the evaluation of market conditions and funding requirements. The constitution of these pools is based on criteria that are decided by credit rating agencies and/or based on the advice that we receive regarding the marketability of a pool. We undertake these securitizations of our receivables due from purchasers by means of private placement.

We act as collection agents on behalf of the investors, representatives, special purpose vehicles or banks, in whose favor the receivables have been assigned, for the purpose of collecting receivables from the purchasers on the terms and conditions contained in the applicable deeds of securitization, in respect of which pass-through certificates are issued to investors in case of special purpose vehicles (“SPVs”). We also secure the payments to be made by the purchasers of amounts constituting the receivables under the loan agreements to the extent specified by rating agencies by any one or all of the following methods:

 

   

furnishing collateral to the investors, in respect of the obligations of the purchasers and the undertakings to be provided by us;

 

   

furnishing, in favor of the investors, 14.39% of the future principal in the receivables as collateral, for securitizations done through Fiscal 2019, either by way of a fixed deposit or bank guarantee to secure the obligations of the purchasers and our obligations as the collection agent, based on the quality of receivables and rating assigned to the individual pool of receivables by the rating agency(ies); and

 

 

   

by way of over-collateralization or by investing in subordinate pass-through certificates, securing the obligations of the purchasers.

For further details, see Note 38(b) to our consolidated financial statements included elsewhere in this annual report on Form 20-F.

 

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Jaguar Land Rover

Total wholesales of Jaguar Land Rover vehicles (excluding the China Joint Venture and India completely knocked down (“CKD”) unit operations) with a breakdown between Jaguar and Land Rover brand vehicles, in Fiscal 2019 and Fiscal 2018 are set forth in the table below:

 

     Fiscal 2019     Fiscal 2018  
     Units      %     Units      %  

Jaguar

     153,757        30.3     150,484        27.6

Land Rover

     354,138        69.7     394,814        72.4
  

 

 

    

 

 

   

 

 

    

 

 

 

Total

     507,895        100.0     545,298        100.0
  

 

 

    

 

 

   

 

 

    

 

 

 

In Fiscal 2019, Jaguar Land Rover wholesale volumes were 507,895 units, down 6.9% compared to Fiscal 2018 and wholesale volumes of China Joint Venture were 57,428 units, reflecting a 34.9% decrease as compared to the 88,212 units in Fiscal 2018, primarily reflecting the challenging market conditions in China. The introduction of new and refreshed models led by the Jaguar E-PACE, award winning I-PACE, Range Rover Velar and the refreshed Range Rover and Range Rover Sport were offset by lower sales of more established models, mainly in China, and the run-out of the first generation Range Rover Evoque in the third quarter ahead of with the launch of the new Evoque now available. Wholesale volumes (excluding sales from the China Joint Venture) were up in the United Kingdom (4.1%), but down in other regions including North America (2.4%), Europe (6.1%), China (38.8%) and overseas markets (5.5%).

Jaguar wholesale volumes were 153,757 units, up 2.2% compared to Fiscal 2018, as the introduction of the E-Pace and award winning all-electric I-PACE, were partially offset by lower sales volume other more established models, primarily F-PACE and XE.

Land Rover wholesale volumes were 354,138 units, down 10.3% compared to the prior year, as sales of the refreshed Range Rover and Range Rover Sport (including hybrid models) as well as a full year of Range Rover Velar sales were offset by lower volumes of more established models, mainly in China, and the run out of the first generation Range Rover Evoque in Q3 ahead of the launch of the new Evoque now available.

Jaguar Land Rover’s Performance in Key Geographical Markets on a Retail Basis

Retail volumes (including retail sales from the China Joint Venture) in Fiscal 2019 decreased by 5.8% to 578,915 units from 614,309 units in Fiscal 2018 as the introduction of new and refreshed models led by the Jaguar E-PACE, award winning I-PACE, Range Rover Velar and the refreshed Range Rover and Range Rover Sport were offset by lower sales of more established models, mainly in China, and the run-out of the first generation Range Rover Evoque in Q3 ahead of the launch of the new Evoque now available.

United Kingdom

Industry vehicle sales fell 3.7% in Fiscal 2019 in the United Kingdom as diesel vehicle sales declined 25.9% year-on-year and Brexit uncertainty continued, with the Brexit deadline extended to the end of October but uncertainty remaining over any potential deal. Jaguar Land Rover retail volumes increased by 8.4% to 117,915 units in Fiscal 2019 compared to 108,759 units in Fiscal 2018. By brand, Jaguar retails were 38,515 vehicles in Fiscal 2019, up 20.1% compared to 32,078 vehicles in Fiscal 2018, and Land Rover retails were 79,400 vehicles in Fiscal 2019, up 3.5% compared to 76,681 vehicles in Fiscal 2018.

North America

Economic performance in North America remained generally favorable in Fiscal 2019 with solid GDP but industry vehicle sales were slightly lower (0.5%) year-on-year. Jaguar Land Rover retails increased significantly, up 8.1% year-on-year, to 139,778 units in Fiscal 2019 compared to 129,319 units in Fiscal 2018. By brand, Jaguar retails were 36,768 vehicles in Fiscal 2019, down 10.0% compared to 40,855 vehicles in Fiscal 2018, and Land Rover retails were 103,010, up 16.4% compared to 88,464 last year.

 

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Europe

GDP growth in Europe was mixed in Fiscal 2019 and lagged at the end of the year as economic growth in Germany slowed, and Italy entered recession. Industry volumes in Europe were down 0.9% and Jaguar Land Rover retail sales fell 4.5% year-on-year to 127,566 vehicles in Fiscal 2019 from 133,592 in Fiscal 2018, primarily as a result of continuing diesel uncertainty, Brexit and the change to more stringent World Harmonized Light Vehicle Testing Procedure (“WLTP”) emissions testing regime. By brand, Jaguar retails were 49,474 vehicles in Fiscal 2019, up 36.5% compared to 36,248 vehicles in Fiscal 2018, and Land Rover retails were 78,092 in Fiscal 2019, down 19.8% compared to 97,344 vehicles in Fiscal 2018.

China

Economic growth continued to slow in China during Fiscal 2019 as weaker market conditions and trade tension with the U.S. continued. As a result, and compounded by uncertainty driven by import duties in July, industry vehicle sales declined by 8.3% year-on-year and Jaguar Land Rover retail volumes (including sales from the China Joint Venture) decreased by 34.1% to 98,922 units in Fiscal 2019 from 150,116 units in Fiscal 2018. By brand, Jaguar retails were 32,797 vehicles in Fiscal 2019, down 26.6% compared to 44,705 vehicles in Fiscal 2018, and Land Rover retails were 66,125 vehicles in Fiscal 2019, down 37.3% compared to 105,411 vehicles in Fiscal 2018.

Other Overseas markets

Jaguar Land Rover’s retail volumes in other overseas markets increased by 2.4% to 94,734 vehicles in Fiscal 2019 compared to 92,523 units in the prior year. By brand, Jaguar retails were 22,644 vehicles in Fiscal 2019, up 9.5% compared to 20,674 vehicles in Fiscal 2018, and Land Rover retails were 72,090 in Fiscal 2019, up 0.3% compared to 71,849 vehicles in Fiscal 2018.

Jaguar Land Rover’s Sales and Distribution

As of March 31, 2019, Jaguar Land Rover distribute its vehicles in 120 markets for Jaguar and 128 markets for Land Rover globally. Sales locations for vehicles are operated as independent franchises. Jaguar Land Rover is represented in its key markets through its National Sales Company’s (“NSCs”) as well as third-party importers. Jaguar Land Rover has regional offices in certain select countries that manage customer relationships and vehicle supplies and provide marketing and sales support to their regional importer markets. The remaining importer markets are managed from the United Kingdom.

Jaguar Land Rover products are sold through a variety of sales channels: through its dealerships for retail sales; for sale to fleet customers, including daily rental car companies; commercial fleet customers; leasing companies; and governments. Jaguar Land Rover does not depend on a single customer or small group of customers to the extent that the loss of such a customer or group of customers would have a material adverse effect on its business.

As of March 31, 2019, Jaguar Land Rover global sales and distribution network comprised 23 NSCs, 77 importers, 2 export partners and 2,684 franchise sales dealers, of which 1,299 are joint Jaguar and Land Rover dealers.

Jaguar Land Rover — Competition

Jaguar Land Rover operates in a globally competitive environment and faces competition from established premium and other vehicle manufacturers who aspire to move into the premium performance car and premium SUV markets, some of which are much larger than they are. Jaguar vehicles compete primarily against other European brands such as Audi, Porsche, BMW and Mercedes Benz as well as the U.S. brand Tesla. Land Rover and Range Rover vehicles compete largely against SUVs from companies such as Audi, BMW, Infiniti, Lexus, Mercedes Benz, Porsche, Volvo and Volkswagen.

Jaguar Land Rover — Seasonality

Jaguar Land Rover volumes are impacted by the biannual change in age-related registration plates of vehicles in the United Kingdom, where new age-related plate registrations take effect in March and September. This has an impact on the resale value of the vehicles because sales are clustered around the time of the year when the vehicle registration number change occurs. Seasonality in most other markets is driven by introduction of new model year vehicles and derivatives. Furthermore, Western European markets tend to be impacted by summer and winter holidays, and the Chinese market tends to be affected by the Lunar New Year holiday in either January or February, the PRC National Day holiday and the Golden Week holidays in October. The resulting sales profile influences operating results on a quarter-to-quarter basis.

 

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Other Operations

In addition to our automotive operations, we are also involved in other business activities, including information technology services, machine tools and factory automation services. The Company’s revenue from other operations before inter-segment eliminations was Rs.35,324 million in Fiscal 2019, an increase of 12.7% from Rs.31,335 million in Fiscal 2018. Revenues from other operations represented 1.2% and 1.1% of total revenues, before inter-segment eliminations, in Fiscal 2019 and Fiscal 2018, respectively.

Information Technology Services

As of March 31, 2019, TML owned a 72.28% equity interest in our subsidiary, TTL. TTL, founded in 1994 and a part of the Tata Motors Group, provides product development IT services solutions for PLM and enterprise risk management (“ERM”) to automotive, aerospace, industrial heavy machinery and consumer durables manufacturers and their suppliers. TTL’s services include product design, analysis and production engineering, knowledge-based engineering, PLM, ERM and CRM systems. TTL also distributes, implements and supports PLM products from leading solution providers in the world, such as Dassault Systems and Autodesk.

TTL is headquartered in India with regional headquarters in the United States, the United Kingdom and Singapore. In Fiscal 2014, TTL acquired Cambric Corporation, an engineering services organization, to achieve greater domain expertise and presence in the industrial equipment sector. In Fiscal 2018, TTL acquired Escenda Engineering AB, a Sweden based design company to strengthen its offering to existing clients and expand its footprint in Scandinavian countries. TTL has a combined global workforce of around 8,488 professionals (including 1,041 contractors) serving clients worldwide from facilities in the North America, Europe, and Asia Pacific regions. As of March 31, 2019, TTL had 12 subsidiary companies and one joint venture, as well as offshore development centers in India, Thailand and Romania.

The consolidated revenues of TTL increased by 9.3% in Fiscal 2019 to Rs.29,422 million (including sales to Tata Motors Limited and its consolidated subsidiaries) from Rs.26,915 million in Fiscal 2018, due to increase in operations in the automotive and aerospace markets. TTL recorded profit after tax of Rs.3,526 million in Fiscal 2019, reflecting an increase of 43.5% over Rs.2,457 million in Fiscal 2018.

Research and Development

Our research and development focuses on developing and acquiring the technology, core competencies and skill sets required for the timely delivery of our envisaged future product portfolio with industry-leading features across our range of Commercial Vehicles and Passenger Vehicles. For the Passenger Vehicles product range, our focus is on design, driving pleasure and connected car technologies. For the Commercial Vehicle product range, our focus is on enhancing fuel-efficiency, minimizing the total cost of ownership and providing maximum overall value. We continue to endeavor to adopt technologies for our product range to meet the requirements of a globally competitive market. We have also undertaken programs for development of vehicles, which run on alternate fuels such as LPG, CNG, bio-diesel, electric-traction and hydrogen.

Our research and development activities involve product development, environmental technologies and vehicle safety. In India, the ERC, established in 1966, is one of the few in-house automotive research and development centers in India recognized by the Government of India. The ERC is headquartered at Pune with branches at Jamshedpur and Lucknow in India, Trilix in Italy and TMETC in United Kingdom.

In Fiscal 2019, we played a leading role in proactively driving electric mobility in India. To build a sustainable future for India, we have been working collaboratively on various electric and hybrid vehicle solutions. As the only OEM with an end-to-end extensive product portfolio across its Passenger Vehicles and Commercial Vehicles businesses, we intend to play a complimentary role in the smart cities of the future. From public transport to personal cars, from last-mile connectivity to bus rapid transit systems, from emergency response vehicles to commercial Utility Vehicles, from green and sustainable solutions to vehicles designed to amplify the driving experience, we strive to carry a product portfolio to connect the aspirations and needs of our customers. To build on an enabling ecosystem of sustainable technology, we have worked on zero emission electric variant of vehicles that have redefined the automotive landscape worldwide. We are also actively working on innovation by bringing ingenuity into the areas of vehicle engineering and development. We believe our focus on digitization, connectivity, automation and advanced regulatory compliance is helping us deliver exciting innovations to our customers worldwide. On our current product portfolio, we offer enhancements through approaches including modular architecture strategy, enhanced powertrain solution, light weighting, and system efficiency improvement strategies.

 

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In addition, we are looking at product rationalization, product upgrade with enhanced features, accelerated testing and validation for product competitiveness for our engines and vehicles. This is targeted through base powertrain enhancement, application specific technology for exhaust after-treatment, customer value propositions such as best-in-class fuel-efficiency, superior performance, better total low cost of ownership, increased service intervals, reduced downtime and turn-around time. Enhanced fuel-efficiency and thereby reduction in carbon footprint is promoted through various powertrain as well as vehicle level technology interventions. Looking at short lead time for Bharat Stage VI implementation, simultaneous investments in product development and production facilities upgrade, Bharat Stage IV ramp down and Bharat Stage VI ramp up strategy throughout supply chain are ongoing with planned approach.

We monitor changes in regulatory and customer requirement scenarios. It responded to changes in regulations and market demands resulting from the CAFE standards for Passenger Cars (irrespective of fuel type including electric), increased axle load (assessment and recertification of all affected models/variants), and heavy duty fuel economy for 12 tons and above GVW diesel vehicles. We work to ensure the emission roadworthiness of its entire vehicle portfolio by investing significantly in design and development efforts, associated capital equipment and in infrastructure over Bharat Stage VI program duration.

In Passenger Vehicles, our continued efforts have translated into successful product launches and concept unveils. The Tata Nexon is already the winner of most of the awards and is also the safest compact SUV in its segment. It earned the honor of becoming the first engineered and made in India car with 5-Star Global NCAP safety crash test rating. The Tata Nexon scored five stars for adult occupant protection and three stars for child occupant protection, which is a significant landmark for car safety in India.

The recently launched Tata Harrier is a five-seater premium mid-size SUV. With this product, we have entered the premium mid-size SUV segment. Just a week since its launch, the Tata Harrier has already received the award for ‘Most Awaited Car of the Year 2019’ at the Exhibit Auto Tech Awards. Tata Motors also added to its Passenger Vehicle family with the introduction of the Tata NRG. The Tata NRG gets SUV inspired styling and is positioned as ‘Nepal’s youngest compact utility vehicle’. The NRG is our take on the entry-level cross-hatch segment. At the 2019 Geneva Motor Show, we unveiled four products which included a concept version of the small SUV H2X, the Altroz, along with its electric version. We also showcased a second SUV from our Omega architecture.

Targeting the growing Indian e-commerce sector, we have developed trucking solutions, including vehicles that come with customized payloads and deck lengths. To meet the demands of the industry, these vehicles are equipped with advanced features such as OTP lock, CCTV cameras, load sensors, and telematics systems. We showcased 13 fully-built, ready-to-use vehicles at the e-Commerce Expo 2019 in Mumbai. Reiterating our commitment to the Swachh Bharat Mission, we showcased our integrated waste management customized solutions at the MUNICIPALIKA 2018 event in September 2018 at the Bombay Exhibition Center.

An updated version of the original segment defining SCV Tata Ace was launched as Tata Ace Gold while offering enhanced ergonomics, safety and comfort. In the ILCVs Category, the next generation range of Ultra World trucks was launched early last fiscal year.

During Fiscal 2019, we filed 86 patent applications and 113 design applications. In respect of applications filed in earlier years, 104 patents have been granted and 37 designs registered. Both filing and grant details include India and international jurisdictions.

We plan to continue our endeavors in the research and development space to develop vehicles with reduced cost, time to market and shorter product life cycles. We aim for the timely and successful conclusion of technology projects so as to begin their induction into mainstream products, which will lead to a promising future. Our focus is going to be building technology, capability, scale and capacities in research and development to be able to ride the emerging trends. We are now focusing more on accelerated testing and validation and are using a lot of digital tools for the simulation process. The Company has charted a massive jump from 181st rank last year to 2nd rank in India’s Most Attractive Brands 2018 study carried out by Trust Research Advisory. We believe we have been able to stay ahead of the curve and create superior offerings for the customer.

Front loading of product creation, validation and testing and seamless information dissemination are major contributors to two key goals: time to market and world class quality. Tata Motors adopted new technologies and practices in the digital product development domain to improve product development process.

 

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In order to reduce the number of parts, increase reuse of parts across platforms and reduce inventory, a 3D feature based part search tool is integrated into to part creation and release process. Modular manufacturing seeks to minimize design complexities and at the same time provide customers avenue of selecting own vehicle configuration. Modular manufacturing is aimed at increasing flexibility of manufacturing facility. A core strategy on connected vehicle development is finalized to standardize and modularize on-vehicle electronics, enhance reuse to achieve economies of scale, leveraging synergy at dealership and service network and for Internet of Things (IoT) based technology development.

Product design quality and manufacturing quality is enhanced by implementing tools and processes like dimensional variation analysis, while product design and manufacturing process simulations. To make information available to the right stakeholders at the right time, the latest technology of BOTs-based apps are deployed for multiple agencies, which help them to verify data and take decisions. Subjective analysis forms big part of testing and validations and require huge data collection through physical means for each vehicle product. To reduce physical testing cycles by building predictive models, deep learning (AI) based algorithms and apps are introduced into design process. Trained AI models help in synergy between physical and digital simulations and better co-relation. General purpose graphics processing unit-based computing infrastructure is deployed for deep learning and machine learning.

Jaguar Land Rover’s research and development operations are built around state-of-the-art engineering facilities, test tracks, testing centers, design hubs and a virtual innovation center. Our ERC in India and Jaguar Land Rover’s engineering and development operations in the United Kingdom work to enhance the product development process and achieve economies of scale.

Jaguar Land Rover’s two primary design and development centers are equipped with computer-aided design and manufacturing and engineering tools configured to support a product development cycle plan. In recent years, Jaguar Land Rover has refreshed the entire Jaguar range under a unified concept and design language, and has continued to enhance the design of Land Rover’s range of all-terrain vehicles. The majority of Jaguar Land Rover’s products are designed and engineered in the United Kingdom. Jaguar Land Rover currently offers hybrid technology on some of its models such as the Range Rover and Range Rover Sport as well as their first battery electric vehicle, the Jaguar I-PACE. In addition to the development of electric vehicles, Jaguar Land Rover has also developed more efficient powertrains, including smaller and more efficient 2.0-Liter diesel and gasoline engines (now available across the majority of our model range), as well as the a 3.0-Liter 6 cylinder Ingenium petrol engine recently announced, to satisfy growing customer demand and to further improve the environmental performance of its vehicles.

Intellectual Property

We create, own, and maintain a wide array of intellectual property assets throughout the world that are among our most valuable assets. Our intellectual property assets include patents, trademarks, copyrights, designs, trade secrets and other intellectual property rights. We proactively and aggressively seek to protect our intellectual property in India and other countries.

We own a number of patents in different fields of automobile technology and have applied for new patents which are pending for grant in India, as well as in other countries. We have also filed a number of patent applications outside India under the Patent Cooperation Treaty and Paris Convention Treaty, which we expect will be effective in other countries going forward. We also obtain new patents as part of our ongoing research and development activities.

