20-F 1 d20f.htm FORM 20-F Form 20-F
Table of Contents

As filed with the Securities and Exchange Commission on September 27, 2007


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

 

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

For the fiscal year ended March 31, 2007

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)

 


Not applicable

(Translation of Registrant’s name into English)

 

Republic of India  

Bombay House

24, Homi Mody Street

Mumbai 400 001, India

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

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

 

Title of each class

 

Name of each exchange on which registered

Ordinary Shares, par value Rs.10 per share *   The New York Stock Exchange, Inc

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:

None

(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. - 385,373,885 Ordinary Shares, including 42,294,157 Ordinary Shares represented by 42,294,157 American Depositary Shares were outstanding as of March 31, 2007.

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  x     Accelerated filer   ¨    Non-accelerated filer   ¨

Indicate by check mark which financial statement item the registrant has elected to follow:    Item 17  ¨    Item 18  x

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  x

 

* Not for trading, but only in connection with listed American Depositary Shares, each representing one share of common stock.

 



Table of Contents

In this annual report

 

 

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

 

 

References to “dollar”, and “US$” are to the lawful currency of the United States of America, and references to “rupees” and “Rs.” are to the lawful currency of India;

 

 

References to “US GAAP” are to accounting principles generally accepted in the United States, and references to “Indian GAAP” are to accounting principles generally accepted in India;

 

 

References to an “ADS” are to an American Depositary Share, and references to an “ADR” are to an American Depositary Receipt;

 

 

References to light commercial vehicles, or LCVs, medium commercial vehicles, or MCVs, and heavy commercial vehicles, or HCVs, refer to vehicles that have gross vehicle weight, or GVW, of up to 7.5 metric tonnes, between 7.5 and 16.2 metric tonnes, and over 16.2 metric tonnes, respectively;

 

 

References to passenger cars refer to vehicles that have a seating capacity of up to six persons, excluding the driver, and is further classified into the following market segments: mini-cars – which have a length of up to 3,400 mm; compact cars – which have a length between 3,401mm and 4,000mm; mid-size cars – which have length of between 4,001mm and 4,500mm; executive cars – which have a length between 4,501mm and 4,700mm; and premium cars and luxury cars –which have a length between 4,701 and 5,000mm, and above 5,001mm, respectively.

 

 

References to utility vehicles, or UVs, and multi-purpose vehicles, or MPVs, refer to vehicles that have a seating capacity of seven to twelve persons, excluding the driver, and van-type vehicles that have a seating capacity of seven to twelve persons, excluding the driver, respectively.

 

 

Unless otherwise stated, comparative and empirical industry data in this annual report have been derived from published reports of the Society of Indian Automobile Manufacturers, or SIAM;

 

 

References to a particular “fiscal” year, such as “fiscal 2006”, are to our fiscal year ended on March 31 of that year;

 

 

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

 

 

“Millimeters” or “mm” are 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; and

 

 

“Kilograms” or “kg” are each equal to approximately 2.2 pounds, and “metric tonnes” are equal to 1,000 kilograms or approximately 2,200 pounds.

 

 

“Litres” are equivalent to 61.02 cubic inches of volume, or approximately 1.057 U.S. quarts of liquid measure.

 

 

“Revenues” refers to Total Revenue net of excise duty unless stated otherwise.

Special Note Regarding Forward-looking Statements

All statements contained in this annual report that are not statements of historical fact constitute “forward-looking statements”. Generally, these statements can be identified by the use of forward-looking terms such as “anticipate”, “believe”, “can”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “seek”, “will” and “would” or similar words. However, these words are not the exclusive means of identifying forward-looking statements. All statements regarding our expected financial condition and results of operations, business, plans and prospects are forward-looking statements. These forward-looking statements include statements as to our business strategy, our revenue and profitability, planned projects and other matters discussed in this annual report regarding matters that are not historical fact. These forward-looking statements and any other projections contained in this annual report (whether made by us or any third party) involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements or other projections. Although we are a reporting company and will have ongoing disclosure obligations under U.S. federal securities laws, we are not undertaking to publicly update or revise any statements in this annual report, whether as a result of new information, future events or otherwise.

The risks and factors that could cause our actual results, performances and achievements to be materially different from the forward-looking statements set out in Item 3.D and elsewhere in this annual report include, among others:

 

 

general political, social and economic conditions, and the competitive environment in India and other markets in which we operate and sell our products;

 

 

fluctuations in the currency exchange rate of the rupee to the dollar and other currencies;

 

 

accidents and natural disasters;

 

 

terms on which we finance our working capital and capital and product development expenditures and investment requirements;

 

 

implementation of new projects, including mergers and acquisitions, planned by management;

 

 

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;

 

 

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

 

 

other factors beyond our control.

 

i


Table of Contents

TABLE OF CONTENTS

 

        Page
Part I    
Item 1   Identity of Directors, Senior Management and Advisers   1
Item 2   Offer Statistics and Expected Timetable   1
Item 3   Key Information   1
  A. Selected Financial Data   1
  B. Capitalization and Indebtedness   3
  C. Reason for the Offer and Use of Proceeds   3
  D. Risk Factors   4
Item 4   Information on the Company   8
  A. History and Development of the Company   8
  B. Business Overview   10
  C. Organizational Structure   19
  D. Property, Plants and Equipment   21
Item 4A   Unresolved Staff Comments   23
Item 5   Operating and Financial Review and Prospects   23
  A. Operating Results   23
  B. Liquidity and Capital Resources   31
  C. Research and Development, Patents and Licenses, etc.   37
  D. Trend information   37
  E. Off-Balance Sheet Arrangements   37
  F. Tabular Disclosure of Contractual Obligations   37
Item 6   Directors, Senior Management and Employees   37
  A. Directors and Senior Management   37
  B. Compensation   39
  C. Board Practices   40
  D. Employees   42
  E. Share ownership   43
Item 7   Major Shareholders and Related Party Transactions   43
  A. Major shareholders   43
  B. Related party transactions   45
  C. Interests of Experts and Counsel   45
Item 8   Financial Information   45
  A. Consolidated Statements and Other Financial Information   45
  B. Significant Changes   45
Item 9   The Offer and Listing   45
  A. The Offer and Listing Details   45
  B. Plan of Distribution   46
  C. Markets   46
  D. Selling Shareholders   46
  E. Dilution   46
  F. Expenses of the Issue   46
Item 10   Additional Information   47
  A. Share Capital   47
  B. Memorandum and Article of Association   47
  C. Material Contracts   51
  D. Exchange Controls   51
  E. Taxation   54
  F. Dividends and Paying Agents   57
  G. Statement by Experts   57
  H. Documents on Display   57
  I. Subsidiary Information   57
Item 11   Quantitative and Qualitative Disclosures about Market Risk   57
Item 12   Description of Securities other than Equity Securities   58

 

ii


Table of Contents
Part II    
Item 13   Defaults, Dividend Arrearages and Delinquencies   59
Item 14   Material Modifications to the Rights of Security Holders and Use of Proceeds   59
Item 15   Controls and Procedures   59
Item 16A   Audit Committee Financial Expert   59
Item 16B   Code of Ethics   59
Item 16C   Principal Accountant Fees and Services   60
Item 16D   Exemptions from the Listing Standards for Audit Committees   60
Item 16E   Purchases of Equity Securities by the Issuer and Affiliated Purchasers   60
Part III    
Item 17   Financial Statements   60
Item 18   Financial Statements   60
Item 19   Exhibits   61
  Index to Consolidated Financial Statements   F1

 

iii


Table of Contents

PART 1

 

Item 1. Identity of Directors, Senior Management and Advisers.

Not applicable.

 

Item 2. Offer Statistics and Expected Timetable.

Not applicable.

 

Item 3. Key Information.

A. Selected Financial Data.

The following table sets forth selected financial data including selected historical financial information as of and for each of the fiscal years ended March 31, 2003, 2004, 2005, 2006 and 2007 in accordance with accounting principles generally accepted in the United States, or US GAAP.

The selected US GAAP consolidated financial data as of March 31, 2006 and 2007 and for each of the fiscal years ended March 31, 2005, 2006 and 2007 are derived from our audited US GAAP consolidated financial statements included in this annual report together with the report of Deloitte Haskins & Sells, independent auditors, who have reported that they carried out their audit in accordance with standards of the Public Company Accounting Oversight Board (United States). The selected US GAAP consolidated financial data as of March 31, 2003, 2004 and 2005 and for the fiscal years ended March 31, 2003 and 2004 are derived from our audited US GAAP consolidated financial statements not included in this annual report.

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

 

1


Table of Contents

Selected Financial Data Prepared in Accordance with US GAAP

 

     For the year ended March 31,  
     2003     2004     2005     2006     2007     2007  
     (in Rs. millions, except share and per share amounts)     (In US $ millions,
except Share and
per share amounts)
 

Gross Sales

   112,106.3     162,176.6     228,549.4     272,350.8     370,709.1       8,601.2  

Less: Excise Duty

   17,352.5     23,883.2     31,771.0     35,465.0     46,227.9       1,072.6  
                                      

Net sales

   94,753.8     138,293.4     196,778.4     236,885.8     324,481.2       7,528.6  

Finance revenues

   976.7     1,402.3     1,608.6     3,728.7     7,043.4       163.4  
                                      

Total revenues

   95,730.5     139,695.7     198,387.0     240,614.5     331,524.6       7,692.0  

Cost of sales

   74,038.5     108,159.6     156,906.7     189,318.7     263,449.7       6,112.5  

Operating Expenses

            

Selling, general and administrative

   13,040.9     15,276.9     20,144.9     26,586.2     35,623.3       826.5  

Research and development

   1,536.2     1,282.0     2,532.4     4,663.0     6,018.1       139.6  

Employee separation compensation

   32.6     386.3     11.5     4.2     2.6       0.1  
                                      

Total operating expenses

   14,609.7     16,945.2     22,688.8     31,253.4     41,644.0       966.2  
                                      

Operating income

   7,082.3     14,590.9     18,791.5     20,042.4     26,430.9       613.3  
                                      

Non-operating (expense) income

            

Gain on shares issued by subsidiary

   —       —       —       86.5     30.4       0.7  

Gain on sale of equity interest in a subsidiary

   —       —       —       1,532.1     —         —    

Other non-operating income, net

   1,222.0     1,773.2     1,821.6     1,882.6     4,745.4       110.1  

Interest income

   412.4     349.6     761.6     662.8     598.3       13.9  

Interest expense

   (4,090.4 )   (2,684.3 )   (2,993.3 )   (3,717.8 )   (5,413.8 )     (125.6 )
                                      

Total non-operating (expense) income

   (2,456.0 )   (561.5 )   (410.1 )   446.2     (39.7 )     (0.9 )
                                      

Income before equity in affiliates, minority interest and income taxes

   4,626.3     14,029.4     18,381.4     20,488.6     26,391.2       612.4  

Income tax expense

   (1,888.4 )   (5,264.0 )   (5,099.9 )   (5,618.3 )   (8,113.0 )     (188.2 )

Minority interest, net of tax

   (14.7 )   (228.9 )   (365.7 )   (331.1 )   (718.5 )     (16.7 )

Equity in net income of affiliates, net of tax

   46.1     363.4     340.4     471.4     551.9       12.8  
                                      

Net Income

   2,769.3     8,899.9     13,256.2     15,010.6     18,111.6       420.3  
                                      

Weighted average equity shares outstanding:

            

Basic

   319,777,248     328,306,904     359,837,353     373,268,040     384,544,205       384,544,205  

Diluted

   319,777,248     363,123,828     388,849,716     399,310,236     407,166,995       407,166,995  

Earnings per share:

            

Basic

   Rs.8.7     Rs.27.1     Rs.36.8     Rs.40.2     Rs.47.1     US$ 1.1  

Diluted

   Rs.8.7     Rs.25.3     Rs.34.9     Rs.38.7     Rs.45.4     US$ 1.1  

Cash dividend per Equity Share

   Rs. —       Rs.8.0     Rs.4.0     Rs.12.5     Rs.13.0     US$ 0.3  

 

2


Table of Contents
     As of March 31,
     2003    2004    2005    2006    2007    2007
Balance Sheet Data    (in Rs. millions except number of shares)    (in US$
millions
except
number of
shares)

Total Assets

   78,762.0    113,875.4    159,245.4    202,158.2    271,015.4    6,288.1

Long term debt, net of current portion

   13,877.4    10,804.1    25,632.7    27,203.3    40,235.1    933.5

Total shareholders’ equity

   20,915.6    37,377.6    56,409.2    81,015.8    91,368.9    2,119.9

Number of Equity shares outstanding

   319,784,387    352,958,130    361,751,751    382,834,131    385,373,885    385,373,885

Exchange Rate Information

For convenience, some of the financial amounts presented in this annual report have been translated from rupee amounts into dollar amounts at the rate of Rs.43.1 = US $ 1.00, the noon buying rate for cable transfers as certified for customs purposes by the Federal Reserve Bank of New York as on March 30, 2007, the date of our most recent balance sheet included in this annual report. However, such translations do not imply that the rupee amounts have been, could have been or could be converted into dollars at that or any other rate.

The following table sets forth, for the fiscal years ended March 31, 2003, 2004, 2005, 2006 and 2007, information with respect to the exchange rate between the rupee and the dollar (in rupees per dollar) based on the average of the cable transfer buying and selling rupee / dollar exchange rates quoted by the Federal Reserve Bank of New York.

 

Fiscal year ended March 31,

   Period
End
   Period
Average
   High    Low

2007

   43.10    45.06    46.83    42.78

2006

   44.48    44.17    46.26    43.05

2005

   43.62    44.86    46.45    43.27

2004

   43.40    45.98    47.46    43.40

2003

   47.53    48.43    49.07    47.53

The following table sets forth information with respect to the exchange rate between the rupee and the dollar (in rupees per dollar) for the previous six months based on the noon buying rate for cable transfers as certified for customs purposes by the Federal Reserve Bank of New York.

 

Month

   Period
End
   Period
Average
   High    Low

August 2007

   40.63    40.68    41.15    40.25

July 2007

   40.18    40.27    40.42    40.12

June 2007

   40.58    40.59    40.90    40.27

May 2007

   40.36    40.57    41.04    40.14

April 2007

   41.04    42.02    43.05    40.56

March 2007

   43.10    43.79    44.43    42.78

Source: Federal Reserve Bank of New York

As of September 24, 2007, the rupee / dollar noon buying rate quoted by the Federal Reserve Bank of New York was Rs.39.5 per US$1.00

B. Capitalization and Indebtedness.

Not applicable.

C. Reasons for the Offer and Use of Proceeds.

Not applicable.

 

3


Table of Contents

D. Risk Factors.

This section describes the risks that we currently believe may materially affect our business. The factors below should be considered in connection with any forward-looking statements in this annual report and the cautionary statements on page 2. The risks below are not the only ones we face – some risks may be unknown to us, and some risks that we do not currently believe to be material could later turn out to be material. Although we will be making all reasonable efforts to mitigate or minimize these risks, one or more of a combination of these risks could materially impact our business, revenues, sales, net assets, results of operations, liquidity and capital resources.

Risk associated with Our Business and the Indian Automotive Industry.

General economic conditions could have a significant adverse impact on our sales and results of operations.

The Indian automotive industry is substantially affected by general economic conditions in India. The demand for automobiles in the Indian market is influenced by factors including the growth rate of the Indian economy, increase in disposable income among Indian consumers, interest rates, freight rates and fuel prices. There can be no assurance that the Indian economy will not experience a downturn, and weakening of economic activity. An increase in interest rates and/or increases in fuel prices are examples of developments that could lead to a decline in the demand for automobiles in the Indian market, which could significantly affect our sales and future results of operations in an adverse manner.

Currency and exchange rate fluctuations could adversely affect our results of operations.

We are sensitive to fluctuations in foreign currency exchange rates. Although we engage in currency hedging in order to decrease our foreign exchange exposure, a weakening of the rupee against the dollar or other major foreign currencies may have an adverse effect on our cost of borrowing and consequently may increase our financing costs, which could have a significant adverse impact on our results of operations.

In addition, we have experienced and expect to continue to experience foreign exchange losses and gains on obligations denominated in foreign currencies in respect of our borrowings and foreign currency assets and liabilities due to currency fluctuations. While the rupee’s appreciation against the dollar in the last four months of fiscal 2007 has contributed positively to our financial condition and results of operations, any depreciation in the value of the rupee against the dollar may lead to adverse effects on our financial condition and results of operations during the current fiscal year and in the future periods, partly due to an increase in our dollar and/or Japanese Yen denominated debt.

Intensifying competition in the Indian market could materially and adversely affect our sales and results of operations.

The Indian automobile industry is highly competitive. We face strong competition in the Indian market from domestic as well as foreign automobile manufacturers, and competition from foreign competitors is likely to intensify further in the future. There can be 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.

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

In the competitive automotive industry, our competitors can gain significant advantage if they are able to offer products satisfying customer needs earlier than we are able to, which could adversely impact our sales and results of operations. Unanticipated delays in implementing the introduction of new products or expansion plans resulting in delays in capacity enhancements and / or new product launches could adversely impact our results of operations. In addition, there can be no assurance that the market acceptance of our future products will meet our expectations, in which case we could be unable to realize the intended economic benefits of our investments and our results of operations may be adversely affected.

We are subject to risks associated with product liability, warranty and recall.

We are subject to risks and costs associated with product liability, warranty and recall should we supply defective products, parts, or related after-sales services, which could generate adverse publicity and adversely affect our business, results of operations and financial condition.

We are subject to risk associated with our automobile financing business.

We are subject to the risk associated with our automobile financing business. Any defaults by our customers or inability to repay installments as due could adversely affect our business, results of operations and cash flows.

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

We have selected and developed exclusive dealers across India and a network of distributors and local dealers in select international markets for distribution of our products and we believe that we provide adequate incentives and support to ensure that such dealers perform to our expectations. There can be no assurance, however, that our performance expectations will be met, which could adversely affect our sales and results of operations. In addition, while we believe that we have a robust and efficient supply chain, we rely on some key vendors for some raw materials, parts and components used in the manufacture of our products. Our ability to procure these supplies in a cost effective and timely manner is subject to various factors, some of which are not always within our control. While we have not experienced significant problems with our supply chain in the past, that have materially affected our results of operations, any significant problems with our supply chain in the future could affect our results of operations in an adverse manner.

 

4


Table of Contents

Increases in commodity prices may have a material adverse impact on our result of operations.

In fiscal 2005, 2006, and 2007, consumption of raw materials and components constituted approximately 81.2%, 79.3% and 78.8%, respectively, of our cost of sales. Prices of commodity items used in manufacturing automobiles, including steel, rubber, copper, and zinc, etc are on the rise. While we have been pursuing various cost reduction programs to partially offset these price increases, there can be no assurance that we will be able to recover any future cost increases in commodity products through cost-saving measures elsewhere or that we will be able to increase the selling prices of our products, which could materially and adversely impact our sales and results of operations.

The performance of our subsidiaries and affiliates may adversely affect our results of operations.

We have made and may continue to make capital commitments to our subsidiaries and affiliates, and if the business and operations of subsidiaries and affiliates, to whom we make capital commitments, deteriorate our results of operations may be adversely affected in the future.

We are subject to risks associated with growing our business through mergers and acquisitions.

We continuously evaluate growth opportunities through suitable mergers and acquisitions. These involve business risks, including unforeseen contingent risks or latent business liabilities that may only become apparent after the merger or acquisition is finalized, successful integration and management of the merged/acquired entity with us, retention of key personnel, joint sales and marketing efforts, management of a larger business and diversion of management’s attention from other ongoing business concerns. If we are not able to manage these risks successfully our results of operations could be adversely affected.

We may be adversely affected by labor unrest.

All of our regular employees and those of some of our consolidated subsidiaries in India, other than officers and management, are members of labor unions and are covered by our wage agreements with those labor unions which have different tenures (typically three years) at different locations. In general, we consider our labor relations with all of our employees to be good. However, we may in the future be subject to labor unrest, which may delay or disrupt our operations in the affected regions, including 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 or results of operations may be adversely affected.

Any inability to manage our growing international business may adversely affect our results of operations

Our growth strategy relies on the expansion of our operations to other parts of the world, including Europe, Russia and other parts of Asia. The costs involved in entering and establishing ourselves in new markets, and expanding such operations, may be higher than expected, and we may face significant competition in those regions. In addition, our international business is subject to many actual and potential risks, including:

 

   

language barriers, cultural differences and other difficulties in staffing and managing overseas operations;

 

   

inherent difficulties and delays in contract enforcement and the collection of receivables through the legal systems of some foreign countries;

 

   

volatility in currency exchange rates;

 

   

the risk of non-tariff barriers or other restrictions on foreign trade;

 

   

changes in the political, regulatory, or economic conditions in a foreign country or region, including political or economic instability or social unrest; and

 

   

the burdens of complying with a wide variety of foreign laws and regulations.

Any of these risks may have a material adverse effect on our international operations, which could result in our failure to generate returns on our related investments and cause us to incur significant costs. Our inability to manage our expansion and related growth in those regions may have an adverse effect on our business, results of operations and financial condition.

Risk associated with Political and Regulatory Risks.

India’s obligations under the World Trade Organisation Agreement.

India’s obligation under its World Trade Organization agreement could lower the present level of tariffs on import of components and vehicles particularly with respect to cars in completely built units and/or completely knocked down units, which could adversely affect, our sales and results of operations.

Environmental and Government regulations.

As an automobile company, we are subjected to extensive governmental regulations regarding vehicle emission levels, noise, safety and levels of pollutants generated by our production facilities. These regulations are likely to become more stringent and compliance costs may significantly impact our future results of operations. Imposition of any additional taxes and levies by the Indian government designed to limit the use of automobiles could adversely affect the demand for our products and our results of operations. Regulations in the areas of investments, taxes and levies may also have an impact on Indian securities, including our shares and ADSs.

 

5


Table of Contents

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

Our products are exported to a number of geographical markets and we plan to expand our international operations further in the future. Consequently, we are subject to various risks associated with conducting our business outside India and our operations may be subject to political instability within and outside India, wars, terrorism, regional and/or multinational conflicts, natural disasters, fuel shortages, epidemics and labor strikes. Any significant or prolonged disruptions or delays in our operations related to these risks could adversely impact our results of operations.

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

Changing laws, regulations and standards relating to accounting, corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and new Securities and Exchange Commission (SEC) regulations, Securities and Exchange Board of India (SEBI) regulations, New York Stock Exchange (NYSE) listing rules and Indian stock market listing regulations, have increased complexity for us. These new or changed laws, regulations and standards may lack specificity and are subject to varying interpretations. Their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs of compliance as a result of ongoing revisions to such governance standards.

In connection with our Annual Report on Form 20-F for fiscal 2007, our management assessed our internal controls over financial reporting, and determined that our internal controls were effective as of March 31, 2007, and our auditors have issued an unqualified attestation with respect to our management’s assessment. We will undertake management assessments of our internal controls over financial reporting in connection with each annual report. We are committed to maintaining high standards of corporate governance and public disclosure. However, our efforts to comply with evolving laws, regulations and standards in this regard have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of management resources and time.