We own registrations for a number of trademarks and have pending applications for registration of these in India, as well as in other countries. The registrations mainly include trademarks for our vehicle models and other promotional initiatives. We use the Tata brand, which has been licensed to us by Tata Sons. We believe that establishment of the Tata word mark and logo mark in India and around the world is material to our operations. As part of our acquisition of TDCV, we have rights to the perpetual and exclusive use of the Daewoo brand and trademarks in South Korea and overseas markets for the product range of TDCV.

As part of the acquisition of our Jaguar Land Rover business, ownership (or co-ownership, as applicable) of core intellectual property associated with Jaguar Land Rover was transferred to us; however, such intellectual property is still ultimately owned by Jaguar Land Rover entities. Additionally, perpetual royalty-free licenses to use other essential intellectual property from the third parties have been granted to us for use in Jaguar and Land Rover vehicles. Jaguar Land Rover owns registered designs to protect the design of its vehicles in several countries.

In varying degrees, all of our intellectual property is important to us. In particular, the Tata, Jaguar, Land Rover and Range Rover brands are 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.

 

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Components and Raw Materials

The principal materials and components required by us for use in Tata Commercial Vehicles and Tata Passenger Vehicles are steel sheets (for in-house stampings) and plates, iron and steel castings and forgings, items such as alloy wheels, tires, fuel injection systems, batteries, electrical wiring systems, electronic information systems and displays, interior systems such as seats, cockpits, doors, plastic finishers and plastic functional parts, glass and consumables, such as paints, oils, thinner, welding consumables, chemicals, adhesives and sealants, and fuels. We also require aggregates such as axles, engines, gear boxes and cams for our vehicles, which are manufactured in-house or by our subsidiaries, affiliates, joint ventures or operations and strategic suppliers. We have long-term purchase agreements for certain critical components such as transmissions and engines. We have established contracts with certain commodity suppliers to cover our own as well as our suppliers’ requirements in order to moderate the effect of volatility in commodity prices. We have also undertaken special initiatives to reduce material consumption through value engineering and value analysis techniques.

Our sourcing department in India has two divisions, purchasing and supplier quality and supply chain management (“SCM”). Purchasing oversees the commercial aspects of products sourcing. They also oversee the allocation of share of business. The supplier quality division is responsible for APQP and managing ongoing supplier relationships. SCM oversees the supply and delivery of parts from our suppliers. Our purchasing back office, known as GDC, supports the Purchasing division in managing all transactional work in SAP ERP system.

As part of our strategy to become a value for money vehicle manufacturer, we have undertaken various initiatives to reduce our fixed and variable costs. We started an e-sourcing initiative in India in 2002, pursuant to which we procure some supplies through reverse auctions. We also use external agencies as third-party logistic providers. This has resulted in space and cost savings. Our initiatives to leverage information technology in supply chain activities have resulted in improved efficiency through real time information exchange and processing with our suppliers. We continue to explore saving opportunities through our supplier base using various mechanisms such as our ‘Value Addition and Value Engineering’ initiative and competitive sourcing.

We have an established supplier quality sixteen-step process in order to ensure quality of outsourced components. We formalized the component development process using Automotive Industry Action Group guidelines. We also have a program for assisting suppliers from whom we purchase raw materials or components to maintain quality. Preference is given to suppliers with TS 16949 certification. We also maintain a stringent quality assurance program that includes random testing of production samples, frequent re-calibration of production equipment and analysis of post-production vehicle performance, as well as an ongoing dialogue with supplier partners to eliminate production defects.

We are also exploring opportunities for increasing the global sourcing of parts and components from low cost countries, and have in place a supplier management program that includes supplier base upgradation, supplier quality improvement and supplier satisfaction surveys. We have begun to include our supply chain in our initiatives on social accountability and environment management activities, including supply chain carbon footprint measurement and knowledge sharing on various environmental aspects.

The principal materials and components required for use in Jaguar Land Rover vehicles are steel and aluminum, in sheet (for in-house stamping) or externally in pre-stamped form, aluminum castings and extrusions, iron/steel castings and forgings and items such as alloy wheels, tires, fuel injection systems, batteries, electrical wiring systems, electronic information systems and displays, leather-trimmed interior components such as seats, cockpits and doors, plastic finishers and plastic functional parts, glass and consumables (paints, oils, thinner, welding consumables, chemicals, adhesives and sealants), rare earth minerals and fuels. Jaguar Land Rover also requires certain highly functional components, such as axles, engines and gear boxes for its vehicles, which are mainly manufactured by strategic suppliers. We have long-term purchase agreements for critical components, such as transmissions (ZF Friedrichshafen AG) and engines (Ford and Ford-PSA) The components and raw materials in Jaguar Land Rover cars include steel, aluminum, copper, platinum, palladium and a number of other commodities. Jaguar Land Rover has established contracts with certain commodity suppliers (e.g., Novelis) to cover its own and its suppliers’ requirements to mitigate the effect of price volatility and supply disruption. Special initiatives are also undertaken to reduce material consumption through value engineering and value analysis techniques.

 

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Jaguar Land Rover works closely with its suppliers to meet its requirements for parts and components. Jaguar Land Rover has established quality control programs to ensure that externally purchased raw materials and components are monitored and meet its quality standards. Jaguar Land Rover also outsources many of the manufacturing processes and activities to various suppliers. Where this is the case, Jaguar Land Rover provides training to outside suppliers. Jaguar Land Rover also continues to work with its suppliers to optimize procurement.

Jaguar Land Rover has launched Range Rover, Range Rover Sport PHEVs and its first battery electric vehicle, the Jaguar I-PACE. The rollout of electrification across Jaguar Land Rover continues and by 2020, an electric option will be available across the model range. With the introduction of electric propulsion technology into Jaguar Land Rover vehicles as well as the manufacture of EDU’s and assembly of batteries by Jaguar Land Rover, the exposure to certain commodities (e.g., lithium, nickel, cobalt and rare earth minerals) may increase.

Although Jaguar Land Rover has commenced the production of its own “in-house” four cylinder diesel and gasoline engines, it currently continues to source some of its engines from Ford and the Ford-PSA Joint Venture on an arm’s-length basis. Supply agreements have been entered into with Ford as further set out below:

Suppliers

We have an extensive supply chain for procuring various components. We also outsource many manufacturing processes and activities to various suppliers. Where this is the case, we provide training to the external suppliers.

Our associate company, Tata AutoComp Systems Ltd., manufactures automotive components and collaborates with international manufacturers by setting up joint ventures with them.

In 2016, we introduced manufacturing site assessment (“MSA”) for India suppliers, a comprehensive supplier assessment process. The framework is broadly based on lead measures and lag measures to assess the suppliers’ capability to service our requirements. To facilitate financial oversight, MSA also integrates financial risk assessment.

We have initiated a supplier optimization initiative for Indian domestic suppliers. This initiative will rationalize the current supply base enabling scale cost benefits, improved quality and balance in volume cyclicality. This also improves supplier relationships, giving TML better access to technologies and support in vehicle development for new programs.

We have entered into long-term agreements with Ford for technology sharing, joint development and for providing technical support across a range of technologies focused mainly around powertrain engineering such that we may continue to operate according to our existing business plan. This includes the EuCD platform, a shared platform consisting of shared technologies, common parts and systems and owned by Ford, which is shared among Land Rover, Ford and Volvo vehicles.

Supply agreements, having end-stop dates to December 2020 at the latest, were entered into with Ford for (i) the long-term supply of engines developed by Ford, (ii) engines developed by us but manufactured by Ford and (iii) engines developed by the Ford-PSA Joint Venture. Purchases under these agreements are generally denominated in Euro and GBP.

Suppliers are appraised based on our long-term requirements through a number of platforms, such as vendor council meetings, council regional chapter meetings, national vendor meets and location-specific vendor meets. We also take efforts to assess supplier financial risk.

Capital and Product Development Expenditures

Our capital expenditures totaled Rs.342,236 million and Rs.415,103 million during Fiscal 2019 and Fiscal 2018, respectively. Our capital expenditures during the past two fiscal years related primarily to new product development and capacity expansion for new and existing products to meet market demand as well as investments toward improving quality, reliability and productivity that are each aimed at increasing operational efficiency.

 

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We intend to continue to invest in our business units in general, and in research and product development in particular, over the next several years in order to improve our existing product range, develop new products and platforms and to build and expand our portfolio in the Passenger Vehicle and Commercial Vehicle categories. We believe this will strengthen our position in the Indian automotive market and help us to grow our market share internationally.

As part of this future growth strategy, we plan to make investments in product development, capital expenditures in capacity enhancement, plant renewal and modernization and to pursue other growth opportunities. Our subsidiaries also have their individual growth plans and related capital expenditure plans. These expenditures are expected to be funded largely through cash generated from operations, existing investible surplus in the form of cash and cash equivalents, investment securities and other external financing sources.

Governmental Regulations

Governmental Regulations in India

Automotive Mission Plan, 2016-2026

The Automotive Mission Plan 2016-26 (“AMP 2026”) is the collective vision of the Government of India and the Indian automotive industry, in which the goal is for the vehicles, auto components, and tractor industries to reach certain size benchmarks over the next ten years and also contribute to India’s development, global footprint, technological maturity, competitiveness, and institutional structure and capabilities. AMP 2026 also seeks to define the trajectory of specific regulations and policies that govern research, design, technology, testing, manufacturing, imports/exports, sales, use, repair, and scrapping of automotive vehicles, components and services.

The vision statement of AMP 2026—“Vision 3/12/65”—states: “By 2026, the Indian automotive industry will be among the top three of the world in engineering manufacture and export of vehicles and auto components, and will encompass safe, efficient and environment friendly conditions for affordable mobility of people and transportation of goods in India comparable with global standards, growing in value to over 12% of India’s GDP, and generating an additional 65 million jobs”.

AMP 2026 envisages that the Government of India and the Indian automotive industry will work together to strengthen India’s position in the global automotive industry. AMP 2026 is intended to help the Indian automotive industry focus on its strengths and improve its competitiveness in select segments, achieve the annual production target of Rs.1,616,000 crores to Rs.1,889,500 crores in terms of its size, and establish its “Right to Win” on the global stage.

The Auto Policy, 2002

The auto policy was introduced by the Department of Heavy Industry, Ministry of Heavy Industries and Public Enterprises of the Government of India in March 2002, with the aims, among other things, of promoting a globally competitive automotive industry that would emerge as a global source for automotive components, establishing an international hub for manufacturing small, affordable Passenger Cars, ensuring a balanced transition to open trade at a minimal risk to the Indian economy and local industry, encouraging modernization of the industry and facilitating indigenous design, research and development, as well as developing domestic safety and environment standards on par with international standards.

Auto Fuel Vision and Policy 2025

The Ministry of Petroleum and Natural Gas formed an expert committee under the chairmanship of Shri Saumitra Chaudhuri, a member planning commission, on December 19, 2012. Its objective was to recommend auto fuel quality applicable through model year 2025. The committee in its draft report has recommended Bharat Stage IV compliant fuel across the country by 2017 and Bharat Stage V compliant fuel with 10 ppm of sulfur to be made available from 2020 onward. The draft report proposes nationwide Bharat Stage V emission standards for new four-wheelers from model year 2020 and for all four-wheelers from model year 2021. It also recommends Bharat Stage IV emissions standards from model year 2024 onwards. In April 2014, the expert committee submitted its recommendations to the committee empowered by the Ministry of Petroleum and Natural Gas, which proposed the implementation of emission standards one year earlier than the expert committee’s recommendations, which would result in the implementation of Bharat Stage V emission standards starting in model year 2019 and Bharat Stage VI emissions standards starting in model year 2023. However, in January 2016, the Government of India decided to implement the Bharat Stage VI emission standards even earlier by skipping Bharat Stage V emission standards. As such, the Bharat Stage VI standards will be made applicable from April 1, 2020 to all categories of vehicles across India. This two stage migration is going to be a huge challenge from developmental and capex investment perspectives.

 

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FAME Scheme

The Government of India announced the Faster Adoption and Manufacturing of Hybrid & Electric Vehicles (“FAME”). This scheme, in furtherance of the National Mission on Electric Mobility 2020 (“NEMMP”), is intended to support PHEV, or xEV, market development and its manufacturing network to achieve self-sustenance by focusing on four areas: (1) technology development, (2) demand creation, (3) pilot projects, and (4) public charging infrastructure. FAME envisions collaboration between the government, industry and academia to develop and promote the xEV market in India.

Central Motors Vehicles Rules, 1989

Chapter V of the Central Motor Vehicle Rules, 1989 (the “CMV Rules”) sets forth provisions relating to construction, equipment and maintenance of motor vehicles, including specifications for dimensions, gears, indicators, reflectors, lights, horns, safety belts and others. The CMV Rules govern emission standards for vehicles operating on CNG, gasoline, liquefied petroleum gas and diesel.

On and from the date of commencement of the CMV (Amendment) Rules, 1993, every manufacturer must submit the prototype of every vehicle to be manufactured by it for testing by the Vehicle Research and Development Establishment of the Ministry of Defense of the Government of India, the Automotive Research Association of India, Pune, the Central Machinery Testing and Training Institute, Budni (MP), the Indian Institute of Petroleum, Dehradun, the Central Institute of Road Transport, Pune, the International Center for Automotive Technology, Manesar or such other agencies as may be specified by the central government for granting a certificate by that agency as to the compliance of provisions of the Motor Vehicles Act, and the CMV Rules.

The CMV Rules also require the manufacturers to comply with notifications in the Official Gazette, issued by Government of India, to use such parts, components or assemblies in the manufacture of certain vehicles according to standards specified by either the Automotive Industry Standards Committee or the Bureau of Indian Standards.

Emission and Safety in India

The Government of India, starting in April 2017, mandated Bharat Stage IV standards, which are equivalent to Euro IV standards, for all vehicles across India. All categories of our vehicles currently manufactured are compliant with Bharat Stage IV standards. Bharat Stage VI standards will be applicable across the country starting April 1, 2020.

The Supreme Court of India in its judgement, dated October 24, 2018, directed that no motor vehicle conforming to the emission standards of Bharat Stage IV shall be sold or registered in the entire country with effect from April 1, 2020. Hence, our product plan, migration, manufacturing and product launches are being synchronized to fulfill these requirements.

CAFE standards for M1 category vehicles

The CAFE standards are applicable to M1 category vehicles from April 1, 2017. As a result, we are required to demonstrate CAFE compliance for our Passenger Vehicles, Commercial Vehicles and EV M1 models. TML has successfully complied with the Phase 1 CAFE requirements for Fiscal 2017 and Fiscal 2018. Through the use of the CAFE calculator, we regularly monitor production volumes and process to ensure that organizational level CAFE compliance (which will require us to produce enough fuel-efficient models to compensate for those models having higher CO2 emissions in g/km) is established at all times during the year. Any non-compliance could lead to penalties, product recalls and/or other punitive measures. To support our compliance obligations, our overall product portfolio needs to be enhanced with the incorporation of electric and hybrid vehicles as well as the inclusion of environmental-friendly technological features in existing and forthcoming models.

Heavy Duty Fuel-Efficiency Norms

The Ministry of Power issued the final notification for Heavy Duty Fuel-Efficiency Norms for Diesel Vehicles of categories M3 and N3 with GVW of 12T and above. Every vehicle of the specified categories must meet fuel-efficiency targets mentioned in notification based on constant speed fuel consumption tests conducted at 40 km/h and 60 km/h. Phase 1 is applicable starting April 1, 2018 for vehicles complying with BS4 emission standards and Phase 2 will be applicable from April 1, 2021 for vehicles complying with Bharat Stage VI emission standards. However, the Ministry of Road Transport and Highways (“MoRTH”), which is the nodal agency for implementation of Heavy Duty Fuel Efficiency Norms, has not yet notified constant speed fuel consumption standards in CMV Rule.

 

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Crash and other safety requirements for Motor Vehicles

India has a well-established regulatory framework administered by the MoRTH. Recently, the Government of India has embarked on a wide ranging program to institute standardized safety features for a variety of motor vehicles. Crash safety requirements, such as full frontal, offset frontal and lateral impact, have been made mandatory for all new models starting October 1, 2017 and from October 1, 2019 for all existing models of vehicle categories as specified in the individual standards. A pedestrian compliance program has been instituted for all new models from October 1, 2018 and for all existing models from October 1, 2020. Passenger Vehicles will require additional safety features such as driver airbag, safety belt reminders for driver and co-driver, reverse parking alert system, speed alert system and manual override for central locking system from July 1, 2019 onwards. Also the provisioning of child lock system has been prohibited in M1 transport category vehicles from July 1, 2019.

Anti-lock braking system (“ABS”) has been mandated for all M1 and M2 category Passenger Vehicles starting April 1, 2018 and April 1, 2019, for new models and existing models, respectively. The Government of India has also mandated advanced braking requirements for all motor vehicles which would become applicable progressively from 2021 onwards.

To facilitate informed consumer decision-making, the government is in the process of formulating the Bharat New Vehicle Safety Assessment Programme, a star-rating based system of safety assessment for Passenger Vehicles.

Fitment of vehicle location tracking system and emergency buttons have been mandated for national permit vehicles from November 2, 2018 and for all passenger public service vehicles from January 1, 2019.

Additionally, the MoRTH has also mandated the compliance with the Truck Body Code for all N2, N3 category vehicles in two phases (Phase I and Phase II) from October 1, 2018 and October 1, 2019, respectively. The MoRTH has issued the notification incorporating compliance with advanced requirements for fully-built buses manufactured on and after April 1, 2019 supplied by OE body builders. This calls for compliance to requirements such as acceleration, NVH limits, multiplexing for wiring harness and fitment of fire detection and suppression systems. The reverse parking alert system for all buses and trucks including small Commercial Vehicles has been mandated from April 1, 2020. Many revised standards are now being mandated for various component and system level requirements such as fuel tanks, mirrors, light signaling devices, steering gears and effort, retro reflective devices in Fiscal 2019 and Fiscal 2020. Also, MoRTH has mandated the fitment of high security registration plates by the vehicle manufacturer and dealers on all motor vehicles manufactured on or after April 1, 2019.

TML is working toward meeting all applicable regulations which we believe are likely to come into effect in various markets in the near future. We believe our vehicles also comply with the various safety regulations in effect in the other international markets where we currently operate.

India is a signatory to the 1998 UNECE Agreement on Global Technical Regulations and has voted in favor of all eleven global technical regulations (“GTRs”). TML works closely with the Government of India to participate in WP 29 World Forum Harmonization activities.

The 2019 Motor Vehicles Amendment Bill was passed in the Lok Sabha on July 23, 2019, but it is yet to be discussed and passed in the Rajya Sabha. This bill addresses vehicle recalls, road safety, traffic management and accident insurance, among other matters. In its current form, the bill imposes civil and criminal liability on manufacturers selling vehicles in contravention of the standards specified in the bill, or required by the government to recall their vehicles. The bill also proposes the creation of the National Road Safety Board to provide advice to the central and state governments on all aspects of road safety and traffic management.

The Essential Commodities Act, 1955

The Essential Commodities Act, 1955, as amended by the Essential Commodities (Amendment and Validation) Act, 2009 (the “Essential Commodities Act”) authorizes the Government of India, if it finds it necessary or expedient to do so, to provide for regulating or prohibiting the production, supply, distribution, trade and commerce in the specified commodities under the Essential Commodities Act, in order to maintain or increase supplies of any essential commodity or to secure their equitable distribution and availability at fair prices, or to secure any essential commodity for the defense of India or the efficient conduct of military operations. The definition of “essential commodity” under the Essential Commodities Act includes “component parts and accessories of automobiles”.