Risks associated with Investments in an Indian Company.

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

Most of our manufacturing and sales and distribution facilities are located in India, and in fiscal 2007, 2006 and 2005, approximately 80.7%, 82.4% and 86.1% respectively, of our revenues were derived from sales within India. Our business, and the market price and liquidity of our ADSs and shares, may be affected by foreign exchange rates and controls, interest rates, changes in government policy, taxation, social and civil unrest and other political, economic or other developments in or affecting India.

Since 1991, successive Indian Governments have pursued policies of economic liberalization, including significantly relaxing restrictions on the private sector. Nevertheless, the roles of the Indian central and state governments in the Indian economy as producers, consumers and regulators have remained significant. Consequent to an election in April and May 2004, there was a change in government. While the current coalition government has already committed to a common minimum agenda, there can be no assurance that there will not be changes in the economic reform, and specific laws and policies affecting automotive companies, foreign investment, currency exchange and investment regulations governing India’s capital markets that could negatively affect us. Uncertainty regarding possible policy changes immediately after elections has in the past resulted in significant volatility in price and trading volumes of securities of Indian companies. A significant change in India’s economic liberalization and deregulation policies could adversely affect business and economic conditions in India generally, and our business in particular, if new restrictions on the private sector are introduced or if existing restrictions are increased.

Regional conflicts in Asia and other export markets could adversely affect the Indian economy and cause our business to suffer.

The Asian region has from time to time experienced instances of civil unrest and hostilities among neighboring countries, and military hostilities and civil unrest in other Asian countries. Events of this nature in the future could influence the Indian economy and could have a material adverse effect on the market for securities of Indian companies, including our ADSs and shares, and on the market for our vehicles.

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

Our Articles of Association, which include regulations applicable to our Board of Directors, and Indian law govern our 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 have more difficulty in asserting your rights as a shareholder than you would as a shareholder of a corporation organized in another jurisdiction.

 

6


Table of Contents

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

The Indian stock exchanges have, in the past, experienced substantial fluctuations in the prices of their listed securities. The Indian stock exchanges, including the Bombay Stock Exchange Limited (BSE), have experienced problems that, if they continue or recur, could affect the market price and liquidity of the securities of Indian companies, including our shares. These problems have included temporary exchange closures, broker defaults, settlement delays and strikes by brokers. In addition, the governing bodies of the Indian stock exchanges 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 different level of regulation and monitoring of the Indian securities markets and the activities of investors, brokers and other participants than in the United States. The 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.

We are a limited liability company incorporated under the laws of India. Substantially all of our directors and executive officers named in this annual report are residents of India and all or substantial portion of our assets and the assets of these directors and executive officers are located in India. As a result, investors may find it difficult to (i) effect service of process upon us or these directors and executive officers in jurisdictions outside of India, (ii) enforce court judgments obtained outside of India, including those based upon the civil liability provisions of the U.S. federal securities laws, against us or these directors and executive officers, (iii) enforce, in an Indian court, court judgments obtained outside of India, including those based upon the civil liability provisions of the U.S. federal securities laws, against us or these directors and executive officers, and (iv) obtain expeditious adjudication of an original action in an Indian court to enforce liabilities, including those based upon the U.S. federal securities laws, against us or these directors and executive officers.

India is not a party to any international treaty in relation to the recognition or enforcement of foreign judgments. Recognition and enforcement of foreign judgments is provided under Section 13 of the Code of Civil Procedure, 1908, or the Civil Code.

Section 13 and Section 44A of the Civil Code provide that a foreign judgment shall be conclusive as to any matter thereby directly adjudicated upon except (i) where it has not been pronounced by a court of competent jurisdiction, (ii) where it has not been given on the merits of the case, (iii) where it appears on the face of the proceedings to be founded on an incorrect view of international law or a refusal to recognize the law of India in cases where Indian law is applicable, (iv) where the proceedings in which the judgment was obtained were opposed to natural justice, (v) where it has been obtained by fraud or (vi) where it sustains a claim founded on a breach of any law in force in India.

Section 44A of the Civil Code provides that where a foreign judgment has been rendered by a superior court in any country or territory outside India which the Government has by notification declared to be a reciprocating territory, it may be enforced in India by proceedings in execution as if the judgment had been rendered by the relevant court in India. However, Section 44A of the Civil Code is applicable only to monetary decrees not being in the nature of any amounts payable in respect of taxes or other charges of a like nature or in respect of a fine or other penalty.

The United States has not been declared by the Government of India to be a reciprocating territory for the purpose of Section 44A of the Civil Code. Accordingly, a judgment of a court in the United States may be enforced only by a suit upon the judgment and not by proceedings in execution. 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. It is unlikely that a court in India would award damages on the same basis as a foreign court if an action is brought in India. Furthermore, it is unlikely that an Indian court would enforce foreign judgments if it viewed the amount of damages awarded as excessive or inconsistent with public policy. A party seeking to enforce a foreign judgment in India is required to obtain approval from the Reserve Bank of India (RBI) to execute such a judgment or to repatriate outside India any amount recovered.

Risk associated with our Shares and ADSs.

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

Fluctuations in the exchange rate between the Rupee and the Dollar will affect, among others things, the Dollar equivalents of the price of the shares in Rupees as quoted on the Indian stock exchanges and, as a result, may affect the market price of the ADSs. Such fluctuations will also affect the Dollar equivalent of any cash dividends in Rupees received on the Shares represented by the ADSs and the Dollar equivalent of the proceeds in Rupees of a sale of shares in India.

 

7


Table of Contents

The exchange rate between the rupee and the dollar has changed substantially in the last two decades and may substantially fluctuate in the future. On an annual average basis, the rupee has appreciated against the dollar since 2002. The value of the Rupee against the Dollar was Rs.39.5 = US$ 1.00 as of September 24, 2007.

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

Although holders of ADSs have a right to receive any dividends declared in respect of Shares underlying the ADSs, they cannot exercise voting or other direct rights as a shareholder with respect to the Shares underlying the ADSs evidenced by ADRs. Citibank, N.A., as depositary is the registered shareholder of the deposited shares underlying our ADSs, and therefore only Citibank, N.A. can exercise the rights of shareholders in connection with the deposited shares. Only if requested by us, the depositary will notify holders of ADSs of upcoming votes and arrange to deliver our voting materials to holders of ADSs. The depositary will try, in so far as practicable, subject to Indian laws and the provisions of our Articles of Association, to vote or have its agents vote the deposited securities as instructed by the holders of ADSs. If the depositary receives voting instructions in time from a holder of ADSs which fail to specify the manner in which the depositary is to vote the shares underlying such holder’s ADSs, such holder will be deemed to have instructed the depositary to vote in favor of the items set forth in such voting instructions. If the depositary has not received timely instructions from a holder of ADSs, the holder shall be deemed to have instructed the depositary to give a discretionary proxy to a person designated by us, subject to the conditions set forth in the deposit agreement. If requested by us, the depositary is required to represent all shares underlying ADSs, regardless whether timely instructions have been received from the holders of such ADSs, for the sole purpose of establishing a quorum at a meeting of shareholders. Additionally, in your capacity as an ADS holder, you will not be able to bring a derivative action, examine our accounting books and records, or exercise appraisal rights. Registered holders of our shares withdrawn from the depositary 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, a holder of ADSs may not receive voting materials, if we do not instruct the depositary to distribute such materials, or may not receive such voting materials in time to instruct the depositary to vote.

Further, pursuant to Indian regulations, we are required to offer our shareholders pre-emptive rights to subscribe for 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 our shareholders present and voting at a general meeting. Holders of ADSs may be unable to exercise pre-emptive 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. Our 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 we do not commit that we would file such a registration statement. If any issue of securities is made to our shareholders in the future, such securities may also be issued to the Depositary, 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 Depositary would receive upon the sale of these rights/securities. To the extent that holders of ADSs are unable to exercise pre-emptive rights, their proportionate interest in us would be reduced.

As a result of Indian Government regulation of foreign ownership the price of the ADSs could decline.

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

 

Item 4. Information on the Company.

A. History and Development of the Company.

We were incorporated on September 1, 1945 as a public limited liability company under the Indian Companies Act VII of 1913 as Tata Locomotive and Engineering Company Limited. Our name was changed to Tata Engineering and Locomotive Company Limited on September 24, 1960 and to Tata Motors Limited on July 29, 2003. We commenced operations as a steam locomotive manufacturer. This business was discontinued in 1971. Since 1954, we have been manufacturing automotive vehicles. This business commenced with the manufacture of commercial vehicles under financial and technical collaboration with Daimler-Benz AG (now DaimlerChrysler AG) of Germany. This agreement ended in 1969. We produced only commercial vehicles until 1991, when we started producing passenger vehicles as well.

We are India’s largest automobile manufacturer and second largest passenger vehicle player in terms of units sold in India during fiscal 2007. We have a broad portfolio of automotive products, ranging from sub – 1 ton to 40 ton Gross Vehicle Weight trucks (including pick–ups) and from small, medium, and large buses and coaches to passenger cars and utility vehicles.

We have a substantial presence in India. We estimate that more than four million vehicles produced by us are currently being operated in India.

We produce a wide range of automotive products, including:

 

   

Passenger Cars. We manufacture passenger cars, including the Tata Indica, a compact car, first launched in 1998, the Tata Indigo, an entry level mid-sized car launched in 2002, and the Indigo Marina, a station wagon version of the Indigo launched in 2004. These passenger cars are manufactured in gasoline and diesel engine versions.

 

8


Table of Contents
   

Utility Vehicles. We manufacture a number of utility vehicles, or UV, including the Tata Sumo, launched in 1994, and the sports utility vehicle or SUV, Tata Safari launched in 1998. Both the Tata Sumo and the Tata Safari have models to meet different consumer preferences.

 

   

Light Commercial Vehicles. We manufacture a variety of light commercial vehicles, or LCV, including pick-ups and trucks and buses with a gross vehicle weight, or GVW, between 0.7 ton and 7.5 tons. This also includes the Tata Ace, India’s first indigenously developed mini-truck with a 0.7 ton payload, launched in fiscal 2006.

 

   

Medium and Heavy Commercial Vehicles. We manufacture a variety of medium and heavy commercial vehicles, M & HCVs, which include trucks, buses, dumpers and multi-axled vehicles with GVW between 9 tons to 49 tons. In addition, through Tata Daewoo Commercial Vehicle Company Limited, or TDCV, our wholly-owned subsidiary in South Korea, we manufacture a range of high horsepower trucks ranging from 220 horsepower to 400 horsepower, including dump trucks, tractor-trailers, mixers and cargo vehicles.

Our manufacturing base is spread across Jamshedpur (in eastern India), Pune (in western India), Lucknow and Pantnagar (in northern India), supported by a nation-wide dealership, sales, services and spare parts network comprising over 2,000 individual locations. We are in the process of establishing another two facilities, one each at Singur (East) and Dharwad (South).

In September 2004, we became the first company from India’s engineering sector to be listed on the New York Stock Exchange.