 

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Environmental Regulations

Our manufacturing units must ensure compliance with various environmental statutes. Significant statutes for our business include the Water (Prevention and Control of Pollution) Act, 1974 and the Rules thereunder, the Air (Prevention and Control of Pollution) Act, 1981 and the Rules thereunder, the Environment Protection Act, 1986 and the Rules thereunder and the Hazardous and Other Wastes (Management and Transboundary Movement) Rules, 2016. The basic purpose of these statutes is to control, abate and prevent pollution. In order to achieve these objectives, pollution control boards (“PCBs”), which are vested with diverse powers to deal with water and air pollution and hazardous waste disposal, have been set up in each state. The PCBs are responsible for establishing standards for maintenance of clean air and water, directing the installation of pollution control devices in industries and undertaking inspection to ensure that units or plants are functioning in compliance with the standards prescribed. These authorities also have the power of search, seizure and investigation. All of our manufacturing plants are either in possession of current, valid Consents to Operate and Hazardous Waste Authorizations or are in the process of renewing the same from the respective PCBs of the states where they operate. In 2016, the Ministry of Environment, Forests & Climate Change (“MoEFCC”) under the Government of India re-vamped several national level legislations governing waste management. Specifically the Plastic Waste Management Rules 2016, the Bio-Medical Waste (BMW) Management Rules 2016, e-waste Management Rules-2016, and the Construction and Demolition (C&D) Waste Management Rules 2016. All our plants have analyzed these new regulations for its applicability and aligned their compliance practices accordingly.

The MoEFCC under the Government of India receives proposals for expansion, modernization and establishment of projects and the impact of such projects on the environment is assessed by the MoEFCC, before it grants environmental clearances for the proposed projects under the Environmental Impact Assessment Notification and Rules. All of our manufacturing plants have obtained environmental clearances for specific projects in the past as and when mandated.

We ensure that all prescribed standards are followed for management of waste and we have made significant investments toward pollution control and environmental protection at our manufacturing plants.

The Government of India intends to regulate end of life vehicles (“ELVs”), which would be applicable to Passenger Cars and two wheelers. The authorized collection and dismantling centers (“ACDCs”) would be equipped to handle Commercial Vehicles as well. The purpose of the ELV policy is to remove vehicles that are endangering the environment and public safety.

Recently, the Central Pollution Control Board has formulated the draft guidelines for environmentally sound management of end-of-life vehicles for implementation on the principle of shared responsibility that mandates the specific roles for the stakeholders in the EV value chain which includes government authorities, manufacturers, recyclers, dealers/ intermediaries, insurers and consumers.

Regulation of Imports and Exports

Regulation of quantitative restrictions on imports into India were liberalized with effect from April 1, 2001, pursuant to India’s World Trade Organization obligations, and imports of capital goods and automotive components were placed under the open general license category.

Automobiles and automotive components may, generally, be imported into India without a license from the Government of India subject to their meeting Indian standards and regulations, as specified by designated testing agencies. As a general matter, cars, UVs and SUVs in completely built up (“CBU”), condition may be imported at 60% basic customs duty. However, cars with cost, insurance and freight value of more than US$40,000 or with engine capacities greater than 3,000 cubic centimeters for petrol variants and 2,500 cubic centimeters for diesel variants or with both, may be imported at a 100% basic customs duty. Commercial Vehicles may be imported at a basic customs duty of 25% and components may be imported at a basic customs duty ranging from at 15% to 7.5%.

MoRTH issued the final notification regarding the acceptance of international standards (such as the United Nation Economic Commission for Europe (the “ECE”) or Japanese) for direct import of CKD units without any need of domestic type approval by amending provisions of CMV Rules 92 and 126. Under the modified rules, the compliance of such part, component or assembly shall be deemed to be established for the purpose of CMV Rules 124 and 126. Also Vehicle manufacturer can import unused RHD CBUs or CKDs directly or through their authorized representative, up to 2500 units of M1 and up to 500 units of other categories of vehicles annually, compliant with the international standard (the ECE or Japanese) without any need for domestic CMV Rules Type Approval for Sales and Registration.

 

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The FDI Policy

Automatic approval for foreign equity investments up to 100% is allowed in the automobile manufacturing sector under the FDI Policy. See Item 10.D “Additional Information—Exchange Controls” for additional information relating to restrictions on foreign investment under Indian law.

Indian Taxes

See Item 10.E “Additional Information—Taxation” for additional information relating to our taxation.

Major Taxes Applicable on Goods up to June 30, 2017

Excise Duty

The Government of India imposes excise duty on cars and other motor vehicles and their chassis, for which rates vary from time to time and across vehicle categories reflecting the policies of the Government of India. The chart below sets forth a summary of excise duty rates as applicable as of June 30, 2017.

 

Tax Rate

   Excise Duty (per vehicle or chassis)
   Small
cars1
    Cars other
than small
cars2
   Motor
vehicles
for more
than 13
persons
    Chassis fitted
with engines
for vehicles of
more than 13
persons
   Trucks     Chassis fitted with
engines for trucks
   Safari,
SUVs and
UVs

June 30, 2017

     12.5   24% or

27%1

     12.5   14%      12.5   13%    27% or
30%

 

1.

Small cars are cars with a length not exceeding 4,000 mm and an engine capacity not exceeding 1,500 cubic centimeters for cars with diesel engines, and not exceeding 1,200 cubic centimeters for cars with gasoline engines. The higher rate is applicable if the engine capacity exceeds 1,500 cubic centimeters.

2.

Cars other than small cars are cars with a length exceeding 4,000 mm with an engine capacity exceeding 1,500 cubic centimeters for diesel engines and 1,200 cubic centimeters for gasoline engines.

All vehicles and chassis are subject to the automobile cess, which is levied at 0.125%, on assessable value. Certain Passenger Vehicles are also subject to the National Calamity Contingent Duty, which is levied at 1% on assessable value. Infrastructure cess is applicable on certain vehicles falling under heading 8703 at 1% of assessable value in case of small cars-petrol/LPG/CNG, at 2.5% in case of small cars-diesel and at 4% in case of other motor vehicles.

Value Added Tax

The value added tax (“VAT”) has been implemented throughout India. VAT enables set-off on input tax credit of VAT paid on inputs by traders and manufacturers against the output VAT/Central Sales Tax (the “CST”) liability, thereby eliminating the cascading effect of taxation. Standard rate of VAT in general was prescribed as 5% and 12.5%, along with special brackets of 0%, 1%, 3%, 4%, 13.5%, 14% 14.5%, 15%, 20%, 22% and 23% have been announced for various categories of goods and commodities sold in/from the respective states and certain states have also introduced additional VAT of 1% to 3% on specified commodities, including automobiles.

In some of the states, a surcharge of 5% to 10% on VAT has been introduced on automobiles. Since its implementation, VAT has had a positive impact on our business. Prior to the implementation of VAT, a major portion of sales tax paid on purchases formed part of our total cost of materials. The implementation of VAT has resulted in savings on the sales tax component, as VAT paid on inputs may generally be set-off against tax paid on outputs.

In addition to VAT, the CST continues to exist, although it was proposed to be abolished in a phased manner. The CST rate was reduced to 2% in 2008-2009. There was no change in the CST rates after June 1, 2008 and the same rates continued as of June 2017.

Economic Stimulus Package and Incentives

Following the passage of the Fiscal 2014 budget, in February 2014, the Government of India further amended the central value added tax (“Cenvat”) rates. Until December 31, 2014, the Cenvat on small cars, trucks and buses was reduced to 8% and Cenvat on cars other than small cars was reduced to 20% or 24% from 24% or 27%, respectively. The Cenvat on UVs was reduced from 27% or 30% to 24%. The Cenvat for chassis, which was increased from 12% to 14% in the budget for the Fiscal 2013, was reduced to 9%.

 

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The Government of India launched the NEMMP to encourage reliable, affordable and efficient electric vehicles that meet consumer performance and price expectations. Through collaboration between the government and industry for promotion and development of indigenous manufacturing capabilities, required infrastructure, consumer awareness and technology, the NEMMP aims to help India to emerge as a leader in the electric vehicle market in the world by 2020 and to contribute towards national fuel security.

Furthermore, the Ministry of Road Transport & Highways and the Bureau of Energy Efficiency in India finalized labeling regulations for the M1 category of vehicles, which includes Passenger Vehicles with nine seats or fewer.

The Government of India’s plan to encourage India’s transition to hybrid and electric mobility consists of the following initiatives:

 

   

Demand Side: Mandate use of electric vehicles in areas such as public transportation and government fleets in order to create initial demand for OEMs and provide incentives for the sales of electric vehicles to consumers.

 

   

Supply Side: Link incentives to localization of the production of key components of electric vehicle in a phased manner.

 

   

Research and Development: Fund research and development programs along with OEMs and component suppliers to develop optimal solutions for India at low cost.

 

   

Infrastructure Support: Develop pilot programs to support hybrid and/or electric vehicles and test their effectiveness and make modest investments to build public charging infrastructure to support electric vehicles, especially for buses.

Taxes Applicable from July 1, 2017

Goods and Services Tax

The introduction of the GST from July 1, 2017 was a very significant step in the field of indirect tax reforms in India. By subsuming a large number of central and state taxes into a single tax, the aim was to mitigate cascading or double taxation and pave the way for a common national market.

The salient features of GST are:

 

   

Applicable on “supply” of goods or services as against the earlier concept of tax on manufacture of goods or on sale of goods or on provision of services.

 

   

Based on the principle of destination based consumption taxation as against the present principle of origin-based taxation.

 

   

Dual GST with the center and the states simultaneously levying it on a common base.

 

   

Replaced the taxes earlier levied and collected by the center, namely: (a) central excise duty; (b) duties of excise (medicinal and toilet preparations); (c) additional duties of excise (goods of special importance); (d) additional duties of excise (textiles and textile products); (e) additional duties of customs (commonly known as CVD); (f) special additional duty of customs; (g) service tax; (h) cesses and surcharges insofar as they relate to supply of goods or services.

 

   

State taxes that were subsumed within the GST are (a) state VAT; (b) the CST; (c) purchase tax; (d) luxury tax; (e) entry tax (all forms); (f) entertainment tax (except those levied by the local bodies); (g) taxes on advertisements; (h) taxes on lotteries, betting and gambling; (i) state cesses and surcharges insofar as they relate to supply of goods or services.

 

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The GST rates together with the GST compensation cess rates applicable to vehicles as of March 31, 2019 are listed below:

 

Commodity    GST Rate    

GST Comp.

Cess Rate

 

Small Cars (Diesel)

     28     3

Small Cars (Gasoline)

     28     1

Motor Vehicles for transport of 10 to 13 persons incl. driver

     28     15

Motor vehicles for more than 13 persons

     28      

Chassis fitted with engine for more than 13 persons

     28      

Chassis fitted with engine for trucks

     28      

Safari, SUVs and UVs

     28     22

Car—Motor vehicle of engine capacity not exceeding 1500cc

     28     17

Motor vehicle of engine capacity exceeding 1500 cc and other than SUV

     28     20

Truck

     28      

Environmental, fiscal and other governmental regulations around the world

Our Jaguar Land Rover business has significant operations in the United Kingdom, North America, Europe, China and other markets that have stringent and ever evolving regulations relating to vehicle emissions. Compliance with the proposed tightening of vehicle emissions regulations by the European Union may entail significant costs. Although Jaguar Land Rover is pursuing various technologies to meet the different environmental standards, the costs of compliance can be significant to its operations and may adversely and materially impact its business, financial condition and results of operations.

Article 50 of the Treaty of Lisbon was triggered on March 29, 2017 to start the process for the United Kingdom to leave the European Union. The general election on June 8, 2017, concluded in a hung parliament and resulted in the Conservatives forming a coalition government with the Democratic Unionist Party of Northern Ireland. The formation of a coalition government adds to the uncertainty emanating from the circumstances surrounding Brexit. This uncertainty has weighed on the economic performance of the United Kingdom with recent higher inflation leading to a rise of 0.25% in the base interest rate adding further pressure to economic growth. In addition, a rise in UK vehicle tax in April 2017 as well as higher taxes levied on diesel vehicles have adversely impacted automotive industry sales.

Greenhouse gas / CO2 / fuel economy legislation

Current legislation in Europe limits Passenger Car fleet average greenhouse gas emissions to 130 grams of CO2 per kilometer for 100% of new cars from 2015. Different targets apply to each manufacturer based on their respective fleets of vehicles and average weight. Jaguar Land Rover has received a permitted derogation from the weight-based target requirement available to small volume and niche manufacturers. As a result, Jaguar Land Rover is permitted to reduce emissions by 25% from 2007 levels rather than meeting a specific CO2 emissions target. Jaguar Land Rover had an overall 2015 target of an average of 178.0 grams of CO2 per kilometer for its full fleet of vehicles registered in the EU that year, with Jaguar Land Rover and Tata Motors Group monitored as a single “pooled” entity for compliance with this target (for Jaguar Land Rover alone, this number is 179.8 g/km). In the European Environment Agency report “Monitoring of CO2 emission from Passenger Cars—Data 2016—Final data” our fleet delivered 150 grams of CO2 per kilometer, well below the mandated target.

The European Union has regulated target reductions for 95% of a manufacturer’s full fleet of new Passenger Cars registered in the European Union in 2020 to average 95 grams of CO2 per kilometer, rising to 100% in 2021. The new rule for 2020 contains an extension of the niche manufacturers’ derogation and permits us to reduce our emissions by 45% from 2007 levels, which enables Jaguar Land Rover to have an overall target of 132 grams of CO2 per kilometer.

 

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In the United States, both CAFE standards and greenhouse gas emissions standards are imposed on manufacturers of passenger cars and light trucks. The NHTSA has set the federal CAFE standards for Passenger Car and light trucks to meet an estimated combined average fuel economy level of 35.5 miles per U.S. gallon for 2016 model year vehicles. Meanwhile, the U.S. Environmental Protection Agency (the “EPA”) and the NHTSA issued a joint rule to reduce the average greenhouse gas emissions from Passenger Car, light trucks and medium-duty Passenger Vehicles for model years 2012 to 2026 to 250 grams of CO2 per mile, approximately 6.63L/100km or 35.5 miles per U.S. gallon if the requirements were met only through fuel economy standards. The U.S. federal government extended this program to cars and light trucks for model years 2017 through 2025, targeting an estimated combined average emissions level of 243 grams of CO2 per mile in 2017 and 163 grams per mile in 2025, which is equivalent to 54.5 miles per gallon if achieved exclusively through fuel economy standards. However, in August 2018 the EPA and the NHTSA issued a Notice of Proposed Rule Making to amend CAFE and greenhouse gas targets for 2021 to 2026 model year inclusive under the new “Safer Affordable Fuel-Efficient” standards program directed by the Trump administration. Among many proposals was the relaxation of targets as well as other detail changes. Jaguar Land Rover responded to the 60-day comment period and the formal response to comments from the EPA and the NHTSA are expected during April 2019. In addition, many other markets either have or will shortly define similar greenhouse gas emissions standards, including Brazil, Canada, China, the European Free Trade Association, India, Japan, Mexico, Saudi Arabia, South Korea, Switzerland and Taiwan.

Although California is currently empowered to implement more stringent greenhouse gas emissions standards, it has, so far, elected to accept the existing U.S. federal standards for compliance with the state’s own requirements. The California Air Resources Board enacted regulations that deem manufacturers of vehicles for model years 2012 through 2016 that were in compliance with the EPA greenhouse gas emissions regulations to also be in compliance with California’s greenhouse gas emission regulations. In November 2012, the California Air Resources Board accepted the federal standard for vehicles with model years 2017 to 2025 for compliance with the state’s own greenhouse gas emission regulations. The “Safer Affordable Fuel-Efficient” standards program looks to revoke California’s waiver to implement its own greenhouse gas standards in favor of a single national standard with no state by state waiver or opt out.

However, California is moving forward with other stringent emission regulations for vehicles, including the zero emission vehicle regulation (the “ZEV”), which requires manufacturers to increase their sales of ZEVs year-on-year, up to an industry average of 22% of vehicles sold in the state by 2025. The precise sales required in order to meet a manufacturer’s obligation in any given model year depend on the size of the manufacturer and the level of technology sold (for example, transitional zero emission technologies, such as PHEVs, can account for at least a proportion of a manufacturer’s obligation, but these technologies earn compliance credits at a different rate from pure ZEVs). Other compliance mechanisms are available under ZEV, such as banking and trading of credits generated through the sale of eligible vehicles. Again the Safer Affordable Fuel-Efficient” standards program looks to revoke California’s waiver to implement its own ZEV regulation and the subsequent adoption by other states under the EPA Clean Air Act Section 177. We understand various existing “Section 177 States” have declared their intentions to challenge the “Safer Affordable Fuel-Efficient” standards program in court, so even once the EPA and the NHTSA announce their program expected in April 2019, we expect long a complex litigation process to ensue before final standards are agreed or enacted.

Jaguar Land Rover is fully committed to meeting these current, as yet unmodified standards and any ensuing standards, technology deployment plans incorporated into cycle plans are directed at achieving these standards. These plans include the use of lightweight materials, including aluminum, which will contribute to overall lighter vehicles, thereby improving fuel-efficiency, reducing parasitic losses through the driveline and improvements in aerodynamics. The plans also include the development and installation of smaller and more efficient engines in existing Jaguar Land Rover vehicles and other drivetrain efficiency improvements, including the use of eight-speed or nine-speed transmissions in some of Jaguar Land Rover’s vehicles. Jaguar Land Rover continues to introduce smaller vehicles such as the Jaguar XE, its most fuel-efficient Jaguar yet and to continue lightening new models as demonstrated with the aluminum construction of the all-new Discovery Sport. The technology deployment plans also include the research, development and deployment of hybrid-electric vehicles. These technology deployment plans require significant investment. Local excise tax initiatives are a key consideration in ensuring Jaguar Land Rover products meet customer needs for environmental footprint and cost of ownership concerns as well as continued access to major city centers (such as London and Paris’ Ultra Low Emission Zones and similar low emissions areas being contemplated in other major urban centers).

 

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Non-greenhouse gas emissions legislation

The European Union has adopted Euro 6, the latest in a series of more stringent standards for emissions of other air pollutants from Passenger Vehicles and Light Commercial Vehicles, such as nitrogen oxide, carbon monoxide, hydrocarbons and particulates. Euro 6 incorporates the introduction of real driving emissions (“RDE”), as a complement to laboratory testing to measure compliance. As a first step, manufacturers will be required to reduce the discrepancy between laboratory compliance values and RDE procedure values to a conformity factor of a maximum of 2.1 (110%) for new models by September 2017 for Passenger Cars and by September 2018 for Light Commercial Vehicles. Following that, manufacturers will be required to reduce this discrepancy to a conformity factor of a maximum of 1.43 (43%) by January 2020 for new models of Passenger Cars and by January 2021 for new models of Light Commercial Vehicles. On December 13, 2018, the European Court of Justice declared that the European Commission had no power to amend the oxides of nitrogen limits under Euro 6 RDE tests by applying correction factors. (The correction/conformity factors amount to amending the limits.) Furthermore, even if technical constraints justified the approach taken, the approach taken made it impossible to know whether the Euro 6 standard is complied with during the tests. The cities of Paris, Brussels and Madrid brought an action for annulment of the not-to-exceed emission limits for oxides of nitrogen under the Euro 6 standard’s RDE tests. These limits were applied to the limits in the standard in order to take account of statistical and technical uncertainties in the RDE tests. Hungary has declared its plans to appeal the ruling.

Starting in 2017, there was a move to the new WLTP in Europe to address global concerns on more customer-correlated fuel economy certified levels as well as air quality concerns. It is expected that other countries will follow suit and introduce similar requirements. All programs are fully compliant.

In California, the low-emission vehicle (“LEV3”) regulations as well as the ZEV regulations place ever-stricter limits on emissions of particulates, nitrogen oxides, hydrocarbons, organics and greenhouse gases from Passenger Cars and light trucks. These regulations require ever-increasing levels of technology in engine control systems, on-board diagnostics and after treatment systems affecting the base costs of our powertrains. California’s LEV3 and ZEV regulations cover model years 2015 to 2025. Additional stringency of evaporative emissions also requires more-advanced materials and joints solutions to eliminate fuel evaporative losses, all for much longer warranty periods (up to 150,000 miles in the United States).

In addition, in April 2014, the Tier 3 Motor Vehicle Emission and Fuel Standards issued by the EPA (“Tier 3”) were finalized. With Tier 3, the EPA has established more stringent vehicle emissions standards broadly aligned to the LEV3 standards for 2017 to 2025 model year vehicles. The EPA made minor amendments to these Tier 3 standards in January 2015.

While Europe and the United States lead the implementation of these emissions programs, other nations and states typically follow on with adoption of similar regulations two to four years thereafter. For example, China’s Stage IV targets a national average fuel consumption of 5.0L/100km by 2021. In response to severe air quality issues in Beijing and other major Chinese cities, the Chinese government adopted more stringent emissions standards beginning in 2019.