We have also expanded our international operations through mergers and acquisitions involving non-Indian companies. In 2004, we acquired the Daewoo Commercial Vehicles Company (now renamed as Tata Daewoo Commercial Vehicle Company Limited), South Korea’s second largest truck maker. TDCV has launched several new products, such as the Tata Novus M&HCV. In fiscal 2005, we acquired a 21% stake in Hispano Carrocera S.A., or Hispano, a well-known Spanish bus and coach manufacturer with an option to acquire the remaining stake. Hispano’s operations are being expanded into other markets. In addition, in June 2006, we signed a memorandum of understanding with the Fiat group to establish an industrial joint venture in India to manufacture passenger vehicles, engines and transmissions for the Indian and overseas markets; we have also been distributing and marketing Fiat branded cars in India since March 2006. We also signed a Memorandum of Understanding with IVECO, a company of the Fiat Group to evaluate the feasibility of co-operation, across markets, in the area of commercial vehicles, which encompasses a number of potential developments in engineering, manufacturing, sourcing and distribution of products, aggregates and components. In May 2006, we entered into a joint venture agreement with Brazil-based Marcopolo S.A., or Marcopolo, a global leader in body-building for buses and coaches, to manufacture and assemble fully-built buses and coaches in India, wherein we have a 51% ownership, with the balance held by Marcopolo. In December 2006, we entered into a joint venture agreement with Thonburi Automotive Assembly Plant Co., Thailand, or Thonburi, to manufacture pick–ups in Thailand. We own 70% of the joint venture, while Thonburi owns the remaining 30%. The joint venture will facilitate our efforts to address the Thailand market, which is a major market for pick-ups, and other potential markets in that region. We also entered into an agreement with Fiat to enable Fiat to manufacture pick-ups at its Cordoba plant in Argentina from 2008 onwards under licence from us.

We are also expanding our international export operations, which have been ongoing since 1961. Our commercial and passenger vehicles are being marketed in several countries in Europe, Africa, the Middle East, Australia, South East Asia and South Asia.

We believe that the foundation of our growth over the last 50 years has been a deep understanding of economic stimuli and customer needs, and the ability to translate them into customer desired products though leading edge research and development. With 1,400 engineers and scientists, our Engineering Research Centre, established in 1966, has enabled us to successfully design, develop and produce our own range of vehicles, as well as a significant portion of our production facilities, assembly lines and machinery. In addition, we established a wholly-owned subsidiary under the name Tata Motors European Technical Centre PLC, or TMETC, in the United Kingdom, in the field of automobile research. We believe this research center will also facilitate the development of our products, in particular, our passenger cars. Our research and development network also includes the facilities of TDCV in South Korea, and those of Hispano in Spain, in addition to research and development centers in Pune, Jamshedpur and Lucknow in India.

Through our subsidiary and associate companies, we are engaged in 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.

Tata Technologies Limited, or TTL, our 85.92% owned subsidiary, along with its subsidiaries, is engaged in the business of information technology, product lifecycle management, engineering and design services. During fiscal 2006, TTL, through its erstwhile subsidiary TTUS, acquired INCAT, a global provider of product lifecycle management and engineering and design

 

9


Table of Contents

services primarily to manufacturers and their suppliers in the international automotive, aerospace and engineering markets. TTL, through its subsidiary companies, responds to customers’ needs through its operations in 45 cities across 12 countries in North America, Europe and Asia and through its delivery centers in India and Thailand.

Telco Construction Equipment Company Ltd, or Telcon, is engaged in the business of manufacturing and sale of construction equipment and related services. During fiscal 2006, we sold a 20% stake in Telcon to our joint venture partner, Hitachi Construction Machinery Company Ltd, or HCM, for a total consideration of approximately Rs.2 billion (US$ 44.25 million). Presently, we have a 60% stake in Telcon, with the remaining 40% being held by HCM.

Our subsidiary, Tata AutoComp Systems Limited, or TACO, is a holding company for promoting foreign joint ventures in automotive components and systems and is also engaged in engineering services, supply chain management and after-market operations. Beginning with one joint venture for seating equipment, with Johnson Controls of the United States, the TACO group now has 14 manufacturing joint ventures with well-known companies including Hendrickson International of the United States, Ficosa International of Spain and Yazaki Corporation of Japan. In August 2005, TACO acquired the business and assets of two German companies through its wholly-owned subsidiary TACO Holdings (Mauritius) Limited. TACO’s customers include leading domestic original equipment manufacturers and certain global original equipment manufacturers and suppliers.

Our wholly-owned subsidiary, TML Financial Services Limited, now known as Tata Motors Finance Limited, or TMFL, was incorporated on June 1, 2006 with the objective of becoming a preferred financing provider for our customers and our distributors by capturing customer spending over the vehicle life-cycle and by extending value added products, combining financing offerings with insurance, fleet management, operating leases, re-finance and other products related to vehicles sold by us. TMFL is registered with the RBI as a Systemically Important Non-Deposit Taking Non-Banking Financial Company and is classified as an Asset Finance Company under the RBI’s regulation on Non-Banking Finance Companies. TMFL commenced operations in September 2006, and for the period ended March 31, 2007, it made disbursements of approximately Rs.40,000 million.

We currently intend to use our wholly-owned subsidiary, Tata Motors Insurance Services Limited, or TMISL, to undertake the business of insurance and reinsurance broking. TMISL is currently in the process of receiving the requisite approval from the Insurance Regulatory and Development Authority in India to commence this business.

As of March 31, 2007, our operations included 39 consolidated subsidiaries and 19 equity method affiliates, in respect of which we exercise significant influence.

Tata Incorporated serves as our authorized United States representative. The address of Tata Incorporated is 3 Park Avenue, 27th Floor, New York, NY 10016, United States of America.

Our Registered Office is located at Bombay House, 24, Homi Mody Street, Mumbai 400 001, India and our telephone number is +91-22-6665-8282 and our website address is www.tatamotors.com. Our website does not constitute a part of this annual report.

B. Business Overview.

Overview

Our business segments are (i) automotive operations and (ii) all other operations. Our automotive operations business segment includes the design, manufacture, assembly, sale and service of commercial and passenger vehicles, spare parts, components and accessories as well as financing our vehicles. Our other operations business segment includes Information Technology, or IT services, construction equipment manufacturing, machine tools and factory automation solutions, high-precision tooling and plastic and electronic components for certain applications and investment business.

We sold 454,129 and 580,280 vehicles in fiscal 2006 and 2007 respectively, of which 403,906 and 526,806 vehicles were sold in India. In addition, TDCV sold 5,734 vehicles in fiscal 2006 compared to 8,588 vehicles in fiscal 2007. Hispano sold 560 vehicles in fiscal 2007. Our share in the Indian four-wheeler automotive vehicle market (i.e. automobile vehicles other than two and three wheeler categories) progressively increased from 26.8% in fiscal 2005 to 27.0% in fiscal 2006 and to 28.5% in fiscal 2007. The following table sets forth our market share in various categories in the Indian market:

 

Category

   Fiscal 2005     Fiscal 2006     Fiscal 2007  

Passenger Cars

   17.7 %   17.1 %   16.5 %

Utility Vehicles

   19.4 %   19.5 %   21.7 %

Light Commercial Vehicles

   50.7 %   60.2 %   65.4 %

Medium and Heavy Commercial Vehicles

   65.1 %   62.0 %   62.7 %
                  

Total Four - Wheel Vehicles

   26.8 %   27.0 %   28.5 %
                  

A geographical breakdown of our revenues is set forth in Item 5.A “— Operating Results — Geographical breakdown”.

 

10


Table of Contents

We had approximately 33,900 permanent employees, including approximately 11,688 permanent employees at our consolidated subsidiaries, as of March 31, 2007.

The Indian Automotive Market

India’s 50-year old automotive industry has a prominent place in the Indian economy. With its integral relationship to several key segments of the Indian economy, the Indian automobile industry affects many other important sectors of the Indian economy and is one of the main drivers of India’s economic growth. The Indian auto industry is one of the largest industrial sectors in India, with a turnover that contributes to roughly 5% of India’s gross domestic product. The Indian automobile industry contributes nearly 17% to total indirect taxes and provides direct and indirect employment to over two million and ten million people respectively.

Until the mid – 1990’s, the auto sector in India had been a relatively protected industry with limits on the entry of foreign companies through import tariffs. Today, as part of a broader move to liberalize its economy, India has opened up the sector to foreign direct investments and has since progressively relaxed trade barriers. Since the liberalization of the Indian auto sector the industry has experienced rapid development. Today, India is the world’s second largest manufacturer of two wheelers, fifth largest manufacturer of commercial vehicles and the largest manufacturer of tractors in the world. India is also among a few countries in the world that have indigenously developed a passenger car.

The Society of Indian Automobile Manufacturers, or SIAM, currently represents 38 leading vehicle and vehicular engine manufacturers. India’s auto market is one of the most competitive among the global markets, as comparatively lower costs have made it an attractive assembly ground for overseas manufacturers.

During fiscal 2007, the Indian automobile industry production grew by 13.6% to nearly 11 million vehicles. Of these, nearly 76% were two wheelers and over 5% were three wheelers. 1.5 million passenger vehicles, utility vehicles and multi purpose vans were produced in fiscal 2007, representing 14% of vehicles produced. In addition, nearly 0.5 million commercial vehicles were manufactured, constituting 4.7% of total vehicle production. Presently, car penetration in India is low at 7 cars per 1,000 persons, and that number is expected to increase in coming years.

During fiscal 2007, nearly 10 million automobiles were sold in India, an increase of 13.5% over the previous fiscal year, and 1 million automobiles were exported from India, an increase of 25.4% over the previous fiscal. The growth rate of the Indian automotive industry in terms of sales volume increased from 12.8% in fiscal 2006 to 21.4% in fiscal 2007. In fiscal 2007, the industry continued to experience rising input costs and retail incentives, which in turn put pressure on margins.

Domestic passenger vehicle sales reached an all time high of nearly 1.38 million units during fiscal 2007, with a growth of about 20.7% after the modest growth rate of 7.7% in the previous fiscal year. The segment was favorably impacted by a reduction of the excise duty on small cars in March 2006 (from 24% to 16% for cars of up to 4 meters in length and with engine displacement of less than 1200cc for gasoline and 1500cc for diesel engines) and increased consumer spending. Total passenger car exports of over 198,000 units were also at an all – time high with a growth rate of 13% over the previous fiscal year.

Domestic commercial vehicle sales also reached an all-time high of over 0.46 million units during fiscal 2007, representing a growth rate of 33% from fiscal 2006. This growth was attributable to increased industrial activity and continued investment in road infrastructure. Inflationary concerns during the year prompted an increase in interest rates, which adversely affected commercial vehicle sales since the third quarter of fiscal 2007.

Our Strategy

We believe that we have established a strong position in the Indian automobile industry by launching new products, high quality—low cost manufacturing, investing in research and development and maintaining our financial strength. We have also benefited from the expansion of our manufacturing and distribution network and creation of a highly talented workforce. Our goal is to continue to strengthen our position in the domestic market, maintain our operational excellence and grow our international business in select countries through organic as well as inorganic means. Our strategy to achieve these goals consists of the following elements:

Leveraging our capabilities: We have an extensive range of products in commercial vehicles (for both goods and passenger transport) as well as passenger vehicles. We have plans to leverage this broad product base further with our strong brand recognition in India, our superior understanding of local consumer preferences, well developed in-house engineering capabilities and extensive distribution network.

We believe that our in-house product development capability, our subsidiary TDCV in South Korea, our association with Hispano in Spain, our joint ventures with Marcopolo of Brazil in India and with Thonburi in Thailand and our relationship with Fiat will enable us to expand our product range and extend our geographical reach. For example, in fiscal 2006, we introduced the Tata Ace, a four wheeler mini-truck with a 0.7 ton payload that has created a new category in the Indian commercial vehicle market. We are currently developing a new truck platform.

 

11


Table of Contents

In passenger vehicles, we entered the compact car segment with the Tata Indica in 1998. On the same platform, we developed a sedan version, the Tata Indigo, which was launched in 2002. We also launched an estate version in 2004. In 2006, we expanded the Tata Indigo range by launching the Tata Indigo XL—the country’s first stretched sedan concept. We are also developing a low cost car for the Indian market, as we believe that there will be a significant demand for such a passenger vehicle.