To comply with the current and future environmental standards, we may have to incur substantial capital and research and development expenditures to upgrade products and manufacturing facilities, which would have a material and adverse impact on our cost of production and results of operations.

Noise legislation

The European Commission adopted new rules, which apply to new homologations from July 2016, to reduce noise produced by cars, vans, buses, coaches and light and heavy trucks. Noise limit values would be lowered in two steps of each two A-weighted decibels for vehicles other than trucks, and one A-weighted decibel in the first step and two in the second step for trucks. Compliance would be achieved over a ten-year period from the introduction of the first phase.

Vehicle safety legislation

Jaguar Land Rover’s products are certified in all markets in which they are sold and compliance is achieved through vehicle certification in respective countries. Many countries use, and in many instances adopted into their own regulatory frameworks, the regulations and technical requirements provided through the ECE series of vehicle regulations.

 

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Vehicles sold in Europe are subject to vehicle safety regulations established by both the European Union and by individual member states, if any. In 2009, the European Union enacted a new regulation to establish a simplified framework for vehicle safety, repealing more than 50 existing directives and replacing them with a single regulation aimed at incorporating relevant United Nations standards. Following the incorporation of the United Nations standards commenced in 2012, the European Commission requires new model cars to have electronic stability control systems and has introduced regulations relating to low-rolling resistance tires, tire pressure monitoring systems and requirements for heavy vehicles to have advanced emergency braking systems and lane departure warning systems. The new safety requirements came into force from November 2014 for all new vehicles sold in the EU market. The new mandatory measures include safety belt reminders, electric car safety requirements, easier child seat anchorages, tire pressure monitoring systems and gear shift indicators.

The NHTSA issues federal motor vehicle safety standards covering a wide range of vehicle components and systems such as airbags, seatbelts, brakes, windshields, tires, steering columns, displays, lights, door locks, side impact protection and fuel systems. Jaguar Land Rover is required to test new vehicles and equipment and assure their compliance with these standards before selling them in the United States. It is also required to recall vehicles found to have defects that present an unreasonable risk to safety or which do not conform to the required Federal Motor Vehicle Safety Standards, and to repair them without charge to the owner. The financial cost and impact on consumer confidence of such recalls can be significant depending on the repair required and the number of vehicles affected. We have no investigations relating to alleged safety defects or potential compliance issues pending before the NHTSA.

These standards add to the cost and complexity of designing and producing vehicles and equipment. In recent years, the NHTSA has mandated, among other things:

 

   

a system for collecting information relating to vehicle performance and customer complaints, as well as data from foreign recalls to assist in the early identification of potential vehicle defects as required by the Transportation Recall Enhancement, Accountability, and Documentation Act; and

 

   

enhanced requirements for frontal and side impact, including a lateral pole impact.

Furthermore, the Cameron Gulbransen Kids Transportation Safety Act of 2007 requires the NHTSA to enact regulations related to rearward visibility and brake-to-shift interlock, and to consider regulating the automatic reversal functions on power windows. The costs to meet these proposed regulatory requirements may be significant.

As of July 27, 2018, Jaguar Land Rover has one issue under investigation by the NHTSA. The investigation concerns a defective condition in the electronically-controlled door latch system while certain vehicles were in motion. Jaguar Land Rover is co-operating fully with the NHTSA and has submitted its response to the NHTSA.

While vehicle safety regulations in Canada are similar to those in the United States, many other countries have requirements different from those in the United States. The differing requirements among various countries create complexity and increase costs such that the development and production of a common product that meets the country regulatory requirements of all countries is not possible. GTRs developed under the auspices of the United Nations, continue to have an increasing impact on automotive safety activities, as indicated by the European Union legislation. In 2008, GTRs on electronic stability control, head restraints and pedestrian protection were each adopted by the United Nations World Forum for the Harmonization of Vehicle Regulations, and are now in different stages of national implementation. While global harmonization is fundamentally supported by the automobile industry in order to reduce complexity, national implementation may still introduce subtle differences into the system.

Insurance Coverage

The Indian insurance industry is predominantly state-owned and insurance tariffs are regulated by the Indian Insurance Regulatory and Development Authority. We have insurance coverage which we consider reasonably sufficient to cover all normal risks associated with our operations, including business interruptions, and which we believe are in accordance with industry standards in India. We have obtained coverage for product liability for some of our vehicle models in several countries to which we export vehicles. TDCV has insurance coverage as is required and applicable to cover all normal risks in accordance with industry standards in South Korea, including product liability. We have also taken insurance coverage on directors and officer’s liability to minimize risks associated with international litigation for us and our subsidiaries.

 

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In accordance with treasury policy, Jaguar Land Rover has maintained insurance coverage that is reasonably adequate to cover normal risks associated with the operation of its business, such as coverage for people, property and assets, including construction, general, auto and product liability. On August 12, 2015, a series of explosions caused widespread damage at the Port of Tianjin in China, one of three major locations in China through which Jaguar Land Rover imports its vehicles. At the time of the explosion, approximately 5,800 Jaguar Land Rover vehicles were stored at various locations in Tianjin. Many of these vehicles were destroyed or damaged in the explosion, and, as a result, Jaguar Land Rover recognized an exceptional charge of GBP245 million in the second quarter of Fiscal 2016. By the end of Fiscal 2017, GBP274 million had been recovered through the receipt of insurance proceeds and other recoveries. These included amounts received for insurance, tax recoveries, foreign exchange gains and the sales of vehicles that were at the port at the time of the explosion including GBP35 million related to other costs associated with Tianjin including lost and discounted vehicle revenue. There can be no assurance that any claim under our insurance policies will be honored fully or timely, our insurance coverage will be sufficient in any respect or our insurance premiums will not increase substantially. Accordingly, to the extent that we suffer loss or damage that is not covered by insurance or which exceeds our insurance coverage, or have to pay higher insurance premiums, our financial condition may be materially and adversely affected.

We are insured by insurers of recognized financial standing against such losses and risks and in such amounts as are prudent and customary in the business in which it is engaged. All such insurance is in full force and effect.

We are able to renew our existing insurance coverage, as and when such policies expire or to obtain comparable coverage from similar institutions as may be necessary or appropriate to conduct its business, as now conducted.

Export Promotion Capital Goods

Since Fiscal 1997, we have benefited from participation in the Export Promotion Capital Goods Scheme (the “EPCG Scheme”), which permits us to import capital equipment under a special license at a substantially reduced customs duty. Our participation in this scheme is subject to us fulfilling an obligation to export goods manufactured or produced by the use of capital equipment imported under the EPCG Scheme to the value of a multiple of the cost plus insurance and freight value of these imports or customs duty saved over a period of 6 and 8 years from the date of obtaining the special license. We currently hold 32 licenses (excluding redeemed licenses) which require us to export our products of a value of approximately Rs. 39.93 billion between the years 2016 to 2025, and we carefully monitor our progress in meeting our incremental milestones. After fulfilling some of the export obligations as per provisions of foreign trade policy, as of March 31, 2019, we have remaining obligations to export products worth approximately Rs. 21.20 billion by March 2025. In the event that the export obligation under the EPCG Scheme is not fulfilled, we would have to pay the differential between the reduced and normal duty on the goods imported along with interest. In view of our past record of exceeding our export milestones, and our current plans with respect to our export markets, we do not currently foresee any impediments to meeting our export obligation in the required time frame.

Legal Proceedings

In the normal course of business, we face claims and assertions by various parties. We record a liability for all claims where a potential loss is probable and capable of being estimated. We disclose such matters in our financial statements if they are material. We disclose potential losses that are considered reasonably possible but less than probable in our financial statements. However, we do not record a liability in our financial statements unless the loss becomes probable. If certain new developments arise, such as a change in law or a ruling against us, we may need to make provisions in our financial statements, which could adversely impact our reported financial condition and results of operations. If we are required to pay all or a portion of a significant claim, there could be a material adverse effect on our business and profitability. Certain claims that are above Rs.200 million are described in Note 36 to our consolidated financial statements included in this annual report on Form 20-F. Certain claims that are below Rs.200 million pertain to indirect taxes, labor and other civil cases. Other claims against us pertain to motor accidents in India involving vehicles that were damaged in accidents while being transferred from our manufacturing plants to regional sales offices, product liability claims and consumer complaints. Some of these other claims relate to the replacement of vehicles parts and/or compensation for deficiencies in services provided by us or our dealers.

Capital investments underway as of March 31, 2014, included the investment of Rs.3,098.8 million to build an automobile manufacturing facility at Singur in West Bengal for Nano project. In October 2008, we moved the Nano project from Singur in West Bengal to Sanand in Gujarat. In June 2011, the newly elected Government of West Bengal (the “West Bengal Government”) enacted a law known as the Singur Land Rehabilitation & Development Act, 2011 and by virtue of the provisions of this Act the West Bengal Government took possession of land. We challenged the law’s constitutionality. In June 2012, the Calcutta High Court declared the law unconstitutional and restored our rights under the land lease agreement. The West Bengal Government filed an appeal in the Supreme Court of India in August 2012.

 

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The appeal is ongoing, and the timeline for its resolution is uncertain and the result is uncertain. In Fiscal 2015, our management made a provision for carrying the capital cost of buildings at Singur amounting to Rs.3,098.8 million, excluding other assets (such as electrical installations) and expenses written off/provided in earlier years, security expenses, lease rent and claim for interest on the whole amount (including Rs.3,098.8 million).

There are two main issues in the case: (i) the West Bengal Government’s acquisition of the land from the original landowners (ii) and the leasing of the acquired land by the West Bengal Government to TML. In January 2008, the Calcutta High Court upheld the West Bengal Government’s acquisition of the land for the purpose of leasing it to TML to set up the plant for manufacturing Tata Nano vehicles. The losing parties appealed the Calcutta High Court’s judgment to the Supreme Court of India. In August 2016, the Supreme Court of India declared the acquisition of the land for the project by the West Bengal Government illegal and directed that the land be returned to the landowners. Because the Supreme Court of India held that the land acquisition was illegal, the West Bengal Government’s subsequent appeal regarding the Singur Act’s constitutionality before the Supreme Court of India was rendered moot and withdrawn. The Supreme Court of India’s decision also rendered the West Bengal Government’s lease of the land to TML unviable. However, the lease agreement contained a clause stating that, if the acquisition was deemed illegal, the West Bengal Government would indemnify TML for the capital cost it had incurred on the site. The lease agreement also provided for arbitration as a mechanism to resolve any dispute between TML and the West Bengal Government.

When TML raised its claim for compensation for indemnification for capital and other costs, the West Bengal Government declined to grant the same. TML sought arbitration pursuant to the lease agreement in order to resolve the dispute. After arbitration commenced, TML filed its claim for compensation before the arbitral tribunal comprising two retired judges from the Calcutta High Court and presided over by a retired judge from the Supreme Court of India. The arbitration proceedings before the arbitral tribunal have started in May 2019.

The CCI initiated an inquiry against us and other car manufacturers (collectively, the “Indian OEMs”) pursuant to allegations that the Indian OEMs engaged in anticompetitive conduct by not making genuine spare parts of automobiles manufactured by the Indian OEMs freely available in the open market in India. In an order dated August 25, 2014, the CCI held that the Indian OEMs had violated the provisions of Sections 3 and 4 of the Competition Act, 2002, and imposed a penalty of 2% of the average total revenues for three years. Subsequently, we and other Indian OEM’s filed a writ petition before the Delhi High Court challenging the constitutionality of Sections 22(3) and 27(b) of the Indian Competition Act, under which the order was passed and the penalty imposed.

In April 2019, the Delhi High Court directed the petitioners to approach the National Company Law Appellate Tribunal (“NCLAT”) for further deliberation on the merits. TML has filed a special leave petition before the Supreme Court of India challenging the Delhi High Court’s order, which was admitted by the Supreme Court of India. The Supreme Court of India has also continued the stay on recovery of the penalty imposed by the CCI. Further hearings on the matter are expected to be held later in the year.

A SEBI Order, dated March 6, 2018, directed TML to conduct an internal inquiry within three months into the leakage of information relating to its financial results for the quarter ended December 2015 and to take appropriate actions against those responsible. TML hired Ernst & Young LLP to conduct an internal investigation. The report was submitted to SEBI on June 11, 2018. There has been no further communication from SEBI.

The Company, consequent to an order of the Supreme Court of India in the case of R.C Gupta and Ors. Vs Regional Provident Fund Commissioner, Employees Provident Fund Organization and Ors, evaluated the impact on its employee pension scheme and concluded that this is not applicable to us based on external legal opinion and hence it is not probable that there there will be an outflow of resources. The Company filed an intervention application with the Supreme Court of India on April 2019.

C. Organizational Structure.

Tata Sons—Our Promoter and its Promoted Entities

Tata Sons holds equity interests in its promoted companies engaged in a wide range of businesses. The entities promoted by Tata Sons, including Tata Motors Limited, are based substantially in India and had aggregate revenues in excess of US$100 billion for the financial year ending March 2019. The businesses of entities promoted by Tata Sons can be categorized under ten business sectors, information technology, steel, automotive, consumer and retail, infrastructure, financial services, tourism and travel, aerospace and defence, telecom and media and trading and investments.

 

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Some of the entities promoted by Tata Sons have their origins in the trading business founded by the founder Mr. Jamsetji Nusserwanji Tata in 1868, which was developed and expanded in furtherance of his dreams by his two sons, Sir Dorabji Tata and Sir Ratan Tata, following their father’s death in 1904. The family’s interests subsequently vested largely in the Sir Ratan Tata Trust, the Sir Dorabji Tata Trust and other associate trusts, collectively called “the Tata Trusts”. The Tata Trusts have been established for philanthropic and charitable purposes and together own a significant percentage of the share capital of Tata Sons.

Over the years, the operations of the entities promoted by Tata Sons have expanded to encompass a number of major industrial and commercial enterprises, including Indian Hotels Company Limited (1902), Tata Steel Limited (1907), Tata Power Company Limited (1910), Tata Chemicals Limited (1939), and Tata Motors Limited (1945). Other Tata entities include Voltas Limited (1954) and Tata Global Beverages Ltd. (1962), along with its UK-based Tetley tea business.

Tata Consultancy Services Limited (“TCS”), a subsidiary of Tata Sons which started its operations in the 1960s as a division of Tata Sons and later became a listed public company, is a leading software service provider in India and several countries abroad and the first Indian software firm to breach the US$100 billion market capitalization mark. TCS has delivery centers around the globe including the United States, the United Kingdom, Hungary, Brazil, Uruguay, China, Europe, Asia Pacific, Latin America, as well as India.

Tata Sons promoted India’s first airline, Tata Airlines, which later changed its name to Air India (India’s national carrier), as well as India’s largest general insurance company, New India Assurance Company Limited, both of which were subsequently taken over by the government as part of the Government of India’s nationalization program. In 1999, entities promoted by Tata Sons also invested in several telephone and telecommunication ventures, including acquiring a significant portion of the Government of India’s equity stake in the then state owned Videsh Sanchar Nigam Limited, which was subsequently renamed Tata Communications Limited. Companies promoted by Tata Sons are building multinational businesses that aspire to achieve growth through excellence and innovation, while balancing the interests of shareholders, employees and society.

Some of the other companies promoted by Tata Sons include: Titan Company, established in 1984, which manufactures India’s largest and best-known range of personal accessories, such as watches, jewelry, sunglasses, and prescription eyewear, and excels in precision engineering; Tata Housing Development Company, established in 1984, a real estate developer in India; Tata AIA Life Insurance Company, established in 2001, which is a joint venture between Tata Sons and AIA Life Group Ltd., Tata AIG General Insurance Company, established in 2001, which provides non-life insurance solutions to individuals, groups and corporate houses in India; Tata Capital, established in 2007, a systemically important non-deposit taking NBFC and a core investment company registered with the RBI, that services the financial needs of retail and institutional customers in India; Tata Realty and Infrastructure Limited, established in 2007, which is an Infrastructure and Real Estate developer; AirAsia (India) Limited, a joint venture established in 2013, which is a low cost airline; Tata SIA Airlines Limited, a joint venture established in 2013 which is engaged in full service scheduled passenger airline services; Tata Advanced Systems Limited, established in 2006 and its subsidiaries which are, inter alia, engaged in activities including scientific, technical and research and development activities, manufacturing, testing and experimenting equipment, and components, in the field of advanced defense technologies, security systems, aerospace and aerostructures.

 

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We have for many years been a licensed user of the “TATA” brand owned by Tata Sons, and thus have gained from the use of the “TATA” brand and its brand equity. Tata Sons instituted a corporate identity program in the year 1998 to re-position the brand to compete in a global environment. A substantial ongoing investment and recurring expenditure is undertaken by Tata Sons to develop and promote a strong, well-recognized and common brand, which is intended to represent for the consumer a high level of quality, service and reliability associated with products and services offered by the entities promoted by Tata Sons.

Companies which have subscribed to the Tata Brand Equity & Business Promotion Scheme pay an annual subscription fee to use the “TATA” business name and trademarks and participate in and gain from the promotion of the Tata brand equity as well as avail themselves of various services including legal, human resources, economics and statistics, corporate communications and public affairs services organized by Tata Sons. We believe that we benefit from the use of and association with the “TATA” brand identity and accordingly, Tata Motors Limited and certain of its subsidiaries have subscribed to the Tata Brand Equity & Business Promotion Agreement and pay an annual subscription fee to Tata Sons which is in the range of 0.15% to 0.25% of the annual net income (defined as net revenues exclusive of excise duties and other governmental taxes and non-operating income), subject to a ceiling of 5% of annual profit before tax (defined as profit after interest and depreciation but before income tax), each calculated on a standalone basis for these entities. In some of the past years, Tata Sons has lowered the absolute amount of subscription fee in light of its outlay for activities related to brand promotion and protection in those years. In Fiscal 2014, Fiscal 2015, Fiscal 2017 and Fiscal 2018, no amount was paid in view of losses of Tata Motors Limited calculated on a standalone basis. Pursuant to our licensing agreement with Tata Sons, we have also undertaken certain obligations for the promotion and protection of the Tata brand identity licensed to us under the agreement. The agreement can be terminated by written communications between the parties or by Tata Sons upon our breach of the agreement and our failure to remedy such a breach, or by Tata Sons upon providing six months’ notice for reasons to be recorded in writing. The agreement can also be terminated by Tata Sons upon the occurrence of certain specified events, including liquidation of Tata Motors Limited.

The entities promoted by Tata Sons continue to follow the ideals, values and principles of ethics, integrity and fair business practices espoused by the founder Mr. Jamsetji Tata, and his successors. To further protect and enhance the Tata brand equity, these values and principles have been articulated in the Tata Code of Conduct, which has been adopted by the entities promoted by Tata Sons. The Tata Trusts have also made significant contributions towards national causes through promotion of public institutions in the field of science, such as the Indian Institute of Science and the Tata Institute of Fundamental Research and in the field of social services through the Tata Institute of Social Sciences, the Tata Memorial Hospital, National Centre for the Performing Arts in Mumbai and, more recently, the Tata Medical Center at Kolkata in India for cancer patients, set up by the Tata Trusts and supported by Tata Sons and its promoted companies. The Tata Trusts are among the largest charitable foundations in India.

Some of the entities promoted by Tata Sons hold shares in other companies promoted by Tata Sons. Similarly, some of the Company’s directors may hold directorships on the boards of Tata Sons and/or other entities promoted by Tata Sons. However, there are no voting agreements, material supply or purchase agreements or any other relationships or agreements that have the effect of binding us with other entities promoted by Tata Sons at management, financial or operational levels. With the exception of Tata Steel, which under the Articles of Association has the right to appoint one Director on the Board, neither Tata Sons nor its subsidiaries have any special contractual or other power to appoint Directors or management. They have only the voting power of their respective shareholdings in Tata Motors. Except as set forth in the tables below under the heading “Subsidiaries and Affiliates” and except for approximately a 15.37% equity interest in Tata Services Ltd., a 17.29% equity interest in Tata International Limited and a 10.47% equity interest in Tata Industries Limited, our shareholdings in other entities promoted by Tata Sons are generally insignificant as a percentage of their respective outstanding shares or in terms of the amount of our investment or the market value of our shareholdings of those companies.

 

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Subsidiaries and Affiliates

The subsidiaries, joint operation and equity method affiliates and joint ventures of Tata Motors Limited that together with Tata Motors Limited form the Tata Motors Group as of March 31, 2019 are set forth in the chart below:

 

 

LOGO

 

 

(1)

Increased shareholding in Trilix S.r.l. from 80% to 100% with effect from December 6, 2018.

(2)

These subsidiaries are based in many countries outside India.

(3)

Holding Company of Jaguar Land Rover Automotive Plc, Tata Daewoo Commercial Vehicle Co. Limited, Tata Motors (Thailand) Limited, Tata Motors (SA) (Proprietary) Limited, PT Tata Motors Indonesia and TMNL Motor Services Nigeria Limited.

(4)

TML Holdings Pte. Limited increased its shareholding from 95.49% to 95.81% on account of further allotment of 2,500,000 shares with effect from April 2, 2018 and from 95.81% to 95.87% on account of further allotment of 548,000 shares with effect from November 22, 2018.

(5)

Holding in its subsidiary, Tata Daewoo Commercial Vehicle Sales and Distribution Co. Ltd. is 100%.

(6)

Holding 99.997% in PT Tata Motors Distribusi Indonesia, a subsidiary, alongwith TML Holdings Pte. Ltd. holding 0.003%.

(7)

Shareholding in Tata Technologies Limited decreased from 72.29% to 72.28% on account of further allotment of 6,188 shares to another shareholder on April 20, 2018. The holdings in these 12 subsidiaries ranges between 72.28% and 72.34%.

(8)

Holds indirectly 100% equity shareholding in Tata Motors Finance Limited and Tata Motors Finance Solutions Limited.

(9)

Equity shareholding increased from 13.26% to 26% because of further equity investment of GB£100,000 on April 30, 2018.

(10)

The holding in these 13 subsidiaries ranges between 19% to 26% and holdings in 7 joint ventures ranges between 6.63% to 13%.

(11)

Acquired 26% equity stake with effect from July 10, 2018.

(12)

Holding in its subsidiary, Chery Jaguar Land Rover Auto Sales Company Limited, is 100%.

(13)

An affiliate of Tata Technologies Limited.

Out of the above, the following are the Company’s three significant subsidiaries as defined under Regulation S-X:

 

Name

   Country of Incorporation    Ownership Interest /
Voting Power
 

Jaguar Land Rover Automotive Plc

   United Kingdom      100

Jaguar Land Rover Limited

   United Kingdom      100

Jaguar Land Rover Holdings Limited

   United Kingdom      100

 

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With respect to certain subsidiaries and affiliates, where Tata Motors Limited has a joint venture partner, voting on certain items of business may be based on affirmative voting provisions and board of director’s participation clauses in the relevant joint venture agreement(s).

D. Property, Plants and Equipment

Facilities

We operate six principal automotive manufacturing facilities in India. The first facility was established in 1945 at Jamshedpur in the state of Jharkhand in eastern India. We commenced construction of the second facility in 1966 (with production commencing in 1976) at Pune, in the state of Maharashtra in western India, the third facility in 1985 (with production commencing in 1992) at Lucknow, in the state of Uttar Pradesh in northern India, the fourth at Pantnagar in the state of Uttarakhand, India, which commenced operations in Fiscal 2008, the fifth at Sanand in Gujarat in western India for manufacturing of the Nano, which commenced operations in June 2010, and the sixth plant for manufacturing Tata Marcopolo buses under our joint venture with Marcopolo and LCVs at Dharwad in Karnataka (which buses are also produced at Lucknow). The Jamshedpur, Pune, Sanand, Pantnagar and Lucknow manufacturing facilities have been accredited with an ISO/TS 16949:2000(E) certification.

The manufacturing facilities of TDCV are based in Gunsan, South Korea. TDCV has received the ISO/TS 16949 certification, an international quality systems specification given by SGS UK Ltd., an International Automotive Task Force accredited certification body. It is the first South Korean automobile OEM to be awarded an ISO/TS 16949 certification.

Fiat India Automobiles Private Limited, our joint arrangement with the FCA, has its manufacturing facility located in Ranjangaon, Maharashtra. The plant is used for manufacturing Tata and Fiat branded cars and engines, and transmissions for use by both partners.

Through Jaguar Land Rover, we currently operate four principal automotive manufacturing facilities in the United Kingdom at Solihull, Castle Bromwich, Halewood and the EMC at Wolverhampton, as well as two product development facilities in the United Kingdom at Gaydon and Whitley. Most of these facilities are owned as freehold estates or are held through long-term leaseholds, generally with nominal rents. In December 2015, Jaguar Land Rover announced an initial investment of GBP1 billion to build a manufacturing facility in Slovakia (owned as a freehold estate), which opened in October 2018 and currently produces the Land Rover Discovery. Jaguar Land Rover also owns a joint venture manufacturing plant under our China Joint Venture, in Changshu, near Shanghai, as part of a RMB10.9 billion investment that also includes a new research and development center, which opened in October 2014. A new engine plant producing Jaguar land Rover’s 2.0-Liter Ingenium petrol engines opened in July 2017 for installation into vehicles manufactured by the China Joint Venture. Jaguar Land Rover also opened a new manufacturing facility in Brazil in June 2016, which manufactures the Range Rover Evoque and Discovery Sport for the Brazilian market. Jaguar Land Rover now produces the I-PACE battery electric vehicle and the new Jaguar E-PACE in Graz, Austria under its manufacturing partnership with Magna Steyr.

Tata Motors (SA) (Proprietary) Limited, our joint venture with Tata Africa Holdings (SA) (Proprietary) Ltd. for the manufacture and assembly operations of our LCVs and MHCVs in South Africa, owns and operates a manufacturing facility located in Rosslyn, South Africa.

Description of environmental issues that may affect our utilization of facilities

Tata Commercial Vehicles and Tata Passenger Vehicles

Automobile industry is exposed to regulatory risks related to climate change. The design and development of fuel-efficient vehicles and vehicles running on alternative renewable energy has become a priority because of fossil fuel scarcity, escalating price and growing awareness about energy efficiency among customers.

We have implemented our climate change policy that addresses key climate change issues related to products, processes and services, and we are committed to reduce the greenhouse gas emissions throughout the lifecycle of our products. Our sustainability strategy is aligned with global and national policies of future mobility solutions. Accordingly, we are extensively working on low carbon product development across our Commercial Vehicle and Passenger Vehicle segments. We have already launched a range of advanced technology vehicles, which would not only help mitigation of climate change risk, but also curb rising urban air pollution.

 

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Considering the climate change risk, we are actively involved in partnerships with technology providers to embrace energy-efficient technologies not only for products but also for processes and are also participating actively in various national committees in India, which are working on formulating policies and regulations for improvement of the environment, including through reduction of greenhouse gases.

India, as a party to the United Nations Framework Convention on Climate Change, 1992 and its Kyoto Protocol, 1997, has been committed to addressing the global problem on the basis of the principle of “common but differentiated responsibilities” of the member parties. The United Nations 21st Conference on Climate Change, Conference of the Parties was held in Paris from November 30, 2015 to December 11, 2015. The Honorable Prime Minister Narendra Modi highlighted India’s commitment to reduce its emission intensity to 33% to 35% by 2030 compared to 2005 levels, through nationally determined development measures and priorities.

We are continually developing products to meet the current and future emission standards in India and other countries. In order to manage regulatory and general risks of climate change, we are increasingly investing in the design and development of new advanced technologies. With the growing need for fuel-efficiency and reducing on road emission for vehicles, innovative technologies are needed to support the changing scenario and achieving targets. We are evaluating several xEV options through different technologies as part of long-term strategy. The technologies vary from mild hybrids in one segment to a fuel cell in others, which we have demonstrated in Auto Expo from time to time. We have developed a range of electric vehicles, such as the IRIS EV, Magic EV, 12m Urban Electric Bus, Tiago EV and Tigor EV, along with E-Vision concept electric vehicle, which we showcased at Geneva International Motor show in March 2018.

We also continued our research and development efforts in developing vehicles which are powered by alternate fuels like CNG, LPG, biodiesel and hydrogen. We are working on LNG and dual fuel technologies which provide an alternative to pure diesel technologies. The European Union has phased out high Global Warming Potential (“GWP”) refrigerant HFC-134a from mobile air conditioning systems from January 2017. In this regard, TML is proactively exploring the use of alternate low GWP refrigerants like HFO 1234yf, HFC-152a in mobile air conditioning systems.

In order to deal with the challenges posed by climate change, we are striving hard to reduce carbon footprint of our manufacturing operations. Pursuant to our commitment to climate change mitigation, we are a signatory to the RE100, a global collaborative initiative of influential businesses committed to usage of 100% renewable electricity. We have made substantial investments in the area of wind and solar power to increase our renewable energy capacity. We have signed power purchase agreements with renewable energy producers. In addition to renewable energy, we have taken several energy conservation initiatives, which helped us in reducing our greenhouse gas emissions. Besides energy and carbon, we are working on zero waste to landfill/incineration through the ‘Value from hazardous Waste’ initiative. The ‘Zero Liquid Discharge’ is another initiative directed to recycle/reuse treated effluent so as to reduce water consumption. All our manufacturing facilities in India are certified for ISO-14001.

Jaguar Land Rover

Jaguar Land Rover’s production facilities are subject to a wide range of environmental, health and safety requirements. These requirements address, among other things, air emissions, wastewater discharges, accidental releases into the environment, human exposure to hazardous materials, storage, treatment, transportation and disposal of wastes and hazardous materials, investigation and clean-up of contamination, process safety and maintenance of safe conditions in the workplace. Many of Jaguar Land Rover’s operations require permits and controls to monitor or reduce pollution. Jaguar Land Rover has incurred, and will continue to incur, substantial on-going capital and operating expenditures to ensure compliance with current and future environmental, health and safety laws and regulations or their more stringent enforcement. Violations of these laws and regulations could result in the imposition of significant fines and penalties, the suspension, revocation or non-renewal of our permits, production delays or limitations, imprisonments or the closure of Jaguar Land Rover plants. Other environmental, health and safety laws and regulations could impose restrictions or onerous conditions on the availability or the use of raw materials that Jaguar Land Rover needs for its manufacturing process. Violations of these laws and regulations may occur, among other ways, from errors in monitoring emissions of hazardous or toxic substances from Jaguar Land Rover vehicles or production sites into the environment, such as their use of incorrect methodologies or defective or inappropriate measuring equipment, errors in manually capturing results, or other mistaken or unauthorized acts of our employees, suppliers or agents.

 

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Jaguar Land Rover’s business and manufacturing processes result in the emission of greenhouse gases such as CO2. We expect requirements to reduce greenhouse gases to become increasingly more stringent and costly to address over time. For example, the European Union Emissions Trading Scheme (“EU ETS”), a European Union wide system in which allowances to emit greenhouse gases are issued and traded, is now in Phase 3 (2013 to 2020) and currently applies to three manufacturing facilities in the United Kingdom, and will apply to our facility in Slovakia once complete. We have managed our EU ETS allowances during previous phases of the EU ETS scheme and use these remaining allowances from these earlier phases to meet our compliance requirements. The automotive sector has also been given recognition of being at risk of “carbon leakage” in accordance with the EU ETS rules. This means that we will receive an increase in free allowances from 2015 and 2019. As a consequence of these actions, we currently project that we will reach the end of Phase 3 without the need to purchase EU ETS carbon allowances. In the current draft Phase 4 legislation, to be in effect from 2021 to 2030, all organizations in the EU ETS scheme will see free allowances diminish to zero by 2030, so we project that we will be required to purchase EU ETS allowances in Phase 4 of the scheme, potentially at substantial cost. The carbon leakage allocation will also cease in Phase 4. This forecast is subject to further evaluation of the United Kingdom’s vote to leave the European Union and its impact on the regulated carbon schemes. In any event, there will be a cost to purchase credits in Slovakia and that is currently being assessed.

Jaguar Land Rover has a climate change agreement in the United Kingdom, which covers Jaguar Land Rover’s three vehicle manufacturing plants and one of our Special Operations facilities. This requires us to deliver a 15% reduction in energy use per vehicle by 2020 compared to the 2008 baseline.

Jaguar Land Rover is also registered as a participant in the CRC Energy Efficiency Scheme (the “CRC Scheme”), which regulates emissions from electricity and gas use in our non-vehicle manufacturing activities in the United Kingdom. Jaguar Land Rover purchased carbon allowances under this scheme for the first time in 2015 and in each year thereafter, most recently in Fiscal 2019 in respect of the 2017-18 scheme year. Changes to the energy taxation regime in the United Kingdom saw the removal of the CRC Scheme from the end of the 2018-2019 scheme year. Her Majesty’s Treasury advised that any changes to the energy tax regime would need to be cost neutral and consequently, Jaguar Land Rover will see an increase in climate change levy paid on the energy we consume in lieu of the removal of CRC in Fiscal 2019-20. Jaguar Land Rover will purchase the remaining carbon allowances required under the CRC Scheme by October 2019.

Many of Jaguar Land Rover’s sites have an extended history of industrial activity. Jaguar Land Rover may be required to investigate and remediate contamination at those sites, as well as properties they formerly operated, regardless of whether they caused the contamination or the activity causing the contamination was legal at the time it occurred. For example, some of Jaguar Land Rover’s buildings at their Solihull plant and other plants in the United Kingdom are undergoing an asbestos removal program in connection with on-going refurbishment and rebuilding. With respect to the contaminated properties, as well as Jaguar Land Rover’s operations generally, Jaguar Land Rover could also be subject to claims by government authorities, individuals and other third parties seeking damages for alleged personal injury or property damage or damage to natural resources resulting from hazardous substance contamination or exposure caused by Jaguar Land Rover’s operations, facilities or products. The discovery of previously unknown contamination, or the imposition of new obligations to investigate or remediate contamination at Jaguar Land Rover’s facilities, could result in substantial unanticipated costs. Jaguar Land Rover could be required to establish or substantially increase financial reserves for such obligations or liabilities. The above factors, coupled with an inability to accurately predict the amount or timing of such costs could have a material adverse impact on Jaguar Land Rover’s business, financial condition and/or results of operations could be material.

In Jaguar Land Rover’s overseas facilities prior to purchase Jaguar Land Rover undertook studies that informed us of the presence of contamination or otherwise in the ground prior to development. In Brazil, Jaguar Land Rover’s manufacturing site is adjacent to a facility (the “Itatiaia West” site), where organic solvent contamination of the ground had previously occurred. We have purchased the Itatiaia West site and are currently progressing relevant permits for operation and developing plans for further remediation of the organic solvent contamination. The Itatiaia West site is listed on the Environmental Regulators site (Instituto Estadual do Ambiente) as contaminated.

Jaguar Land Rover’s manufacturing operations and sales may be subject to potential physical impacts of climate change, including changes in weather patterns and an increased potential for extreme weather events, which could affect the manufacture and distribution of Jaguar Land Rover’s products and the cost and availability of raw materials and components. It could also affect transportation preferences, the demand for Jaguar Land Rover’s products and result in additional greenhouse gas regulation that could increase Jaguar Land Rover’s operating costs.

 

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Production Capacity

The following table shows our production capacity as of March 31, 2019 and production levels by plant and product type in Fiscal 2019 and Fiscal 2018:

 

     As of March 31, 2019      Year ended March 31,  
     Production
Capacity
     2019      2018  
     Production (Units)  

Tata Motors Plants in India1

        

Medium and Heavy Commercial Vehicles, Light Commercial Vehicles, Utility Vehicles
and Passenger Cars

     1,429,700        677,095        601,695  

Jaguar Land Rover2, 5

        

Utility Vehicles, Passenger Cars

     776,000        492,372        549,891  

Other subsidiary companies’ plants (excluding Jaguar Land Rover)3

        

Medium and Heavy Commercial Vehicles, buses, bus bodies and pickup trucks

     22,000        7,657        21,036  

Joint operations4 (Passenger Vehicles)

     100,000        38,082        30,655  

 

1.

This refers to estimated production capacity on a double-shift basis for all plants (except the Uttarakhand plant for which capacity is on a three-shift basis) for the manufacture of vehicles and replacement parts.

2.

Production capacity is on a three-shift basis. Includes assembly plant in Brazil and vehicles manufactured under the manufacturing agreement with Magna Steyr in Graz, Austria.

3.

The plants are located in South Korea, South Africa and Thailand.

4.

Excludes production of engines/powertrains.

5.

Includes capacity at the China Joint Venture.

Properties

We produce vehicles and related components and carry out other businesses through various manufacturing facilities. In addition to our manufacturing facilities, our properties include sales offices and other sales facilities in major cities, repair service facilities and research and development facilities.

The following table sets forth information, with respect to our principal facilities, a substantial portion of which are owned by us as of March 31, 2019. The remaining facilities are on leased premises.

 

Location

  

Facility or Subsidiary / Joint Operations Name

  

Principal Products or Functions

India      
In the State of Maharashtra      

Pune (Pimpri, Chinchwad, Chikhali1,  Maval)

   Tata Motors Limited    Automotive vehicles, components, factory automation equipment and services, research and development

Pune (Hinjewadi)1

   Tata Technologies Ltd.    Software consultancy and services

Mumbai, Pune

   Tata Motors Limited/Concorde Motors (India) Ltd./Tata Motors Finance Ltd.    Automobile sales and service and vehicle financing

Satara

   Tata Cummins Pvt. Ltd.    Automotive engines

Pune (Ranjangaon)

   Fiat India Automobiles Pvt. Ltd.    Automotive vehicles and components
In the State of Jharkhand      

Jamshedpur

   Tata Motors Limited    Automotive vehicles, components and research and development

Jamshedpur

   Tata Cummins Pvt. Ltd.    Automotive engines
In the State of Uttar Pradesh      

Lucknow1

   Tata Motors Limited    Automotive vehicles, parts and research and development
   Tata Marcopolo Motors Ltd.    Bus bodies
In the State of Karnataka      

Dharwad

   Tata Motors Limited    Automotive vehicles, components, spare parts and warehousing
   Tata Marcopolo Motors Ltd.    Bus body manufacturing

Bengaluru2

   Concorde Motors (India) Ltd.    Automobile sales and service

 

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Location

  

Facility or Subsidiary / Joint Operations Name

  

Principal Products or Functions

In the State of Uttarakhand      

Pantnagar1

   Tata Motors Limited    Automotive vehicles and components
In the State of Gujarat      

Sanand

   Tata Motors Limited    Automotive vehicles and components
Rest of India      

Hyderabad2 & Chennai1

   Concorde Motors (India) Ltd.    Automobile sales and service

Kochi, Delhi

   Concorde Motors (India) Ltd.    Automobile sales and service

Various other properties in India

   Tata Motors Limited/Tata Motors Finance Ltd.    Vehicle financing business (office/ residential)
Outside India      
Singapore    Tata Technologies Pte Ltd.    Software consultancy and services
South Korea    Tata Daewoo Commercial Vehicles Co. Ltd.    Automotive vehicles, components and research and development
Thailand    Tata Motors (Thailand) Ltd.    Pick-up trucks
   Tata Technologies (Thailand) Ltd.    Software consultancy and services
United Kingdom    Tata Motors European Technical Centre    Engineering consultancy and services
United Kingdom    INCAT International PLC, Tata Technologies Europe Ltd.    Software consultancy and services
United Kingdom      

Solihull

   Jaguar Land Rover Limited    Automotive vehicles and components

Castle Bromwich

   Jaguar Land Rover Limited    Automotive vehicles and components

Halewood

   Jaguar Land Rover Limited    Automotive vehicles and components

Gaydon

   Jaguar Land Rover Limited    Research and product development

Whitley

   Jaguar Land Rover Limited    Headquarters and research and product development

Wolverhampton

   Jaguar Land Rover Limited    Engine manufacturing
Spain    Tata Hispano Motors Carrocera S.A.    Bus body service
Morocco    Tata Hispano Motors Carrocerries Maghreb SA    Bus body manufacturing and service
South Africa    Tata Motors (SA) (Proprietary) Limited    Manufacture and assembly operations of vehicles
Indonesia    PT Tata Motors Indonesia    Distribution of vehicles
Austria    Jaguar Land Rover Limited    Automotive vehicles and components
Brazil    Jaguar Land Rover Limited    Automotive vehicles and components
Slovakia    Jaguar Land Rover Limited    Automotive vehicles and components
Italy    Trilix Srl.    Automotive design and engineering
Others (e.g. United States, United Kingdom, China, Europe, Australia, Mexico)    Tata Technologies Ltd.    Software consultancy and services
   Jaguar Land Rover3    National sales companies
      Regional sales offices

 

Note:

Excludes facilities held by our joint ventures, including the manufacturing plant held by Jaguar Land Rover Automotive Company Limited.