We are expanding our existing manufacturing facilities and are also establishing new manufacturing facilities to meet the growing demand for our products. We have signed an agreement with Fiat S.p.A., Italy, for the formation of a joint venture in Maharashtra, India, to produce cars as well as engines and transmissions for both Fiat and ourselves. We are also currently expanding the reach of our sales and service network.

Mitigating cyclicality: The automobile industry is impacted by cyclicality which is more pronounced in the medium and heavy truck business in the commercial vehicle category. To mitigate the impact of cyclicality, we plan to continue to strengthen our operations in the light commercial vehicle, bus and passenger car categories. We also plan to continue to strengthen our non-vehicle business, such as spare part sales, annual maintenance contracts, sales of aggregates for non-vehicle businesses, reconditioning of aggregates, sale of castings, forgings, production aids and tooling and fixtures to reduce the impact of cyclicality.

Expanding our international business: We believe that expanding our operations into other select geographic areas, both through organic and inorganic means, may also reduce the impact of cyclicality in the Indian market as the cyclicality of these markets may not coincide with the cyclicality of the Indian market. This strategy also provides us an opportunity to grow in markets with similar characteristics to the Indian market. Our international business strategy has already resulted in the continuous growth of our international operations over the previous three fiscal years. For example, in South Africa, within three years of a focused entry, we became the third largest seller in the commercial vehicle category.

Reducing costs and breakeven points: While expanding our business, we plan to continue to sustain and enhance our cost advantage. Since fiscal 2001, we have made significant reductions in our cost base which has had an impact on our results of operations and contributed to our return to profitability in the previous five fiscal years. We are working with Ariba Inc for e-sourcing and reverse auctions. We initiated the second phase of our cost reduction program in fiscal 2006, which we expect to complete over a period of three years. We continue to place an emphasis on the reduction of material costs, production costs, overheads and other general costs, by pursuing value engineering and manufacturing cycle time reduction and stringent working capital control. We plan to continue to adopt international and local operational and management best practices to achieve continued cost reductions and management efficiencies. We believe that productivity improvements and operational efficiencies will help us to lower our break-even levels and thus improve our results of operations.

Continuing focus on high quality and enhancing customer satisfaction: One of our principal goals is to achieve international quality standards for our products and services and we are pursuing various quality improvement programs, both internally and at our suppliers’ premises.

Our extensive sales and service network has also enabled us to provide quality and timely customer service. We are deploying a Siebel based customer relationship management system across our sales and service network and we expect to improve our responsiveness to market and customer service needs. Our combined online Customer Relationship Management – Dealer Management initiative, which has been implemented in phases since 2003, now supports over 15,000 users within our company and among our distributors in India and abroad.

Enhancing capabilities through the adoption of superior processes: Tata Sons Limited, or Tata Sons, and the entities promoted by Tata Sons, including us, aim at improving the 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 or TBEM, which has been formulated on the lines of the Malcolm Baldridge National Quality Award to enable it to drive performance and attain higher levels of efficiency both in its businesses and in discharging its 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 to be translated to operational performance. Our adoption and implementation of this model seeks to ensure that our business can be conducted through superior processes in the future. We have deployed a balance score card (BSC) management system, developed by Drs. Robert Kaplan, of the Harvard Business School and David Norton for measurement based management and feedback. We have also deployed a new product introduction (NPI) process for systematic product development and product lifecycle management system for effective product data management across our organization. On the human resources front, 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.

Customer financing: With financing increasingly becoming a critical factor in vehicle purchases and the rising aspirations of consumers in India, we intend to significantly expand our vehicle financing activities to enhance our vehicle sales. Our subsidiary TML Financial Services Ltd., or TMFL, now known as Tata Motors Finance Ltd., will lead our financing operations.

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 internal research and development activities as well as through the assistance of foreign research consultants from time to time. Our research and development resources, which include those at our subsidiaries, like TMETC, TDCV, TTL and Hispano Carrocera, further increase our capabilities in product design, manufacturing and quality control. 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.

 

12


Table of Contents

Maintaining financial strength: We have generated substantial cash flows since fiscal 2002 as a result of substantial volume growth, cost reduction and prudent working capital management. We have embarked on economic value addition measurement, and driven project evaluation and capital investments aiming to ensure that we will be able to recover portions of our cost of capital in the event of an economic downturn and to generate earnings in excess of our cost of capital during periods of economic growth.

Leveraging unified Tata brand equity: We recognize the need for enhancing our brand recognition in highly competitive markets in which we compete with internationally recognized brands. We believe the Tata brand name is associated by Indian customers with reliability, trust and value. The Tata brand is used and its benefits are leveraged by Tata companies to their mutual advantage. 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.

Automotive Operations

The revenues from our automotive operations were Rs.224,753 million and Rs.307,113 million in fiscal 2006 and 2007, respectively. Our main market is the Indian market, which accounted for approximately 82.4% and 80.7% of our total revenues and 87.9% and 89.4% of our unit sales in fiscal 2006 and 2007, respectively.

Our total sales (including international business sales) for fiscal 2005, 2006 and 2007 are set forth in the table below:

 

     Fiscal 2005     Fiscal 2006     Fiscal 2007  

Category

   Units    %     Units    %     Units    %  

Passenger Cars

   152,943    37.8 %   169,101    36.7 %   195,405    33.2 %

Utility Vehicles

   37,032    9.2 %   39,797    8.7 %   49,308    8.4 %

Light Commercial Vehicles

   74,253    18.4 %   108,020    23.5 %   149,242    25.4 %

Medium and Heavy Commercial Vehicles

   139,876    34.6 %   142,736    31.1 %   194,145    33.0 %
                                 

Total Sales

   404,104    100 %   459,654    100 %   588,100    100.0 %
                                 

Note:1. The table does not include the sale of 209 units and 1,328 units of Fiat vehicles during fiscal 2006 and 2007, respectively

Our performance in various categories of the Indian market is described below:

Passenger cars: The small car category, which consists of mini and compact cars, constitutes nearly 60% of total domestic passenger car sales. In fiscal 2007, the small car category grew by nearly 26% to 832,000 vehicles and had 10 competing models. The Tata Indica, which competes in this category, posted a 30% growth in sales to 144,690 units in fiscal 2007, which was the highest sales for any small car model during any year in the domestic market. The launch of new turbo-diesel and 1.2 litre gasoline versions of the Tata Indica in the latter half of fiscal 2006 helped us to grow our presence appreciably in the gasoline engine segment and defend our diesel segment leadership despite new offerings from our competitors. The new 1.2 litre gasoline version of the Indica range is eligible for excise duty concessions under the Government’s small car definition. The Tata Indica increased its market share from 16.9% in fiscal 2006 to 17.4% in fiscal 2007 in the small car category.

We are also present in the entry mid-size car category through our sedan, the Tata Indigo, and its station wagon version, the Tata Indigo Marina, which are both derived from the Indica platform. The entry mid-size car category continued to decline for the second year, posting a decline of 27% in fiscal 2007 compared to fiscal 2006. With sales of 34,310 vehicles, the Tata Indigo range continued to be the best seller in the entry mid-size car category with a 38% market share in fiscal 2007. During fiscal 2007, we introduced a new 1.4 litre, 101 horse power gasoline engine and a 70 horse power common rail diesel (DICOR family) engine on the Indigo range as well as a facelift. We also expanded the Indigo range and opened a new niche by launching a long wheel base Indigo XL — a premium stretch sedan with high-end features previously available only in very premium executive cars which is price positioned in the upper mid-size category.

The company’s sales and market share were slightly adversely affected due to a fire in September 2006, in the paint shop of the car plant at Pune. Such fire disrupted manufacturing operations. The company sought to minimize loss of production by taking various remedial steps and operations were gradually restored during the year. The company is fully insured against the loss due to the fire.

We have also been distributing Fiat branded cars through the Tata-Fiat dealer network since March 2006. During fiscal 2007, we sold 1,328 Fiat cars through 44 joint dealerships. In December 2006, we signed an agreement with Fiat Auto S.p.A., Italy, for the formation of a joint venture at Ranjangaon in Maharashtra to produce cars as well as engines and transmissions for both Fiat and ourselves. The new plant is expected to have an annual capacity of 100,000 cars and 200,000 engines and transmissions. We also entered into an agreement with Fiat to enable Fiat to manufacture pick-ups at its Cordoba plant in Argentina from 2008 onward under license from us.

Utility Vehicles: The utility vehicle category constitutes 16% of the Indian passenger vehicle market and various new utility vehicles were launched in India in this category in fiscal 2007. The utility vehicle category posted a 13.2% growth to over 220,000 units sold in the Indian domestic market during fiscal 2007. Sales of our utility vehicles — the Tata Safari and the Tata Sumo — grew by 26.3% to 47,892 units in fiscal 2007 compared to fiscal 2006. Tata Safari sales grew by 237% over last year, reaching a record high of 15,816 units in fiscal 2007, based on price re-positioning of the range effected mainly through a focused cost reduction effort on the platform. We increased our overall market share in the utility vehicle category to 21.7% in fiscal 2007 from 19.5% in fiscal 2006.

Light Commercial Vehicles (including pick-ups): Our range of LCVs includes small commercial vehicles, pick-ups, trucks and buses up to 7.5 GVW. In the LCV segment, we recorded a 45.8% growth in sales and increased our market share by 5.3 percentage points to 65.4% in fiscal 2007. The overall growth in the LCV market was mainly due to sales of our mini truck, the Tata Ace. We rolled out the 100,000th Tata Ace in a record time of 22 months since its launch in May 2005. The Tata Ace also won the Business World – Marico’s “Business Innovation 2006” award.

 

13


Table of Contents

Medium and Heavy Commercial Vehicles: Our M&HCVs have a wide range of applications and are generally configured as trucks, tippers, buses, tankers, tractors or concrete mixers. We outperformed the industry and strengthened our market leadership in fiscal 2007 with a 39% growth in domestic commercial vehicle sales as compared to fiscal 2006, reaching an all-time high of 298,586 units sold. In the M&HCV segment, we recorded a 34.4% growth in sales and increased our market share by 0.7 percentage points to 62.7% in fiscal 2007. The overall growth in the M&HCV market was mainly due to a growing shift towards higher tonnage vehicles like haulage tractors and multi axle vehicles and our buses and coaches finding greater acceptance. We also launched Bharat Stage III compliant (equivalent to Euro III norms) vehicles in the M&HCV category.

In the bus market, we launched a rear-engine, ultra-low floor bus, which was popular among our customers for ease of entry, ride comfort and attractive styling, as well as a high-capacity bus, which is designed to meet the transportation needs of densely populated Indian cities.

Sales and Distribution of Vehicles:

Our sales and distribution network in India as of June 2007 is comprised of 1,200 sales outlets for our passenger and commercial vehicles business. They are managed through our eight regional offices, 24 area offices and 19 regional sales offices. Most of our sales outlets are exclusive sales outlets. We have a presence at over 2,000 customer service outlets in India, including after sales outlets. We are in the process of deploying a Siebel customer relation management system at all of our dealerships and offices across the country, which is one of the largest deployments of that system in the Indian automotive sector. Being implemented in phases since 2003, the combined online Customer Relationship Management – Dealer Management initiative now supports over 15,000 users, within the Company and among our distributors in India and abroad. We believe that this will give us a significant advantage over our competitors.

We also provide financing services to our purchasers through our dealers, who act as our agents, and through our branch network. For fiscal 2006 and 2007, approximately 24% and 31%, respectively, of our vehicle unit sales in India, were made through financing arrangements where our vehicles financing divisions provided the credit. Total vehicle finance receivables outstanding as at March 31, 2006 and 2007 amounted to Rs.48,464 million and Rs.83,588 million, respectively.