1.

Land at each of these locations is held under an operating lease.

2.

Some of the facilities are held under an operating lease and some are owned.

3.

National sales companies are held by various subsidiaries of the Jaguar Land Rover group of companies.

Substantially all of our owned properties are subject to mortgages in favor of secured lenders and debenture trustees for the benefit of secured debenture holders. A significant portion of our property, plants and equipment, except those in the United Kingdom, is pledged as collateral securing indebtedness incurred by us. We believe that there are no material environmental issues that may affect our utilization of these assets.

We have additional property interests in various locations around the world for limited manufacturing, sales offices, and dealer training and testing. The majority of these are housed within leased premises.

For further details regarding the current legal proceedings with respect to the leased land in West Bengal, please refer to Item 4.B “Information on the Company—Business Overview—Legal Proceedings” of this annual report on Form 20-F.

 

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We consider all of our principal manufacturing facilities and other significant properties to be in good condition and adequate to meet the needs of our operations.

 

Item 4A.

Unresolved Staff Comments

None.

 

Item 5.

Operating and Financial Review and Prospects

You should read the following discussion of our financial condition and results of operations together with our consolidated financial statements prepared in conformity with IFRS and information included in this annual report on Form 20-F. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors including, but not limited to, those set forth in Item 3.D and elsewhere in this annual report on Form 20-F.

A. Operating Results

All financial information discussed in this section is derived from our audited financial statements included in this annual report on Form 20-F, which have been prepared in accordance with IFRS.

We have adopted IFRS 15 with a modified retrospective approach. Accordingly, we have presented our prior comparative periods without applying the principles of IFRS 15. Refer to Note 2(x) of our consolidated financial statements included in this annual report on Form 20-F.

The following discussion covers the fiscal years ended March 31, 2019 and 2018. For the discussion covering the fiscal year ended March 31, 2017, please refer to “Item 5.A.” of the Company’s annual report on Form 20-F for the fiscal year ended March 31, 2018 filed with the SEC on July 31, 2018.

Overview

In Fiscal 2019, our total revenue, including finance revenues, increased by 3.8% to Rs.2,993,662 million from Rs.2,882,951 million in Fiscal 2018. The increase is mainly attributable to better sales volume from our India business and favorable currency translation from GBP to Indian rupees, offset by lower sales volume from our Jaguar Land Rover business. We recorded a net loss (excluding the share attributable to non-controlling interests) of Rs.293,143 million in Fiscal 2019, representing a decrease of 550.7% or Rs.358,184 million from a net income in Fiscal 2018 of Rs.65,041 million. The loss was driven by the performance of Jaguar Land Rover, including higher depreciation and amortization, and fixed marketing expenses/selling costs. Further, an impairment charge of Rs.278,379 million was taken in Jaguar Land Rover, due to weaker sales and profitability, changes in market conditions, especially in China, technology disruptions.

We use Earnings Before Other Income, Interest and Tax to assess our operating performance; a reconciliation of our consolidated Earnings Before Other Income, Interest and Tax to our consolidated net income for Fiscal 2019 and Fiscal 2018 is set forth below.

 

     For the year ended
March 31,
 
     2019      2018  
     Rs. in million  

Net Income/(loss)

     (292,128      66,062  

Add/(Less):

     

Share of (profit)/loss of equity accounted investees (net)

     (2,095      (22,783

Asset written off/loss on sale of assets and others (net)

     13,187        29,149  

Other (income)/loss (net)

     (35,439      (47,873

Foreign exchange (gain)/loss (net)

     5,824        4,333  

Interest income

     (7,865      (7,122

Interest expense (net)

     57,586        46,791  

Income tax expense/(credit)

     (25,425      37,678  

Earnings Before Other Income, Interest and Tax

     (286,355      106,235  

 

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We use Free Cash Flow to measure ongoing needs for investments in plants and machinery, products and technologies; a reconciliation of our Free Cash Flow for Fiscal 2019 and Fiscal 2018 is set forth below.

 

     Year ended March 31,  
     2019      2018  
     Rs. in million  

Cash flow from operating activities

     188,908        238,574  
  

 

 

    

 

 

 

Less:

     

Payments for property, plants and equipment

     (174,196      (198,654

Proceeds from sale of property, plants and equipment

     672        303  

Payment for intangible assets

     (178,840      (152,135
  

 

 

    

 

 

 
     (352,364      (350,486
  

 

 

    

 

 

 

Free Cash Flow

     (163,456      (111,912
  

 

 

    

 

 

 

We use Ratio of Net Debt to Shareholders’ Equity to measure our debt commitments; a reconciliation of our Ratio of Net Debt to Shareholders’ Equity as of March 31, 2019 and 2018 are set forth in Exhibit 7.1 to this annual report on Form 20-F.

Economy

India

The Indian economy started Fiscal 2019 with a healthy 8.2% growth in the first quarter on the back of domestic resilience. Growth eased to 7.3% in the subsequent quarter due to rising global volatility, largely from financial volatility, normalized monetary policy in advanced economies, externalities from trade disputes, and investment rerouting. Further, the Indian rupee suffered because of the crude price shock, and conditions exacerbated as recovery in some advanced economies caused faster investment outflows.

Real GDP growth of India is 7.2% in Fiscal 2019 compared to 6.7% in Fiscal 2018. However, Q3 of Fiscal 2019 saw a growth of 6.6%, the slowest in five quarters. Q4 of Fiscal 2019 saw the economy grow at 5.8%, the slowest in the last twenty quarters. The RBI is widely expected to cut interest rates further. Data released by the Society of Indian Automobile manufacturers signaled a slowdown in urban demand as car sales grew 2.7% in Fiscal 2019, signaling near-term softness due to some liquidity stress and slowing rural growth. Despite these challenges, the Indian economy remains one of the fastest growing and possibly the least affected by global turmoil, supported in part by India’s strong macroeconomic fundamentals and policy changes (including amendments to the policy/code related to insolvency and bankruptcy, bank recapitalization, and foreign direct investment).

Currently, India is the fastest growing trillion-dollar economy in the world and is expected to reach US$6 trillion by 2027 and achieve upper-middle income status on the back of digitization, globalization, favorable demographics, and reforms. India is expected to be third largest consumer economy, as its consumption is expected to triple to US$4 trillion by 2025. The World Bank expects India’s GDP growth to accelerate moderately to 7.5% in Fiscal 2020, driven by continued investment, improved export performance and resilient consumption. India is likely to become the world’s second largest economy by 2030, second only to China.

World

Global economic growth is moderating as the recovery in trade and manufacturing activity is losing its steam. Despite ongoing negotiations, trade tensions among major economies remain elevated. A strengthening U.S. dollar, heightened financial market volatility, and rising risk premiums have intensified capital outflow and currency pressures in some large emerging markets and developing economies, with some vulnerable countries experiencing substantial financial stress. Growth in the U.S. economy has remained solid, bolstered by fiscal stimulus. In contrast, economic activity in the Eurozone has been somewhat weaker than previously expected, owing to slowing net exports. While growth in advanced economies is estimated to have slightly decelerated to 2.2% last year, it is still above potential and in line with previous forecasts. U.S. economic growth in 2018 increased to 2.9%, 0.2% higher than previous projections, mostly reflecting stronger-than-expected domestic demand.

During 2018, commodities continued to remain volatile and have rebounded in the first quarter of 2019 due to rising trade tensions and geo-political risks. Having fallen or remained subdued in the last quarter of 2018, most non-energy prices recovered their losses by first quarter of 2019, with particularly strong rebounds in metal and minerals. This recovery in metal prices reflected improving growth prospects for China, which accounts for half of the global consumption, as well as a series of supply bottlenecks and concerns, including: the Vale dam accident in Brazil (iron ore, nickel); heavy floods in Chile (copper); smelter restrictions in response to environmental concerns in China (lead, zinc); and export restrictions in Indonesia (tin).

 

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According to the World Bank, the Eurozone growth slowed notably in 2018 to an estimated 1.9%. In particular, exports have softened, reflecting the appreciation of the Euro and slowing external demand. While unemployment has declined, inflation remains stubbornly low. Core inflation remained at around 1%, while long-term inflation expectations continue to hover around 1.6%, as in the past three years.

According to the World Bank, China registered a growth rate of 6.6% in 2018. A rebound in private fixed investment helped offset a decline in public infrastructure and other state spending. However, industrial production and export growth have decelerated, reflecting easing global manufacturing activity. Import growth continued to outpace export growth, contributing to a shrinking current account surplus. Net capital outflows have resumed, and international reserves have been edging down. Stock prices and the RMB have experienced continued downward pressures, and sovereign bond spreads have risen amid ongoing trade tensions and concerns about the growth outlook. New regulations on commercial bank exposures to shadow financing, together with stricter provisions for off-budget borrowing by local governments, have slowed credit growth to the non-financial sector. However, in mid and late 2018, the authorities reiterated their intention to pursue looser macroeconomic policies to counter the potential economic impact of trade disputes with the United States. Prices of newly constructed residential buildings have rebounded in certain cities following several years of correction. Consumer price inflation has generally moved up since mid-2018, partly reflecting currency depreciation and higher energy and food prices in most of last year, but it remains below target.

According to the World Bank, Japan’s economy also saw an annualized growth of 0.8% due to bad weather and natural disasters. The labor market has been robust, with the unemployment rate at 2.4%, rising earnings, and the participation rate standing above 79%, up 1.5%, since the beginning of last year. Rising labor force inputs, however, have been offset by weak productivity. The Bank of Japan continues to provide stimulus by keeping long-term rates near zero and adding to its balance sheet. It now holds about 40% of government debt.

According to the World Bank, the GDP rate of Russia slowed to 2.3% in 2018. According to the World Bank, at a projected growth rate of 1.3% in 2019, South Africa’s economic expansion would still be above the 0.6% level at which the economy expanded in 2018. The Middle East’s economic growth looks uncertain with the cut in oil production in compliance with the OPEC+ deal, and geopolitical risks are expected to continue to cap the growth.

The global automobile industry is on the brink of major transformation. Technology is driving this shift, shaped by demographic, regulatory and environmental pressures. By 2025, vehicles are expected to grow smarter and more efficient, with high efficiency engines, lighter materials and autonomous driving systems. The industry is expected to evolve, with new competition from tech companies, and suppliers capable of producing high-tech parts at low prices. The recent studies show that a dramatic shift of production and sales to the Asian markets is expected to take place, and as a result, 300,000 jobs in Europe are expected to be at risk. Mobility ecosystems in major urban areas are expected to lead to demotorization. Electric vehicles are expected to account for about 10% of new vehicle sales by 2025. Hybrids are expected to reach a 40% share.

The global commercial vehicle market is expected to reach US$2.27 trillion by 2025. The market is projected to expand at a CAGR of 7.1% during the forecast period. Increased urbanization, coupled with rising spending on infrastructure development in emerging economies such as China, India, and Turkey, is expected to drive the market over the forecast period. In addition, increasing penetration of electric Commercial Vehicles is also anticipated to contribute toward market expansion over the coming years. Adoption of electric vehicles is primarily driven by the need to meet emission reduction standards and regulations enforced by government bodies worldwide. Commercial vehicle telematics is another trend that is gaining traction and is anticipated to have a positive impact on the market over the forecast period. Global car and SUV sales in 2019 are expected to fall slightly as the world economy stumbles.

Automotive operations

Automotive operations is our most significant operating segment, accounting for 99.3% and 99.4% of our total revenues in each of Fiscal 2019 and Fiscal 2018, respectively. In Fiscal 2019, revenue from automotive operations before inter-segment eliminations was Rs.2,971,772 million, as compared to Rs.2,864,464 million in Fiscal 2018.

Our automotive operations include:

 

   

All activities relating to the development, design, manufacture, assembly and sale of vehicles, as well as related spare parts and accessories;

 

   

Distribution and service of vehicles; and

 

   

Financing of our vehicles in certain markets.

 

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Our automotive operations segment is further divided into four reporting segments: Tata Commercial Vehicles, Tata Passenger Vehicles, Jaguar Land Rover and Vehicle Financing. The breakup of revenue for Fiscal 2019 and Fiscal 2018, and the percentage change from period to period (before intra-segment eliminations) is set forth in the table below.

 

     Year ended March 31,      Change (%)  
     2019      2018  
     Rs. million  

Tata Commercial Vehicles

     579,497        494,917        17.1  

Tata Passenger Vehicles

     141,649        128,918        9.9  

Jaguar Land Rover

     2,216,657        2,214,492        0.1  

Vehicle Financing

     35,125        26,152        34.3  

In Fiscal 2019, Jaguar Land Rover contributed 74.6% of our total automotive revenue compared to 77.3% in Fiscal 2018 (before intra-segment elimination), 24.3% was contributed by Tata Commercial Vehicles and Tata Passenger Vehicles in Fiscal 2019 compared to 21.8% in Fiscal 2018, Whereas Vehicle financing contributed 1.2% in Fiscal 2019 compared to 0.9% in Fiscal 2018. For further detail see Item 5.A “Operating and Financial Review and Prospects —Operating Results—Fiscal 2019 Compared to Fiscal 2018—Revenue.”

Other operations

Our other operations business segment mainly includes information technology services, machine tools and factory automation solutions. Our revenue from other operations before inter-segment eliminations was Rs.35,324 million in Fiscal 2019, an increase of 12.7% from Rs.31,335 million in Fiscal 2018. Revenues from other operations represented 1.2% and 1.1% of our total revenues, before inter-segment eliminations, in Fiscal 2019 and Fiscal 2018, respectively. Earnings Before Other Income, Interest and Tax before inter-segment eliminations (segment results), were Rs.4,104 million and Rs.3,046 million in Fiscal 2019 and Fiscal 2018, respectively. On March 29, 2019, we sold our investments in TAL Manufacturing Solutions Limited to Tata Advance Systems Limited.

Geographical Breakdown

We have pursued a strategy of increasing exports to new and existing markets. TTL, a subsidiary of the Company, witnessed an increase in revenue due to favorable currency movement, which helped in the growth of revenue in the United Kingdom, Europe and North America. The growth in Asia Pacific revenue of TTL was primarily driven by strong revenue growth in India and China in key accounts and growth in educational product sales. Improved market sentiment in certain countries we export to but muted demand of the Land Rover brand in China, North America and the Eurozone lead to a decrease in sales of Jaguar Land Rover, which was offset by favorable currency translation from GBP to Rs. Further, in Fiscal 2019, the revenue of our subsidiary in South Korea, TDCV, has been lower due to lower industry volumes and aggressive discounting and marketing strategy of importers. Due to increased growth in revenue in India and reduced revenue of Jaguar Land Rover and TDCV in Fiscal 2019, the proportion of our net sales earned from markets outside of India decreased from 79.9% in Fiscal 2018 to 77.3% in Fiscal 2019.

The following table sets forth our revenue from our key geographical markets:

 

     Year ended March 31,  
     2019     2018     2017  

Revenue

   Rs. in million      Percentage     Rs. in million      Percentage     Rs. in million      Percentage  

India

     678,148        22.7     578,403        20.1     422,499        15.9

China

     303,929        10.2     481,675        16.7     410,722        15.5

United Kingdom

     559,993        18.7     418,970        14.5     486,091        18.3

United States of America

     512,511        17.1     448,882        15.6     413,470        15.6

Rest of Europe

     452,088        15.1     470,288        16.3     469,927        17.7

Rest of the World

     486,993        16.2     484,733        16.8     453,786        17.0
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

     2,993,662        100     2,882,951        100     2,656,495        100
  

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

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The “Rest of Europe” market is geographic Europe, excluding the United Kingdom and Russia. The “Rest of the World” market is any region not included above.

Significant Factors Influencing Our Results of Operations

Our results of operations are dependent on a number of factors, which mainly include the following:

 

   

General economic conditions. We, similar to other participants in the automotive industry, are materially affected by general economic conditions. See Item 3.D “Key Information—Risk Factors—Risks Associated with Our Business and the Automotive Industry.”

 

   

Interest rates and availability of credit for vehicle purchases. Our volumes depend significantly on availability of vehicle financing arrangements and their associated costs. For further discussion of our credit support programs, see Item 4.B “Information on the Company—Business Overview—Overview of Automotive Operations.”

 

   

Goods and service tax rates/excise duties and sales tax rates. In India, the goods and service tax, the excise duties and sales tax rate structures affect the cost of vehicles to the end user and, therefore, impact demand significantly. For a detailed discussion regarding tax rates applicable to us, please see Item 4.B “Information on the Company—Business Overview—Governmental Regulations—Major Taxes Applicable on Goods up to June 30, 2017” and Item 4.B “Information on the Company—Business Overview—Governmental Regulations—Taxes Applicable from July 1, 2017.”

 

 

   

Our competitive position in the market. For a detailed discussion regarding our competitive position, see Item 4.B “Information on the Company—Business Overview—Overview of Automotive Operations—Tata Commercial Vehicles and Tata Passenger Vehicles—Competition.”

 

   

Cyclicality and seasonality. Our results of operations are also dependent on the cyclicality and seasonality in demand in the automotive market. For a detailed discussion on seasonal factors affecting our business, please see Item 4.B “Information on the Company—Business Overview—Overview of Automotive Operations—Tata Commercial Vehicles and Tata Passenger Vehicles—Seasonality” and Item 4.B “Information on the Company—Business Overview—Overview of Automotive Operations—Jaguar Land Rover—Seasonality.”

 

   

Environmental regulations. Governments in the various countries in which we operate are placing a greater emphasis on raising emission and safety standards for the automobile industry. Compliance with applicable environmental and safety laws, rules, regulations and standards will have a significant impact on costs and product life cycles in the automotive industry. For further details with respect to these regulations, please see Item 4.B “Information on the Company—Business Overview—Governmental Regulations.”

 

   

Pricing pressures: Similar to other major automotive companies, we face significant pricing pressures, as competitors offer customers and dealers price reductions in order to stimulate demand, which may in turn adversely affect our results of operations. See Item 3.D “Key Information—Risk Factors—Risks Associated with Our Business and the Automotive Industry.”

 

   

Branding. The various product brands in our business, including Tata, Jaguar, Land Rover and Range Rover, are crucial in the marketing of our products. We believe our brands are associated with reliability, trust and ethical value. Our business, results of operations and reputation may be negatively affected by any usage of the brand by others that adversely affects or dilutes the brand. See Item 3.D “Key Information—Risk Factors—Risks Associated with Our Business and the Automotive Industry” and Item 4.B “Information on the Company—Business Overview—Intellectual Property.”

 

   

New products. An important part of our growth strategy is the development of new products and product lines, such as the all-electric I-PACE, which Jaguar Land Rover successfully launched in Fiscal 2019. Innovation and the development of new products and product lines require significant capital expenditures. There is also intense competition, as well as uncertainty with respect to changing consumer preferences, which may adversely affect our results of operations. See Item 3.D “Key Information—Risk Factors—Risks Associated with Our Business and the Automotive Industry” and Item 4.B “Information on the Company—Business Overview—Research and Development.”

 

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Foreign Currency Rates. Our operations and our financial position are quite sensitive to fluctuations in foreign currency exchange rates. Jaguar Land Rover earns significant revenue in the United States, Europe and China, and also sources a significant portion of its input material from Europe. Thus, an exchange rate fluctuation of GBP to Euro, GBP to U.S. dollar or GBP to any other currency would affect our financial results. We have significant borrowings in foreign currencies denominated mainly in U.S. dollars. Our consolidated financial results are affected by foreign currency exchange fluctuations through both translation and transaction risks. Changes in foreign currency exchange rates may positively or negatively affect our revenues, results of operations and net income. To the extent that our financial results for a particular period will be affected by changes in the prevailing exchange rates at the end of the period, such fluctuations may have a substantial impact on comparisons with prior periods. Furthermore, Jaguar Land Rover constitutes a major portion of our consolidated financial position, the figures of which are translated into Indian rupees. However, the translation effect is a reporting consideration and does not impact our underlying results of operations. Please see Item 11 “Quantitative and Qualitative Disclosures about Market Risk” and Note 38(d)(i)(i) –(a) to our consolidated financial statements included elsewhere in this annual report on Form 20-F for further detail on our exposure to fluctuations in foreign currency exchange rates.