We use a network of service centers on highways and a toll-free customer assistance center to provide 24-hour on-road maintenance (including replacement of parts) to vehicle owners. We believe that the reach of our sales, service and maintenance network provides us with a significant advantage over our competitors.

Competition:

We face competition from various domestic and foreign automotive manufacturers in the Indian automotive market. Many foreign automotive manufacturers have increased or are expected to increase their participation in the Indian market through technology transfers, joint ventures or subsidiaries.

We have designed our products to suit the specific 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, local climate and they 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 revamp our product portfolio in order to meet the increasing customer expectation of owning “world class” products.

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 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 due to year end.

International Business:

We are expanding our international export operations, which have been ongoing since 1961. Our exports of vehicles manufactured in India increased by 6.5% in fiscal 2007 to 53,474 units from 50,223 units exported in fiscal 2006. We market our commercial and passenger vehicles in several countries in Europe, Africa, the Middle East, Australia, South East Asia and South Asia.

In fiscal 2007, our top five export destinations accounted for approximately 65% and 87% of our exports of commercial vehicles and passenger vehicles respectively. South Africa remained our largest export destination for the commercial vehicles as well as passenger vehicles. Other key markets were the Middle East, western Africa, Turkey and western Europe. We are strengthening our position in the geographic areas we are currently operating in and exploring possibilities of entering new markets with similar market characteristics to the Indian market.

 

14


Table of Contents

Tata Daewoo Commercial Vehicle Co. Ltd., Korea: TDCV recorded 49% growth in its overall vehicle sales to 8,588 units. In the domestic market TDCV registered a market share of 24% in HCV and 28% in MCV. TDCV exported 2,715 units during the year , representing a growth of 47%.

In the domestic market TDCV uses Daewoo Motor Sales Corporation’s distribution network, the largest in Korea. After-sales service is made available through 61 service centers and over 100 parts outlets. Exports are carried out through its own international distribution channel.

The management initiatives and business processes of Tata Sons and the Tata Sons promoted entities have also been implemented at TDCV. Relations between the management and the labor union of TDCV continue to be cordial.

Hispano Carrocera, S.A. Spain: We believe that our subsidiary Hispano, with its design and development capabilities in manufacturing bodies for high-end buses, will complement our current range of light and medium commercial passenger carriers. We believe that this investment will also help to increase our presence in the international bus market. We own the brand rights of Hispano. Hispano reported a record sale of 560 units in fiscal 2007.

Research and Development:

Our research and development activities focus on product development, environmental technologies and vehicle safety through our Engineering Research Centre, or ERC, established in 1966, which is one of the few government recognized in-house automotive research and development centers in India.

One of the most significant achievements of ERC has been the design and development of our compact car the Tata Indica, which is India’s only indigenously developed compact car. ERC also designed our mid-size car the Tata Indigo, which was launched in 2002 and has been the market leader in the entry mid-size market category in India.

At present, we are working on developing a truck, which we expect would open various international markets for us. Our acquisition of TDCV is expected to provide us significant advantage in its development process. On similar lines, in our passenger vehicle business, we are developing a low cost car for the Indian market. We believe that there will be significant demand for such a passenger vehicle.

In addition, our research and development activities also focus on developing vehicles running on alternative fuels, including CNG, liquefied petroleum gas, and bio-diesel. We currently have over 40 staff buses running on bio-diesel at one of our manufacturing plants. We are pursuing alternatives fuel options such as ethanol blending for our products and development of vehicles fuelled by hydrogen. Initiatives in the area of vehicle electronics such as engine management systems, in-vehicle network architecture, tele-matics for communication and tracking and other emerging technological areas are also being pursued which could be deployed on our future range of vehicles.

During fiscal 2006, we established our wholly-owned subsidiary, TMETC, in the United Kingdom to augment the abilities of our Engineering Research Centre. We believe that TMETC will provide us with access to leading-edge technologies and can support the product development activities which we currently plan to undertake for the future in order to sustain and enhance our position in the increasingly competitive global markets.

We are also widening the scope of our research and development activities from in-house product and technology development to managing the research and development process across various internal and external agencies, including our research and development centers in Korea, Spain and the United Kingdom, as well as at various aggregate parts suppliers and outsourcing partners.

We are the only automotive company in India which has a modern crash test facility for testing its new products for passenger safety. We also have a hemi-anechoic chamber testing facility for developing vehicles with lower noise and vibration levels and an engine emissions testing facility to develop products meeting international standards.

Our product design and development center is equipped with computer-aided design, manufacture and engineering tools, with sophisticated hardware, software, and other information technology infrastructure, designed to create a digital product development environment and virtual testing and validation, resulting in faster product development cycle-time and data management. Rapid prototype development systems, testing cycle simulators, advanced emission test laboratories and styling studios are also a part of our product development infrastructure and are regularly used in product development.

Over the years, we have devoted significant resources towards our research and development activities. Our total expenditure on research and development during fiscal years 2005, 2006 and 2007 was Rs.2,532 million, Rs.4,663 million and Rs.6,018 million respectively.

Intellectual Property

We have 122 trademarks registered in India and approximately 93 trademark applications which are currently pending registration. In addition to this, our significant trademarks are registered, or are in the process of being registered, in nearly 117 countries. We currently hold approximately 1030 of these registrations worldwide. The registrations mainly include trademarks for each of our vehicle models. Further, we also use the “Tata” brand, which has been licensed to us by Tata Sons Limited. See Item

 

15


Table of Contents

4.C “— Organizational Structure “. As part of our acquisition of TDCV, we have the perpetual and exclusive use of the “Daewoo” brand and trademarks in Korea and overseas markets for the product range of TDCV. TDCV holds South Korean trademark registrations for 14 utility models and 5 designs.

India is a member of the World Trade Organization. In compliance with its obligations under the Agreement on Trade Related Aspects of Intellectual Property, or TRIPS, India grants statutory protection to various forms of intellectual property, including patents, copyrights, industrial designs and trademarks. The Trade Marks Act, 1999 and the Copyright Act, 1957, as amended, which are currently in force in India, are TRIPS compliant. The Patents Act, 2002, as amended, to the extent that it relates to our business and operations, provides adequate product and process patent protection in India in accordance with its obligations under TRIPS. The United States has placed India on its “priority watch list” under Section 301 of TRIPS for failing to provide adequate levels of protection for intellectual property rights. Although we have never experienced any material difficulties in protecting our brands and other intellectual property in India, the protection and enforcement of intellectual property rights in India has not been and may not be as effective as in the United States.

We currently own 16 patents and have 52 patent applications pending registration in India and one in the United Kingdom. These patents are mostly in relation to devices which enable efficient functioning, such as energy saving devices. Our most significant patent, which is currently in the process of being registered, is a portable device for measurement of head impact points in a vehicle. In addition, TDCV holds 11 patents in South Korea.

In addition to the above, we also have various copyright and Internet domain name registrations.

In varying degrees, all of our trademarks, brands or patents are important to us. In particular, the expiration or termination of the Tata brand could materially affect our business.

Components and Raw Materials

The principal raw materials and components required by us for use in our vehicles are steel sheets and plates, castings, forgings and items such as tyres, batteries, electrical items and rubber and plastic parts. The raw materials, components and consumables that are domestically sourced, include steel (sheet-metal, forgings and castings), tyres and tubes, batteries, fuel injection systems, air-oil filters, consumables (paints, oils, thinner, welding consumables, chemicals, adhesives and sealants) and fuels. We also require aggregates like axles, engines, gear boxes and cabs for our vehicles, which are manufactured either by ourselves or by our subsidiaries and affiliates.

We have recently undertaken an e-commerce initiative through the development of a business-to-business site with the assistance of our subsidiary, TTL, for electronic interchange of data with our suppliers. This has enabled us to have real time information exchange and processing to manage our supply chain effectively. We use external agencies as third party logistic providers. This has resulted in space and cost saving by transferring a part of our inventory to a third party.

As part of our strategy to become a low-cost vehicle manufacturer, we have undertaken various initiatives to reduce our fixed and variable costs including an e-sourcing initiative started in 2002 through which we procure some supplies through reverse auctions. We have established a procedure for ensuring quality control of outsourced components. Products purchased from approved sources undergo a supplier quality improvement process. 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. Preference is given to vendors with QS-9000 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 and ongoing dialogue with workers to reduce production errors. Further, in April 2003, we established a Strategic Sourcing Group to consolidate, strategize and monitor our supply chain activities with respect to major items of purchase as well as major inputs of technology and services. The Strategic Sourcing Group is responsible for recommending for the approval by the Management Committee the long-term strategy and purchase decision for these items, negotiation and relationship with vendors with regard to these items, formulating and overseeing our purchasing policies, norms in respect of all items, evolving guidelines for vendor quality improvement, vendor rating and performance monitoring and undertaking company-wide initiatives such as e-sourcing and supply chain management/policies with respect to vehicle spare parts. We are also exploring opportunities for global sourcing of parts and components from lower cost countries, and have embarked on a vendor management program that includes vendor base rationalization, vendor quality improvement and vendor satisfaction surveys.

Suppliers

We have an extensive supply chain for procuring various components. We are also outsourcing many of the manufacturing processes and activities to various suppliers. In such cases, we provide training to outside suppliers who design and manufacture the required tooling and fixtures.

Our subsidiary, Tata AutoComp Systems Ltd., or TACO, manufactures auto components and encourages the entry of internationally acclaimed auto component manufacturers into India by setting up joint ventures with them. Some of these joint ventures include: Tata Johnson Controls Limited for seats, Knorr Bremse CV Systems for commercial vehicle air brakes, Tata Yazaki Autocomp Limited for wiring harnesses, JBM Sangwoo Limited for pressed components and Tata Toyo Radiators Limited for radiator assemblies. These joint ventures supply components for our products.

 

16


Table of Contents

We have embarked upon a vendor management program that includes vendor base rationalization, vendor quality improvement and vendor satisfaction surveys. As part of driving continuous improvement in procurement, we have integrated our system for electronic interchange of data with our suppliers with the ERP. This has facilitated real time information exchange and processing to manage our supply chain more effectively.

We import some components that are either not available in the domestic market or when equivalent domestically-available components do not meet our quality standards. We also import products to take advantage of lower prices in foreign markets, such as special steels, wheel rims and power steering assemblies. The following table shows the imported and indigenous raw material and components consumed by us:

 

    

Value of Raw Material and Components Consumption

For the Fiscal Year Ended March 31,

     2005    2006    2007

Description

   Rs Millions    %    Rs millions    %    Rs millions    %

Imported (at rupee cost)

   7,268    5.7    11,418    7.6    14,769    7.1

Indigenously obtained

   120,179    94.3    138,682    92.4    192,756    92.9
                             

Total

   127,477    100.0    150,100    100.0    207,525    100.0

Capital and Product Development Expenditures:

Our capital expenditure aggregated to Rs.9,163 million, Rs.10,734 million and Rs.25,277 million during fiscal 2005, 2006 and 2007, respectively. Our capital expenditure during the past three years has been related mostly to capacity expansion for new and existing products to meet the market demand and investments towards improving quality, reliability and productivity that are aimed at operational efficiency.

We intend to continue to invest in our business units and research and development over the next several years for improving our existing product range and developing new products and platforms to build and expand our presence in the passenger vehicle and commercial vehicle categories. We believe this would strengthen our position in India and help us to grow our presence in the select international markets.

As a part of this future growth strategy, we plan to spend around Rs.120 billion in the next three to four fiscal years toward product development, capital expenditure in capacity enhancement, plant renewal and modernization and to pursue other growth opportunities. Our subsidiaries also have their separate growth plans and related capital expenditures. 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. In fiscal 2006, we obtained a resolution from our shareholders permitting the Board to raise a maximum of Rs.30 billion in equity or equity-related instruments to fund capital expenditure. In fiscal 2007, we obtained our shareholders’ consent to a resolution to increase our borrowing limit from Rs.75 billion to Rs.120 billion.

Other Operations

In addition to our automotive operations, we are also involved in various other business activities, of which information technology services and construction equipment manufacturing are the main activities. Net revenues from these activities totaled to Rs.18,061 million and Rs.27,017 million in fiscal 2006 and 2007, respectively, representing nearly 7.4% and 8.1% of our total revenues, before inter segment elimination in these fiscal years.

Information Technology Services:

Tata Technologies Limited, or TTL, is our 85.92% owned subsidiary as of March 31, 2007. Through its operating companies, INCAT and Tata Technologies iKS, TTL provides specialized engineering and design services, product lifecycle management and product-centric IT services to leading manufacturers. It responds to customers’ needs through its subsidiary companies in three continents and through its development centers in India and Thailand. Its customers include automobile, aerospace and consumer durable manufacturers.

INCAT, founded in 1989 and acquired by Tata Technologies in October 2005, is a leading independent provider of engineering and design services, product and information lifecycle management, enterprise solutions and plant automation. INCAT’s services include product design, analysis and production engineering, Knowledge Based Engineering, PLM, Enterprise Resource Planning and Customer Relationship Management systems. INCAT also distributes, implements and supports PLM products from leading solution providers in the world such as Dassault Systèms, UGS and Autodesk. With a combined global work force of more than 3,000 employees, INCAT has operations in the United States (Novi, Michigan), Germany (Stuttgart) and India (Pune).

 

17


Table of Contents

Tata Technologies iKS is a global leader in engineering knowledge transformation technology. For over 15 years, iKS has enabled engineering knowledge transformation through ‘i get it’, the only web application in the world offering 100,000 hours of engineering knowledge for AutoCAD, INVENTOR, Solid Works, Solid Edge, UG/NX, Teamcenter, COSMOS Works and CATIA on a single delivery platform application. Recently this company’s offerings have been re-branded and strategically repositioned to focus exclusively on executing a software as a service, or SaaS, business model for “ i.get.it”, a comprehensive online engineering learning application.

TTL had 17 subsidiary companies as at March 31, 2007 of which three were under liquidation in fiscal 2007 and of which two have since been liquidated. We undertake such restructuring initiatives to achieve operating and tax efficiencies by sharpening our business focus, assigning territorial responsibility for top and bottom line growth and establishing a global delivery centre supporting the overall business.

The consolidated revenue of the TTL Group was Rs.8,107 million in fiscal 2007, an increase of 97% as compared to Rs.4,110 million in the previous fiscal year due to augmented relationships with existing global automotive and aerospace customers and the acquisition of new customers.

Construction Equipment:

Telco Construction Equipment Company Limited, or Telcon, is engaged in the business of manufacturing and sale of construction equipment and providing related supporting services. We own 60% of Telcon, with the remaining 40% being held by Hitachi Construction Machinery Company Limited, Japan. With the increase in economic activity especially in the infrastructure sector, Telcon recorded its best performance to date having sold 5,360 machines in fiscal 2007 compared to 3,674 machines in fiscal 2006, with a net revenue of Rs.16,057.7 million in fiscal 2007 compared to Rs.11,483.5 in fiscal 2006, a profit after tax of Rs.1,771.8 million in fiscal 2007 compared to Rs.755.9 million in fiscal 2006 (representing an increase of 134%).

Government Regulations

Emission and Safety:

In 1992, the government of India issued emission and safety standards, which were further tightened in April 1996 under the Indian Motor Vehicle Act. Currently Bharat Stage III norms (equivalent to Euro III norms) are in force for four wheelers in 11 cities in India and Bharat Stage II norms (equivalent to Euro II norms) are in force in rest of India. Our vehicles comply with these norms. The next change in emission regulations is currently expected to be implemented by fiscal 2010, when the 11 major cities currently subject to Bharat Stage III norms are expected to move to Bharat Stage IV norms (equivalent to Euro IV norms) and the rest of India to Bharat Stage III norms.

The vehicles manufactured by TDCV comply with the emission regulatory requirements in South Korea and also of countries where its vehicles are exported. Our vehicle exports to Europe comply with Euro IV norms, and we believe our vehicles also comply with the various safety regulations in effect in the other international markets we operate in. We are also working on meeting all the regulations which we believe are likely to come into force in various markets in future.

The Indian automobile industry is progressively harmonizing its safety regulations with international standards in order to facilitate sustained growth of the Indian automobile industry as well as to make India a large exporter of automobiles.

India has a well established regulatory framework administered by the Indian Ministry of Shipping, Road Transport and Highways. The ministry issues notifications under the Central Motor Vehicles Rules and the Motor Vehicles Act. Chapter V of the Central Motor Vehicles Rules, 1989 deals with construction, equipment and maintenance of vehicles. Vehicles being manufactured in the country have to comply with relevant Indian standards and automotive industry standards. The Indian Ministry of Shipping, Road Transport and Highways finalized a road map on automobile safety standards in January 2002. The road map is based on current traffic conditions, traffic density, driving habits and road user behavior in India and is generally aimed at increasing safety requirements for vehicles under consideration for Indian markets.

Our manufacturing plants have received the Indian government’s environmental clearances required for our operations. We are fully committed to our role as a responsible corporate citizen with respect to reducing environmental pollution. We treat the effluents at our plants and have made significant investments in lowering the emissions from our products.

 

18


Table of Contents

Excise Duty:

In the Indian Union Budget for fiscal 2007, the Government of India has reduced the Excise duty on small cars from 24% to 16%. Small car are defined to mean cars of length not exceeding 4,000 mm and with an engine capacity not exceeding 1,500 cc for cars with diesel engines and not exceeding 1,200 cc for cars with gasoline engines.

Import Regulations and Duties:

Automobiles and automotive components can, generally, be imported into India without a license from the Indian government subject to their meeting Indian standards and regulations as specified by designated testing agencies. Recent government liberalization policies have led to a reduction in import duties on vehicles and certain automotive parts.

Valued Added Tax:

Value Added Tax (VAT) was implemented throughout India, with the exception of a few states, on April 1, 2005. VAT enables set-off from sales tax paid on inputs by traders and manufacturers against the sales tax collected by them on behalf of the government, thereby eliminating the cascading effect of taxation. Two main brackets of 4% and 12.5%, along with special brackets of 0%, 1% and 20%, have been announced for various categories of goods and commodities sold in the country. Central Sales Tax, however, continues to exist, although it is proposed to be abolished in a phased manner. Since its implementation, VAT has had a positive impact on us. Prior to the implementation of VAT, sales tax formed part of our total cost of material. However, following the implementation of VAT, because VAT paid on inputs can be set off against tax paid on outputs, a savings on our sales tax component results.

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 and which we believe is 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 officers’ liability to minimize risks associated with product liability and international litigation.

Legal Proceedings

In the normal course of business, we face claims and assertions by various parties. We assess such claims and assertions and monitor the legal environment on an ongoing basis, with the assistance of external legal counsel wherever necessary. We record a liability for any claims where a potential loss is probable and capable of being estimated, and disclose such matters in our financial statements, if material. For potential losses which are considered reasonably possible, but not probable, we provide disclosure in the financial statements, but do not record a liability in our accounts unless the loss becomes probable. Certain claims that are above Rs. 50 million in value are described in Note 22 to our consolidated financial statements included in this annual report. In respect of claims against us below Rs. 50 million, the majority of cases pertain to motor accident claims (involving vehicles that were damaged in accidents while being transferred from our manufacturing plants to regional sales offices) and consumer complaints. Some of these cases relate to replacement of parts of vehicles and/or compensation for deficiency in the services by the Company or its dealers.

We believe that none of the contingencies, either individually or in the aggregate, would have a material adverse effect on the Company’s financial condition, results of operations or cash flows.

C. Organizational Structure.

Tata Sons Limited , or Tata Sons, is a principal holding company that has equity holdings in a range of businesses. The various companies promoted by Tata Sons, including us, are based substantially in India and had combined revenues of approximately US $ 29 billion for fiscal 2007.

The operations of Tata Sons promoted entities are highly diversified and can be categorized under seven business sectors, namely, engineering, materials, energy, chemicals, consumer products, services and communications and information systems. These companies do not constitute a ‘group’ under Indian Law.

Tata Sons has its origins in the trading business founded by Jamsetji Tata in 1874 that was developed and expanded in furtherance of his ideals by his two sons, Sir Dorabji Tata and Sir Ratan Tata, following their father’s death in 1904. The family interests subsequently vested largely in the Sir Ratan Tata Trust, the Sir Dorabji Tata Trust and other related trusts. These trusts were established for philanthropic and charitable purposes and together own a substantial majority of the shares of Tata Sons Limited.

By 1970, the operations of Tata Sons promoted entities had expanded to encompass a number of major industrial and commercial enterprises including The Indian Hotels Company Limited (1902), The Tata Steel Limited (Tata Steel) (1907), The Tata Power Company Limited (1910), Tata Chemicals Limited (1939), Tata Motors Limited (1945), Voltas Limited (1954), and Tata Tea Limited (1962). Tata Sons also promoted India’s first airline, Tata Airlines, which later became 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

 

19


Table of Contents

over by the Government as part of the Government’s nationalization program. Tata Consultancy Services Limited (TCS) is Asia’s leading software services provider and the first Indian software firm to exceed sales of US$ 4 billion. In 1999, Tata Sons has also invested in several telephony and telecommunication ventures, including acquiring a portion of the Indian Government’s equity stake in the state owned Videsh Sanchar Nigam Limited (VSNL).

We have for many years been a licensed user of the “Tata” brand owned by Tata Sons Limited, and thus have both gained from the use of the Tata brand as well as helped to sustain its brand equity. Tata Sons along with the Tata Sons promoted entities instituted a new corporate identity program to re-position itself to compete in a global environment. A substantial ongoing investment is planned to develop and promote a strong, well-recognized and common brand equity, which is intended to represent for the consumer a level of quality, service and reliability associated with products and services offered by the Tata Sons promoted entities. To implement these plans, Tata Sons Limited has undertaken a program by which consenting the Tata Sons promoted entities are required to pay a subscription fee to participate in and gain from the new Tata brand identity. We believe that we benefit from the association with the new Tata Group identity and, accordingly, have agreed to pay an annual subscription fee to Tata Sons Limited from fiscal 1998 which is equal to 0.25% of our annual net income (defined as our net revenues exclusive of excise duties and other governmental taxes and non-operating income), provided that the subscription fee does not exceed 5% of our annual profit before tax (defined as our profit after interest and depreciation but before income tax). However, for the fiscal years ended March 31, 2005, 2006 and 2007, we paid an amount less than 0.25% of our annual net income, as described above, as mutually agreed between Tata Sons Limited and us. These calculations are made with reference to our non-consolidated Indian GAAP financial statements. Pursuant to our licensing agreement with Tata Sons Limited, we have also undertaken certain obligations for the promotion and protection of the new Tata brand identity licensed to us under the agreement. The agreement can be terminated by written agreement between the parties, by Tata Sons Limited upon our breach of the agreement and our failure to remedy the same, or by Tata Sons Limited upon providing six months notice for reasons to be recorded in writing. The agreement can also be terminated by Tata Sons Limited upon the occurrence of certain specified events, including liquidation. Because we are one of the largest companies promoted by Tata Sons and further because we believe that our growing international reputation brings benefits to the Tata brand, we consider it very unlikely that we would ever be unable to use the Tata brand in relation to our products and services.