 

   

Political and Regional Factors. As with the rest of the automotive industry, we are affected by political and regional factors. For a detailed discussion regarding these risks, please see Item 3.D “Key Information—Risk Factors.”

Results of operations

We have adopted IFRS 15 with a modified retrospective approach, with Fiscal 2018 presented without applying the principles of IFRS 15. There were certain changes in the presentation of the income statement that has resulted in a reduction in both revenues and expenses by Rs.45,927 million for Fiscal 2019. Accordingly, revenues and expenses for Fiscal 2019 are not comparable to those in Fiscal 2018.

The following table sets forth selected items from our consolidated statements of income for the periods indicated and shows these items as a percentage of Revenue:

 

     Percentage of Total Revenue        
     Year ended March 31,     Percentage Change  
     2019     2018     2018 to 2019  

Total revenues

     100     100     3.8  

Raw materials, components and purchase of product for sale (including change in inventories of finished goods & work-in-progress)

     65.6       64.4       5.7  

Employee cost

     11.6       10.5       14.4  

Defined benefit pension plan amendment cost/(credit)

     —      -1.3       -104.1  

Other expenses

     22.0       21.8       4.4  

Provision for loss of inventory (net of insurance recoveries)

     —          *      —    

Provision for impairment in Jaguar Land Rover

     9.3       —         100.0  

Depreciation and amortization

     7.7       7.3       9.7  

Expenditure capitalized

     -6.6       -6.4       5.8  

Assets written off/loss on sale of assets and others (net)

     0.4       1.0       -54.8  

Other (income)/loss (net)

     -1.2       -1.7       -26.0  

Interest income

     -0.3       -0.2       10.4  

Interest expense (net)

     1.9       1.6       23.1  

Foreign exchange (gain)/loss (net)

     0.2       0.2       34.4  

Share of (profit)/loss of equity accounted investees (net)

     -0.1       -0.8       -90.8  

Net income/(loss) before tax

     -10.5       3.6       -406.1  

Income tax (expense)/credit

     0.8       -1.3       -167.5  

Net income/(loss)

     -9.7       2.3       -542.2  

Net income/(loss) attributable to shareholders of Tata Motors
Limited

     -9.7       2.3       -550.7  

Net income attributable to non-controlling interests

     —      —      -0.6  

 

*

Less than 0.1

 

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The following table sets forth selected data regarding our automotive operations (Tata Commercial Vehicles, Tata Passenger Vehicles, Vehicle Financing and Jaguar Land Rover) for the periods indicated and the percentage change from period to period (before inter-segment eliminations):

 

     Year ended March 31,     Percentage Change  
     2019     2018     2018 to 2019  

Total Revenues (Rs. million)

     2,971,772       2,864,464       3.7  

Earnings/(loss) Before Other Income, Interest and Tax (Rs. million)

     (289,256     104,645       (376.4

Earnings Before Other Income, Interest and Tax (% to total revenue)

     (9.7 %)      3.7  

The following table sets forth selected data from our automotive segment for the year ended March 31, 2019 (before inter and intra-segment eliminations):

 

     Tata
Commercial
Vehicle
    Tata
Passenger
Vehicle
    Jaguar Land
Rover
    Vehicle
Financing
 

Total Revenues (Rs. million)

     579,497       141,649       2,216,657       35,125  

Earnings/(loss) Before Other Income, Interest and Tax (Rs. million)

     34,007       (15,842     (323,813     21,153  

Earnings Before Other Income, Interest and Tax (% to total revenue)

     5.9     (11.2 )%      (14.6 )%      60.2

The following table sets forth selected data from our automotive segment for the year ended March 31, 2018 (before inter and intra-segment eliminations):

 

     Tata
Commercial
Vehicle
    Tata
Passenger
Vehicle
    Jaguar Land
Rover
    Vehicle
Financing
 

Total Revenues (Rs. million)

     494,917       128,918       2,214,492       26,152  

Earnings/(loss) Before Other Income, Interest and Tax (Rs. million)

     36,694       (29,999     84,952       17,079  

Earnings Before Other Income, Interest and Tax (% to total revenue)

     7.4     (23.3 )%      3.8     65.3

The following table sets forth selected data regarding our other operations for the periods indicated and the percentage change from period to period (before inter-segment eliminations):

 

     Year ended March 31,     Percentage Change  
     2019     2018     2018 to 2019  

Total Revenues (Rs. million)

     35,324       31,335       12.7  

Earnings Before Other Income, Interest and Tax (Rs. million)

     4,104       3,046       34.7  

Earnings Before Other Income, Interest and Tax (% to total revenue)

     11.6     9.7  

Fiscal 2019 Compared to Fiscal 2018

Revenue

Our total consolidated revenue (net of excise duty, where applicable), including finance revenue, increased by 3.8% to Rs.2,993,662 million in Fiscal 2019 from Rs.2,882,951 million in Fiscal 2018. The Company has adopted IFRS 15 with a modified retrospective approach. Accordingly, we have presented prior comparative periods without applying the principles of IFRS 15.

Revenue from the sale of vehicles increased to Rs.2,576,721 million in Fiscal 2019 as compared to Rs.2,499,713 million, an increase of 3.1%. We sold 1,274,072 vehicles in Fiscal 2019, as compared to 1,221,124 vehicles in Fiscal 2018.

The revenue of our Tata brand vehicles increased by 15.6% to Rs.721,146 million in Fiscal 2019 from Rs.623,932 million in Fiscal 2018 due to increased volumes in all vehicle categories, except Passenger Cars. The revenue from Tata Commercial Vehicles was Rs.579,497 million in Fiscal 2019 as compared to Rs.494,917 million in Fiscal 2018, an increase of 17.1%. The revenue from Tata Passenger Vehicles was Rs.141,649 million in Fiscal 2019 as compared to Rs.128,918 million in Fiscal 2018, an increase of 9.9%.

 

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Our revenues from sales of vehicles and spare parts manufactured in India increased by 18.1% to Rs.679,826 million in Fiscal 2019 from Rs.575,484 million in Fiscal 2018. The increase was mainly attributable to revenues across all vehicle categories, except Passenger Cars in India. The revenue from Passenger Cars in India decreased marginally by 1.6% to Rs.49,217 million in Fiscal 2019 from Rs.49,995 million in Fiscal 2018, offset by revenue attributable to Utility Vehicles, which increased by 38.1% to Rs.47,130 million in Fiscal 2019 from Rs.34,138 million in Fiscal 2018. New product offerings in our Utility Vehicles helped us increase our volumes and revenues in this category. Further, revenues from MHCVs increased by 17.6% to Rs.317,215 million in Fiscal 2019 from Rs.269,723 million. ILCVs increased by 28.7% to Rs.60,957 million in Fiscal 2019 from Rs.47,346 million in Fiscal 2018. Revenues of SCVs & Pickups in India increased by 21.6% to Rs.56,987 million in Fiscal 2019 from Rs.46,856 in Fiscal 2018 and CV Passenger Vehicles revenue increased by 53.1% to Rs.4,646 million in Fiscal 2019 from Rs.3,034 million in Fiscal 2018.

Revenue attributable to TDCV, our subsidiary company engaged in design, development and manufacturing of MHCVs, decreased by 19.3% to Rs.39,042 million in Fiscal 2019 from Rs.48,370 million in Fiscal 2018, primarily due to lower industry volumes, aggressive discounting and marketing strategies of importers in South Korea. The combined market share of TDCV decreased to 21.1% in Fiscal 2019 as compared to 26.5% in Fiscal 2018. The export market scenario continues to remain challenging in Fiscal 2019, with factors like local currency depreciation against the U.S. dollar, continuing statutory regulations to reduce imports, slowdown in China’s economy, increased dealer inventory and impact of U.S. sanction on Iran.

Revenue from our Vehicle Financing operations increased by 34.3% to Rs.35,125 million in Fiscal 2019, as compared to Rs.26,152 million in Fiscal 2018. The increase is due to higher disbursal by TMFHL by 43% in Fiscal 2019 compared to Fiscal 2018.

The revenue of our Jaguar Land Rover business marginally increased to Rs.2,216,657 million in Fiscal 2019 from Rs.2,214,492 million in Fiscal 2018. This was attributed to a favorable translation of Rs.144,921 million from GBP to Indian rupees in Fiscal 2019. Excluding currency translation, the revenue of Jaguar Land Rover decreased by 6.4%. There was an increase in sales of Jaguar brand vehicles to 153,757 units in Fiscal 2019 from 150,484 units in Fiscal 2018, an increase of 2.2%, offset by a decrease in sales of Land Rover vehicles from 394,814 units in Fiscal 2018 to 354,138 units in Fiscal 2019, a decrease of 10.3% (volumes excluding the China Joint Venture).

Revenue from other operations (before inter-segment eliminations) increased by 12.7% to Rs.35,324 million in Fiscal 2019 compared to Rs.31,335 million in Fiscal 2018, and represents 1.2% and 1.1% of our total revenues (before inter-segment eliminations) in Fiscal 2019 and Fiscal 2018, respectively.

Cost and Expenses

Raw Materials, Components and Purchase of Products for Sale (including change in inventories of finished goods and work-in-progress) (“material costs”)

Material costs increased by 5.7% to Rs.1,962,997 million in Fiscal 2019 from Rs.1,856,602 million in Fiscal 2018. Material costs include realized exchange gains of Rs.13,518 million in Fiscal 2019 as compared to Rs.15,675 million in Fiscal 2018. As a percentage of revenue material costs are 65.6% in Fiscal 2019, as compared to 64.4% in Fiscal 2018, and the increase is driven by revenue presentation changes as per IFRS 15.

Material costs for Tata Commercial Vehicles and Tata Passenger Vehicles increased by 17.1% to Rs.525,322 million in Fiscal 2019 from Rs.448,506 million in Fiscal 2018, primarily due to an increase in volumes. Further, material costs as a percentage of total revenue increased to 72.8% in Fiscal 2019, as compared to 71.9% in Fiscal 2018, primarily due to an unfavorable product mix leading to lower contribution margins.

For our India operations, material costs in the Passenger Vehicle segment decreased by 5.0% to Rs.42,066 million in Fiscal 2019, as compared to Rs.44,266 million in Fiscal 2018 for our Passenger Cars due to decreased sales, and offset by increase of 31.9% to Rs.39,090 million in Fiscal 2019, as compared to Rs.29,639 million in Fiscal 2018 for our Utility Vehicles, mainly due to increased volumes. Material costs for ILCVs increased by 24% to Rs.43,752 million in Fiscal 2019, as compared to Rs.35,238 million in Fiscal 2018, and for MHCVs increased by 19% to Rs.227,430 million in Fiscal 2019, as compared to Rs.191,897 million in Fiscal 2018. Material costs for SCVs & Pickups also increased by 13% to Rs.45,010 million in Fiscal 2019, as compared to Rs.39,865 million in Fiscal 2018, whereas material costs for CV Passenger Vehicles increased by 61% to Rs.3,196 million in Fiscal 2019, as compared to Rs.1,986 million in Fiscal 2018. The increase was due to higher volumes in Fiscal 2019.

Material costs decreased by 13.1% to Rs.27,052 million in Fiscal 2019, as compared to Rs.31,118 million in Fiscal 2018 for TDCV, primarily due to lower volumes, particularly in the domestic market. As a percentage of total revenue, material cost increased to 69.3% in Fiscal 2019, compared to 64.3% in Fiscal 2018, primarily due to mix of products.

 

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At our Jaguar Land Rover operations, material costs in Fiscal 2019 increased by 2.1% to Rs.1,432,388 million from Rs.1,403,302 million in Fiscal 2018. The increase was partially due to unfavorable currency translation from GBP to Indian rupees of Rs.92,845 million. Excluding currency translation, material costs attributable to our Jaguar Land Rover operations decreased by GBP658 million (4.0%) in Fiscal 2019 mainly due to a 6% decrease in sales volume and mix of products. Material costs at our Jaguar Land Rover operations as a percentage of revenue increased to 65% in Fiscal 2019, from 63% in Fiscal 2018 (in GBP terms), primarily driven by the revenue presentation changes for IFRS 15.

Provision for impairment in Jaguar Land Rover

In Fiscal 2019, we took an impairment charge of Rs.278,379 million. We assessed the recoverable amount of Jaguar Land Rover business, which represents a single CGU, as the higher of Fair Value less Cost of Disposal (“FVCLD”) and VIU of the relevant assets of the CGU, due to weaker sales and profitability, changes in market conditions, especially in China, and technological disruptions.

Provision/(Reversal) for Loss of Inventory

On August 12, 2015, a series of explosions caused widespread damage at the port of Tianjin in China, one of three major locations in China through which Jaguar Land Rover imports its vehicles. A provision of Rs.16,384 million (GBP157 million) (net of insurance recoveries) of Rs.5,342 million (GBP55 million)) has been recognized against the carrying value of inventory for the damage due to the explosion at the port of Tianjin in China in Fiscal 2016. In Fiscal 2017, Rs.13,301 million (GBP151 million) relating to insurance recoveries, recovery of import duties and taxes and an updated assessment of the condition of the remaining vehicles led to a reversal of the initial provision recorded in Fiscal 2016. In Fiscal 2018, Rs.112 million (GBP1 million) relating to insurance recoveries led to a further reversal of the initial provision recorded in Fiscal 2016.

Employee Costs

Our employee costs increased by 14.4% in Fiscal 2019 to Rs.346,261 million from Rs.302,625 million in Fiscal 2018, including the foreign currency translation impact from GBP to Indian rupees discussed below.

Our permanent headcount increased by 2.1% as of March 31, 2019 to 82,797 employees from 81,090 employees as of March 31, 2018, primarily due to new production facilities at Jaguar Land Rover. However, the average temporary headcount has decreased to 31,647 employees in Fiscal 2019 from 38,017 employees in Fiscal 2018, mainly due to reduction of volumes at Jaguar Land Rover.

The employee costs for Tata Commercial Vehicles and Tata Passenger Vehicles increased by 7% to Rs.58,529 million in Fiscal 2019 from Rs.54,665 million in Fiscal 2018.

For our India operations, employee costs increased by 8.5% to Rs.47,813 million in Fiscal 2019 from Rs.44,085 million in Fiscal 2018, mainly due to regular annual increases in salary and wage agreements at our plants. The permanent headcount increased by 1.0% as of March 31, 2019 to 41,655 employees from 41,295 employees as of March 31, 2018. The average temporary headcount decreased by 12% to 26,913 employees in Fiscal 2019 from 30,464 employees in Fiscal 2018.

At TML, the parent company, employee cost increased to Rs.40,303 million in Fiscal 2019 compared to Rs.37,499 million in Fiscal 2018. The employee cost as a percentage of revenue decreased to 6.1% in Fiscal 2019 from 6.5% in Fiscal 2018, mainly due to increased revenues.

Employee costs at TDCV were decreased to Rs.8,273 million in Fiscal 2019 as compared to Rs.8,276 million in Fiscal 2018.

On July 31, 2018, we decided to cease current operations of Tata Motors (Thailand) Ltd. We will now address the Thailand market with a revamped product portfolio, suitable to the local market needs, delivered through a CBU distribution model. Accordingly, a charge of Rs.227 million for employee separation costs has been taken in Fiscal 2019.

 

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The employee costs at Jaguar Land Rover increased by 17.4% to Rs.274,339 million in Fiscal 2019 from Rs.233,751 million in Fiscal 2018. In GBP terms, employee costs at Jaguar Land Rover increased to GBP2,820 million in Fiscal 2019 from GBP2,722 million in Fiscal 2018. In addition to this, there were unfavorable foreign currency translation impacts from GBP to Indian rupees of Rs.17,849 million. Further, a charge of Rs.13,672 million for employee separation costs was taken in Fiscal 2019. The employee costs at Jaguar Land Rover as a percentage of revenue increased to 11.7% in Fiscal 2019 from 10.6% in Fiscal 2018, primarily due to supporting the development and launch of future products and new facilities. Jaguar Land Rover decreased its year-end headcount by 3.5% in Fiscal 2019 to 41,710 employees from 43,224 employees in Fiscal 2018. Jaguar Land Rover average permanent headcount increased by 11.7% in Fiscal 2019 to 38,583 employees from 34,533 employees in Fiscal 2018. However, the average temporary headcount decreased to 5,518 employees in Fiscal 2019 from 7,254 employees in Fiscal 2018. The total number of permanent employees for Jaguar Land Rover as of March 31, 2019 was 37,434, as compared to 36,300 as of March 31, 2018.

Defined benefit pension plan amendment

In Fiscal 2019, the High Court in the United Kingdom ruled that pension schemes are required to equalize benefits for male and female members under the guaranteed minimum pension that members earned between May 17, 1990 and April 5, 1997. Based on this ruling, we reassessed our obligations under the existing Jaguar Land Rover pension plans and recorded an additional liability of Rs.1,479 million (GBP17 million).

We recorded a past service credit of Rs.36,090 million (GBP437 million) during Fiscal 2018, relating to the amendment of the defined benefit scheme of Jaguar Land Rover. On April 3, 2017, Jaguar Land Rover approved and communicated to its defined benefit scheme members that the defined benefit scheme rules were to be amended with effect from April 6, 2017 so that among other changes, retirement benefits would be calculated based on a career average basis rather than a member’s final salary at retirement.

Other Expenses

Other expenses increased by 4.4% to Rs.657,299 million in Fiscal 2019 from Rs.629,755 million in Fiscal 2018. There was an unfavorable foreign currency translation of GBP to Indian rupees of Rs.34,362 million pertaining to Jaguar Land Rover. As a percentage of total revenues, these expenses marginally increased to 22.0% in Fiscal 2019 from 21.8% in Fiscal 2018. The major components of expenses are as follows:

 

                          Percentage of
Total Revenue
 
     Year ended March 31,      Change      Year ended March 31,  
     2019      2018      2019      2018  
     (Rs. in millions)                       

Freight and transportation expenses

     78,045        114,841        (32.0      2.6        4.0  

Works operation and other expenses

     259,134        261,407        (0.9      8.8        9.1  

Publicity

     87,296        89,686        (2.7      2.9        3.1  

Allowance for trade and other receivables, and finance receivables

     5,344        401        1,232.7        0.2        0.0  

Warranty and product liability expenses

     118,921        69,979        69.9        4.0        2.4  

Research and development expenses

     42,246        35,319        19.6        1.4        1.2  

 

  1.

Freight and transportation expenses decreased by 32.0% to Rs.78,045 million in Fiscal 2019. We make transport arrangements for delivering vehicles to the dealers. Up to Fiscal 2018, the gross consideration received with respect to these arrangements was recognized and presented within revenues, whereas the costs were included in freight and transportation expenses. In accordance with IFRS 15, we have determined that we are an agent in providing these services and therefore the gross consideration received, net off costs associated is presented in revenue for Fiscal 2019, Rs.38,150 million. Excluding this presentation change, the increase in freight expenses is 1.2%, i.e.Rs.1,354 million. This is partially due to an unfavorable foreign currency translation of GBP to Indian rupees of Rs.3,513 million. Excluding translation, the freight expenses (net) has decreased in Fiscal 2019, due to lower volumes of Jaguar Land Rover.

 

  2.

Our works operation and other expenses represented 8.8% and 9.1% of total revenue in Fiscal 2019 and Fiscal 2018, respectively. On absolute terms, the expenses decreased marginally to Rs.259,134 million in Fiscal 2019 from Rs.261,407 million in Fiscal 2018. These mainly relate to volume-related expenses at Jaguar Land Rover and Tata Motors Limited. In accordance with IFRS 15, certain payouts made to dealers of Rs.7,777 million (such as infrastructure support payments) are now treated as variable components of consideration and are therefore recognized as revenue deductions in Fiscal 2019. Excluding this presentation change, the expenses increased by Rs.5,504 million. Engineering and project expenses at both our India operations and Jaguar Land Rover increased by 7.0% to Rs.66,546 million in Fiscal 2019, from Rs.62,192 million in Fiscal 2018, reflecting our increased investment in the development of new vehicles and due to a one-off charge taken amounting to GBP 29 million (Rs. 2,661 million) on account of supplier and contract liabilities for certain vehicle models at Jaguar Land Rover. A significant portion of these costs are capitalized and shown under the line item “expenditure capitalized” discussed below.

 

  3.

Publicity expenses decreased to 2.9% of our total revenues in Fiscal 2019 as compared to 3.1% in Fiscal 2018. In addition to routine product and brand campaigns, we incurred expenses relating to new product introduction campaigns in Fiscal 2019, namely the new Jaguar I-PACE, the all new Land Rover VELAR at Jaguar Land Rover, and the Harrier at our India operations.

 

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  4.

The allowances for finance receivables related to Vehicle Financing segment. These mainly reflect provisions for the impairment of vehicle loans of Rs.3,202 million for Fiscal 2019 as compared to Rs.255 million in Fiscal 2018. In Fiscal 2018, the collection of finance receivables has improved, resulting in reversals of provision done in previous years. The allowances for trade receivables were Rs.2,142 million in Fiscal 2019 as compared to Rs.146 million in Fiscal 2018. In Fiscal 2018, there was reversal of provision for trade receivables due to favorable litigation orders.

 

  5.

Warranty and product liability expenses represented 4.0% and 2.4% of our total revenues in Fiscal 2019 and Fiscal 2018, respectively. The warranty expenses at Jaguar Land Rover represented 4.2% of the revenue as compared to 2.7% last year mainly due to higher level of warranty campaigns and goodwill provisions in China. The increase of Jaguar Land Rover was primarily driven by new campaigns and updated estimates of costs in relation to existing campaigns plus the unfavorable foreign exchange during Fiscal 2019. For Tata Motors’ Indian operations, these represent 1.4% and 1.3% of the revenue for Fiscal 2019 and Fiscal 2018, respectively.

 

  6.

Research and product development costs represent research costs and costs pertaining to minor product enhancements, refreshes and upgrades to existing vehicle models. These represented 1.4% and 1.2% of total revenues for Fiscal 2019 and Fiscal 2018, respectively. We introduced the factor of “affordability” of investments with effect from April 1, 2018, for capitalization of product development costs. Accordingly, the amount written off increased in Fiscal 2019.

Expenditure capitalized

This represents employee costs, stores and other manufacturing supplies and other work expenses incurred mainly toward product development projects. Considering the nature of our industry, we continually invest in the development of new products and invest to address safety, emission and other regulatory standards. The expenditure capitalized increased by 5.8% to Rs.196,596 million in Fiscal 2019 from Rs.185,882 million in Fiscal 2018. The increase was netted by a favorable foreign currency translation impact from GBP to Indian rupees of Rs.11,726 million pertaining to Jaguar Land Rover. These reflect expenditures on new products and other major product development plans.

Depreciation and Amortization

Our depreciation and amortization expenses increased by 9.7% in Fiscal 2019, the breakdown of which is as follows:

 

     Year ended March 31,  
     2019      2018  
     (Rs. in millions)  

Depreciation

     120,828        107,621  

Amortization

     109,370        102,197  
  

 

 

    

 

 

 

Total

     230,198        209,818  
  

 

 

    

 

 

 

The increase in depreciation and amortization expenses is mainly due to an unfavorable foreign currency translation from GBP to Indian rupees of Rs.13,124 million pertaining to Jaguar Land Rover. The increase in depreciation expenses, excluding the translation impact, was primarily attributable to new product launches and the opening of new facilities in Slovakia. The amortization expenses for Fiscal 2019 are mainly attributable to new products introduced during the year, both at the Jaguar Land Rover business and Tata Motors India operations.

Assets written off/loss on sale of assets and others (net)

We recorded a loss on sale of assets and assets written off of Rs.13,187 million in Fiscal 2019, as compared to Rs.29,149 million in Fiscal 2018. The decrease is mainly due to an assessment of product development in progress for certain projects that were identified for write off in Fiscal 2018. Due to the wind down of operations of our subsidiary at Tata Motors (Thailand) Ltd. assets of Rs.529 million were written off in Fiscal 2019.

Other income (net)

There was a net gain of Rs.35,439 million in Fiscal 2019, as compared to Rs.47,873 million in Fiscal 2018, representing a decrease of Rs.12,434 million.

 

   

The gain on change in the fair value of commodity derivatives mainly at Jaguar Land Rover was Rs.848 million in Fiscal 2019, as compared to Rs.2,146 million in Fiscal 2018, primarily due to the decrease in commodity prices of major commodities, including aluminum, copper and platinum, though partly offset by the increase in the price of palladium.

 

   

Profit on sale of investments measured at fair value through profit or loss is Rs.1,286 million in Fiscal 2019. In Fiscal 2018, gain on sale of available-for-sale investments was Rs.1,562 million. Further, we recorded MTM on investments fair valued through profit or loss of Rs.2,385 million in Fiscal 2019, due to the IPO of Lyft on the NASDAQ stock exchange.

 

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Miscellaneous income decreased by 47.9% to Rs.16,942 million in Fiscal 2019 from Rs.32,508 million in Fiscal 2018. The decrease is mainly due to reclassification of commissions and other dealer income from Other Income to Revenues as per IFRS 15.

 

   

Incentives were Rs.10,035 million in Fiscal 2019 as compared to Rs.11,500 million in Fiscal 2018, mainly due to lower government grants. Certain government incentives received which were previously presented in revenues have been included in other income as per IFRS 15.

 

   

Recorded a gain of Rs.3,770 million in Fiscal 2019, on sale of investments of our subsidiary TAL Manufacturing Solutions Limited to Tata Advance Systems Limited.

For further details see Note 33 to our consolidated financial statements included elsewhere in this annual report on Form 20-F.

Interest expense (net)

Our interest expense (net of interest capitalized) increased by 23.1% to Rs.57,586 million in Fiscal 2019 from Rs.46,791 million in Fiscal 2018. As a percentage of total revenues, interest expense represented 1.9% and 1.6% in Fiscal 2019 and Fiscal 2018, respectively. The interest expense (net) for Jaguar Land Rover was GBP111 million (Rs.10,107 million) in Fiscal 2019, as compared to GBP85 million (Rs.6,999 million) in Fiscal 2018. The increase in interest expense primarily reflects interest accrued on the EUR500 million 4.5% senior notes issued in September 2018 and the US$1,000 million unsecured loan drawn in October 2018, partially offset by interest no longer accrued on the US$700 million senior notes which matured in December 2018, the higher capitalized interest, and an unfavorable foreign currency translation of Rs.680 million from GBP to Indian rupees. For Tata Commercial Vehicles and Tata Passenger Vehicles, interest expense increased by 19.7% to Rs.47,757 million in Fiscal 2019 from Rs.39,909 million in Fiscal 2018, mainly due to higher borrowings. For the Vehicle Financing business, interest expense increased by 37.3% to Rs.26,157 million in Fiscal 2019 from Rs.19,053 million in Fiscal 2018, mainly due to higher borrowings due to increased business. See Item 5.B “Operating and Financial Review and Prospects—Liquidity and Capital Resources” of this annual report on Form 20-F for additional details on our debt financing arrangements.

Foreign exchange (gain)/loss (net)

We had a net foreign exchange loss of Rs.5,824 million in Fiscal 2019, compared to Rs.4,333 million in Fiscal 2018.

 

   

Jaguar Land Rover recorded an exchange loss of Rs.5,385 million in Fiscal 2019, as compared to gain of Rs.3,395 million in Fiscal 2018. There was a net exchange loss on senior notes and other borrowings of GBP45 million in Fiscal 2019, as compared to a gain of GBP69 million in Fiscal 2018, mainly due to appreciation of the U.S. dollar against the GBP during Fiscal 2019. There was a loss of GBP30 million in Fiscal 2019, as compared to a gain of GBP3 million in Fiscal 2018, due to fluctuations in foreign currency exchange rates on derivatives contracts that are not hedge accounted and natural hedges of debt, mainly reflecting a stronger U.S. dollar and RMB, offset by a weaker Euro. Furthermore, this also includes a gain on revaluation of other assets and liabilities of GBP16 million in Fiscal 2019, as compared to a loss of GBP43 million in Fiscal 2018.

 

   

For India operations, we incurred a net exchange loss of Rs.2,262 million in Fiscal 2019, as compared to gain of Rs.203 million in Fiscal 2018, mainly attributable to foreign currency denominated borrowings.

 

   

There was a net exchange gain on revaluation of foreign currency loans at our subsidiary TML Holdings Pte. Limited of Rs.1,805 million in Fiscal 2019, as compared to a loss of Rs.6,660 million in Fiscal 2018.

Income Taxes

Our income tax credit is Rs.25,425 million in Fiscal 2019 from tax expense of Rs.37,678 million in Fiscal 2018, resulting in consolidated effective tax rates of 8.0% and 46.5%, for Fiscal 2019 and Fiscal 2018, respectively.

Tax rates applicable to individual entities decreased to 17.2% for Fiscal 2019, as compared to 20.0% in Fiscal 2018.

The reasons for significant differences in the Company’s recorded income tax credit of Rs.25,425 million in Fiscal 2019, as compared to tax expense of Rs.37,678 million in Fiscal 2018, are mainly the following:

 

   

During Fiscal 2019, Jaguar Land Rover has taken an impairment charge resulting in a loss for Fiscal 2019. Accordingly, previously recognized deferred tax assets have been written down by Rs.26,982 million.

 

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During Fiscal 2019, Tata Motors Limited, on a standalone basis, did not recognize a deferred tax asset, amounting to Rs.1,883 million on minimum alternate tax credits, as compared to Rs.6,509 million on tax losses in Fiscal 2018, due to the uncertainty of future taxable profit against which these could be utilized. However, during Fiscal 2019, there was a utilization of previously unrecognized deferred tax assets of Rs.4,756 million on standalone basis, to the extent of deferred tax liabilities created during Fiscal 2019.

 

   

Furthermore, during Fiscal 2019, deferred tax assets totaling Rs.2,856 million, as compared to Rs.3,393 million in Fiscal 2018, were not recognized in certain subsidiaries due to uncertainty of realization. However, for certain of the subsidiaries and a joint operation, there was a utilization of unrecognized deferred tax assets of Rs.2,260 million in Fiscal 2019.

 

   

Income tax expense on undistributed earnings of subsidiaries was Rs.1,278 million in Fiscal 2019, as compared to Rs.9,170 million in Fiscal 2018, mainly due to lower dividends to be received from subsidiaries (mainly Jaguar Land Rover and TDCV) due to losses in Fiscal 2019.

 

   

The impact of change in the statutory tax rate is Rs. 4,540 million in Fiscal 2019 as compared to Rs. 5,393 million in Fiscal 2018.

 

   

Tax on foreign currency gain relating to loans and deposits not liable to tax was Rs.83 million in Fiscal 2019 as compared to a loss of Rs.1,336 million in Fiscal 2018.

 

   

In Fiscal 2019, there was a tax credit due to share of profit of equity accounted investees of Rs.533 million, as compared to Rs.4,601 million in Fiscal 2018 (due to lower profits at our China Joint Venture).

 

   

Additional deduction for patent, research and product development cost of Rs.1,891 million in Fiscal 2019, as compared to Rs.4,100 million in Fiscal 2018, was mainly due to reduction in patent tax credits at Jaguar Land Rover.

 

   

In Fiscal 2019, there was a tax credit due to profit on sale of investments of a subsidiary, TAL Manufacturing Solutions Limited, of Rs.932 million. For further details see Note 19 to our consolidated financial statements included elsewhere in this annual report on Form 20-F.

Share of profit of equity-accounted investees and non-controlling interests in consolidated subsidiaries, net of tax

In Fiscal 2019, our share of profit of equity-accounted investees reflected a gain of Rs.2,095 million, as compared to Rs.22,783 million in Fiscal 2018. Our share of profit (including other adjustments) in the China Joint Venture in Fiscal 2019 was Rs.754 million, as compared to Rs.21,389 million in Fiscal 2018. The profits lowered by 96.5% mainly due to decrease in volumes and lower tax rebates.

The share of non-controlling interests in consolidated subsidiaries were decreased slightly to Rs.1,015 million in Fiscal 2019 from Rs.1,021 million in Fiscal 2018.

Net income

Our consolidated net loss in Fiscal 2019, excluding shares of non-controlling interests, is Rs.293,143 million from an income of Rs.65,041 million in Fiscal 2018. This decrease was mainly the result of the following factors:

 

   

A loss before other income, interest and tax for Jaguar Land Rover of Rs.323,813 million in Fiscal 2019 as compared to earnings of Rs.84,952 million in Fiscal 2018. The decrease in profitability was mainly attributable to higher incentive spending, other operating costs including higher marketing expenses, and higher depreciation and amortization expenses related to new models launched in the year. Further, there was an impairment charge of Rs.278,379 million in Fiscal 2019 for Jaguar Land Rover. Furthermore, in Fiscal 2018, there was increase in local market incentives received in China and a gain on defined benefit scheme changes resulting in profits.

 

   

Earnings Before Other Income, Interest and Tax for Tata Commercial Vehicles amounted to Rs.34,007 million in Fiscal 2019, as compared to Rs.36,694 million in Fiscal 2018, primarily due to lower volumes for TDCV, partially offset by increased sales and cost reduction initiatives for India business.

 

   

Earnings Before Other Income, Interest and Tax for Vehicle Financing amounted to Rs.21,153 million in Fiscal 2019, as compared to Rs.17,079 million in Fiscal 2018, due to higher disbursal of finance receivables.

 

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Losses before other income, interest and tax for Tata Passenger Vehicles amounted to Rs.15,842 million in Fiscal 2019, as compared to Rs.29,999 million in Fiscal 2018, an improvement by 47.2%, due to increased sales in Utility Vehicle segment and cost reduction initiatives for India business.

Recent Accounting Pronouncements

Please refer to Note 2(x) and Note 2(y) to our consolidated financial statements included elsewhere in this annual report on Form 20-F for adopted and yet to be adopted accounting pronouncements as of March 31, 2019.

Critical Accounting Policies

The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income, expenses and disclosures of contingent assets and liabilities as of the date of this annual report on Form 20-F and the reported amounts of revenues and expenses for the years presented. The actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis and on each balance sheet date. Revisions to accounting estimates are recognized in the period in which the estimate is revised and future periods are affected.

In particular, information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements are included in the following notes:

Impairment of Goodwill

CGUs to which goodwill is allocated are tested for impairment annually on each balance sheet date, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the CGU is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to that unit and then to the other assets of the unit pro rata on the basis of carrying amount of each asset in the unit. Goodwill impairment loss recognized is not reversed in subsequent period. Please refer to Note 15 to our consolidated financial statements included elsewhere in this annual report on Form 20-F for assumptions used for goodwill impairment.

Impairment

Property, plants and equipment and intangible assets

On each balance sheet date, we assess whether there is any indication that any property, plants and equipment and intangible assets with finite lives may be impaired. If any such impairment exists, the recoverable amount of an asset is estimated to determine the extent of impairment, if any. Where it is not possible to estimate the recoverable amount of an individual asset, we estimate the recoverable amount of the CGU to which the asset belongs.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment annually on each balance sheet date, or earlier if there is an indication that the asset may be impaired.

The recoverable amount is the higher of fair value less costs to sell and VIU. In assessing VIU, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or CGU) is reduced to its recoverable amount. If this occurs, an impairment loss is recognized immediately in the income statement.

Finance receivables

We provide allowances for credit losses in finance receivables based on historical loss experience, current economic conditions and events, and the estimated collateral values for repossessed vehicles. This requires estimates, including the amounts and timing of future cash flows expected to be received, which reflect changes in related observable data from period to period that may be susceptible to changes.

 

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Capitalization of internally generated intangible assets

We undertake significant levels of research and development activity and for each vehicle program periodic review is undertaken. We apply judgement in determining at what point in a vehicle programs lifecycle that recognition criteria under accounting standards is satisfied.

Product Warranty

Vehicle warranties are provided for a specified period of time. Our vehicle warranty obligations vary depending upon the type of the product, geographical location of its sale and other factors.

The estimated liability for vehicle warranties is recorded when the products are sold. These estimates are established using historical information on the nature, frequency and average cost of warranty claims and our estimates regarding possible future incidence based on actions on product failures.

Changes in warranty liability as a result of changes in estimated future warranty costs and any additional costs in excess of estimated costs can materially affect our net income. Determination of warranty liability is based on the estimated frequency and amount of future claims, which are inherently uncertain. Our policy is to regularly monitor warranty liabilities to determine the adequacy of our estimate of such liabilities. Actual claims incurred in the future may differ from our original estimates, which may materially affect warranty expenses.

Employee Benefits

Employee benefit costs and obligations are dependent on assumptions used in calculating such amounts. These assumptions include salary increases, discount rates, health care cost trend rates, benefits earned, interest costs, expected return on plan assets, mortality rates and other factors.

While we believe that the assumptions used are appropriate, differences in actual experience or changes in assumptions may affect our employee benefit costs and obligations.

Recoverability/recognition of deferred tax assets

Deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the carrying values of assets and liabilities and their respective tax bases, and unutilized business loss and depreciation carry-forwards and tax credits. Such deferred tax assets and liabilities are computed separately for each taxable entity and for each taxable jurisdiction. Deferred tax assets are recognized to the extent that it is probable that future taxable income will be available against which the deductible temporary differences, unused tax losses, depreciation carry-forwards and unused tax credits could be utilized.

B. Liquidity and Capital Resources

We finance our capital expenditures and research and development investments through cash generated from operations, cash and cash equivalents, and debt and equity funding. We also raise funds through the sale of investments, including divestments in stakes of subsidiaries on a selective basis.

The key element of the financing strategy is maintaining a strong financial position that allows us to fund our capital expenditures and research and development investments efficiently even if earnings are subject to short-term fluctuations. Our treasury policies for liquidity and capital resources are appropriate for automotive operations and are set through business specific sensitive analysis and by benchmarking our competitors. These are reviewed periodically by the Board.

Our business segments are (i) automotive operations and (ii) all other operations. We provide financing for vehicles sold by dealers in India. Our automotive operations segment is further divided into Tata Commercial Vehicles, Tata Passenger Vehicles, Jaguar Land Rover and Vehicle Financing. Furthermore, given the nature of our industry and competition, we are required to make significant investments in product development on an ongoing basis.

 

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Principal Sources of Funding Liquidity

Our funding requirements are met through a mixture of equity, convertible or non-convertible debt securities and other long- and short-term borrowings. We access funds from debt markets through commercial paper programs, convertible and non-convertible debentures, and other debt instruments. We regularly monitor funding options available in the debt and equity capital markets with a view to maintain financial flexibility.

See Note 38 to our audited consolidated financial statements included elsewhere in this annual report on Form 20-F for additional disclosures on financial instruments related to liquidity, foreign exchange and interest rate exposures and use of derivatives for risk management purposes.

The following table sets forth our short- and long-term debt position:

 

     As of March 31,  
     2019      2018  
     (Rs. in millions)  

Total short-term debt (excluding current portion of long-term debt)

     201,503        167,949  

Total current portion of long-term debt

     150,341        109,339  

Long-term debt net of current portion

     708,067        611,419  
  

 

 

    

 

 

 

Total Debt

     1,059,911        888,707  
  

 

 

    

 

 

 

During Fiscal 2019 and Fiscal 2018, the effective weighted average interest rate on our long-term debt was 6.9% and 5.6% per annum, respectively. The following table sets forth a summary of long-term debt outstanding as of March 31, 2019.

 

Details of Long-term debt

   Currency      Initial
Principal
amounts
(millions)
     Redeemable
on
     Interest
Rate
    Amount repaid
during year
ended
March 31, 2019
(Rs. millions)
     Outstanding
(Rs. millions)
 
                                       31-Mar-19      31-Mar-18  

Non-convertible debentures

     Rs.              Various       38,609        127,794        148,108  

Collateralized debt obligations

     Rs.              Various       13,062        30,473        13,206  

Buyers credit from bank

     Various              Various       5,000        25,000        15,000  

Loan from banks / financial institutions

     Various              Various       10,472        279,380        137,182