The Tata Sons promoted entities have sought to continue to follow the ideals, values and principles of ethics, integrity and fair business practices originally established by the founder of Tata Sons, 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 most of the Tata companies that have access to the larger resources and services of the Tata Sons promoted entities. These companies have endeavored to maintain high standards of management efficiency and to promote the commercial success of Indian enterprises. The Tata Sons promoted entities 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 and the National Center of the Performing Arts. Tata trusts are among the largest charitable foundations in the country.

A large number of the Tata Sons promoted entities hold shares in one another and some of our directors hold directorships on the boards of Tata Sons and/or Tata Sons promoted entities. However, there are no voting agreements, material supply or purchase agreements or any other relationships or agreements that have the effect of tying us together with other Tata Sons promoted entities at management, financial or operational levels. With the exception of Tata Steel Limited, which under our Articles of Association has the right to appoint one director to the Board, Tata Sons Limited and its subsidiaries do not have any special contractual or other power to appoint our directors or management beyond the voting power of their shareholdings in us. Except as set forth in the tables below under the heading “Subsidiaries and Affiliates” and except for an approximately 12.40% stake in Tata Industries Limited, our shareholdings in other the Tata Sons promoted entities 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 shares of those companies.

Subsidiaries and Affiliates

We have the following consolidated subsidiaries and equity method affiliates as of March 31, 2007.

 

Name of the Subsidiary Company

  

Country of incorporation

   % of holding  

1

   Sheba Properties Ltd.    India    100.00  

2

   Concorde Motors (India) Ltd.    India    100.00  

3

   HV Axles Ltd.    India    100.00  

4

   HV Transmissions Ltd.    India    100.00  

5

   TAL Manufacturing Solutions Ltd.    India    100.00  

6

   Tata Motors Insurance Services Ltd.    India    100.00  

7

   Tata Daewoo Commercial Vehicle Co. Ltd.    South Korea    100.00  

8

   Tata Motors European Technical Centre plc    UK    100.00  

9

   Tata Technologies Ltd. and its 17 subsidiaries    India1    85.92 2

10

   Telco Construction Equipment Co. Ltd.    India    60.00  

11

   Tata AutoComp Systems Ltd. and its 8 subsidiaries    India3    54.70 4

12

   Tata Precision Industries Pte. Ltd., Singapore and its subsidiary    Singapore    51.07  

13

   TML Financial Services Ltd.5    India    100.00  

14

   Tata Motors (Thailand) Ltd.    Thailand    70.00  

15

   Hispano Carrocera S.A. and its subsidiary6    Spain    21.00  

1 The subsidiaries are based in many countries abroad.
2 The holdings in these subsidiaries range between 85.92 % to 86.03%, and three of the subsidiaries were under liquidation as at March 31, 2007. Subsequently, two of these have been liquidated.
3 The subsidiaries are based in India, Mauritius, China and Germany.
4 The holdings in these subsidiaries range between 27.90 % to 54.71%.
5 The name of the subsidiary has subsequently been changed to Tata Motors Finance Ltd.
6 The subsidiary is based in Morocco.

 

20


Table of Contents

Name of the Affiliate Company

  

Country of incorporation

   % of holding  

1

   Tata Cummins Ltd.    India    50.00  

2

   TSR Darashaw Ltd.    India    26.00  

3

   Nita Co. Ltd. Bangladesh    Bangladesh    40.00  

4

   Tata Securities Ltd.    India    31.90  

5

   Affiliates of Tata AutoComp Systems Ltd.    India    27.35 1

6

   Telcon Ecoroad Resurfaces Pvt Ltd.2    India    21.60  

7

   Tata Marcopolo Motors Ltd.    India    51.00  

1 Except for an affiliate wherein the holding is 14.22%.

2

Is an affiliate of Telco Construction Equipment Co. Ltd.

D. Property, Plants and Equipment.

Facilities:

We currently operate four principal automotive manufacturing facilities. The first facility was established in 1945 at Jamshedpur in the State of Jharkhand in eastern India. We set up a second facility in 1966 (with production commencing in 1976) at Pune, in the State of Maharashtra in western India, and a third in 1985 (with production commencing in 1992) at Lucknow, in the State of Uttar Pradesh in northern India. During fiscal 2007, we commenced the construction of our fourth manufacturing plant in Uttarakhand and that has commenced operations in fiscal 2008. The Jamshedpur, Pune and Lucknow manufacturing facilities have been accredited with ISO/TS 16949:2000(E) certification. The passenger car business of Tata Motors has also received the Certificate of Approval for its quality management system for compliance with ISO/TS 16949:2002. We are in the process of setting up a plant in each of Singur in West Bengal and Dharwad in Karnataka. We have also set up research and development facilities in the United Kingdom.

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 (IATF) accredited certification body. It is the first Korean automobile original equipment manufacturer to be awarded the same. Manufacturing facilities of Tata AutoComp Systems Ltd. and its subsidiaries are located at various locations in and around the city of Pune in the State of Maharashtra in India and also in Germany. Manufacturing facilities of Telcon are located at Jamshedpur in the State of Jharkhand in eastern India and at Dharwad in the State of Karnataka in Southern India.

Installed Capacity:

Our total vehicle production capacity in India as of March 31, 2007 determined on the basis of two production shifts per day and including capacity for the manufacture of replacement parts, was 687,635 units annually. In addition, we also have vehicle production capacity of 20,000 units annually in South Korea.

The following table shows our installed capacity as of March 31, 2007, and production levels by plant and product type in fiscal 2005, 2006 and 2007:

 

     Fiscal Year ended March 31,
  

Installed

Capacity(1)

   Production (Units)
      2005    2006    2007

Jamshedpur

           

Medium and Heavy Commercial Vehicles

   96,000    71,023    69,891    98,227

Construction Equipment

   5,635    2,455    3,515    5,167

Pune

           
Medium and Heavy Commercial Vehicles, Light Commercial Vehicles, Utility Vehicles, Passenger Cars    556,000    311,269    366,468    458,324

Lucknow

           
Medium and Heavy Commercial Vehicles, Light Commercial Vehicles, Utility Vehicles    30,000    18,649    19,963    28,235

Republic of Korea

           

Gunsan

           

Medium & Heavy Commercial Vehicles

   20,000    4,567    5,663    8,543

(1) On double shift basis including capacity for manufacture of replacement parts as of March 31, 2007.

 

21


Table of Contents

Properties:

We, along with our consolidated subsidiaries, 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 or our consolidated subsidiaries as of March 31, 2007. The remaining facilities are on leased premises.

 

Location

 

Facility or Subsidiary Name

 

Principal Products or Functions

India

   

In the State of Maharashtra

   
Pune (Pimpri, Chinchwad, Chikhali, Maval)   Tata Motors Ltd.   Factory/residential
Pune (Chinchwad)   TAL Manufacturing Solutions Ltd   Factory automation equipment and services
Pune (Hinjewadi)   Tata Technologies Limited   Software consultancy and services
Mumbai   Concorde Motors (India) Limited   Automobile sales & service
Pune (Damle Path, Hinjewadi, Bhosari, Chakan and Pirangut)   Tata AutoComp Systems Limited and its subsidiaries   Auto components and engineering design

In the State of Jharkhand

   
Jamshedpur   Tata Motors Ltd.   Factory/residential
Jamshedpur   HV Axles Ltd.   Axles for M&HCVs
Jamshedpur   HV Transmissions Ltd.   Transmissions for M&HCVs
Jamshedpur   Telco Construction Equipment Company Limited   Construction equipment

In the State of Uttar Pradesh

   
Lucknow   Tata Motors Ltd.   Factory

In the State of Karnataka

   
Dharwad   Telco Construction Equipment Company Limited   Construction equipment
  Tata Motors Limited   Spare parts and warehousing
Bangalore   Concorde Motors (India) Ltd.   Automobile sales and service

In the State of Uttaranchal

   
Pantnagar   Tata Motors Limited   Factory

In the State of West Bengal

   
Singur   Tata Motors Ltd.   Small car

Rest of India

   
Gujarat (Halol, Village Khakharia)   Tata AutoComp Systems Limited and its Subsidiaries   Auto components and engineering design
Hyderabad & Chennai   Concorde Motors (India) Ltd.   Automobile sales and service
Various other properties in India   Tata AutoComp Systems Ltd.   Auto components
  Tata Motors Limited   Vehicle financing business (office/ residential)

Outside India

   
Singapore   Tata Precision Industries Pte. Ltd. / Tata Engineering Services Pte. Ltd.   Precision equipment and computer and peripherals warehousing
Republic of Korea   Tata Daewoo Commercial Vehicle Co. Ltd.   Factory and residential apartments
Thailand  

Tata Motors (Thailand) Ltd.

Incat (Thailand) Ltd.

 

Pick-up trucks & Sprint

Software consultancy and services

United Kingdom   Tata Motors European Technical Centre   Software consultancy and services
Spain   Hispano Carrocera S.A.   Buses and bus body
Rest of the world   INCAT Group of Companies   Software consultancy and services

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

 

22


Table of Contents
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 US GAAP and information included in this annual report. 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.

A. Operating Results.

Overview

In fiscal 2007, total gross revenues including finance revenues increased by 36.8% to Rs.377,753 million from Rs.276,080 million in fiscal 2006. We recorded a net income of Rs.18,112 million in fiscal 2007, an increase of 20.7% compared to Rs.15,011 million in fiscal 2006.

Automotive operations.

Automotive operations is our most significant segment, accounting for 91.9% and 92.6%, respectively, of our total revenues before inter-segment eliminations and 89.5% and 94.7%, respectively, of our operating income before inter-segment eliminations for fiscal 2007 and 2006. India is the most significant market for us, accounting for 89.4% and 87.9% of vehicle unit sales for fiscal 2007 and 2006, respectively, though we continue to focus on increasing the importance of our international operations.

Our revenues from automotive operations increased 36.6% to Rs.307,113 million in fiscal 2007 compared to Rs.224,753 million in fiscal 2006, representing 91.9% and 92.6% of our total revenue before inter-segment eliminations in fiscal 2007 and 2006, respectively.

Our automotive operations includes :

 

   

All activities relating to development, design, manufacture, assembly and sale of M&HCVs, LCVs, passenger cars and utility vehicles as well as related spare parts and accessories,

 

   

Automotive component business, both captive and non-captive,

 

   

Distribution and service of vehicles, and

 

   

Financing of our vehicles.

The leading drivers of automotive business in India include GDP growth, industrial and infrastructure growth, increase in urbanization and personal disposable incomes. GDP growth, led by growth in industrial and agricultural sectors, is a key to freight generation in the economy, which in turn drives the demand for the commercial vehicles, especially the goods carriers. Also, the ongoing road development programs in India, such as golden quadrilateral and the cross country road corridors, which are designed to connect not only the major cities of the country, but also the rural and interior parts of the country, are expected to improve the efficiency of both goods and passenger movement across the country through improved turnaround time, better fuel efficiency and better logistic solutions. Also, the road development programs are expected to lead to a hub and spoke model of distribution, which in turn is expected to result in a structural shift in the commercial vehicle industry by moving the demand towards heavy and light commercial vehicles which cater to long-haul and end destination distribution respectively.

Government regulations relating to emission norms, safety standards, scrapping of vehicles beyond a specified age, overloading and private participation in passenger transport and other areas impact the demand for commercial vehicles in the country.

Our presence across the major four wheel auto product categories, our low cost manufacturing capabilities and our expansive distribution and service network facilitate our market leadership in the auto industry in the country. Also, we are working towards the development of new products, in all segments of commercial vehicles and development of new platforms to replace our current compact car, mid size car and utility vehicle platforms to compete effectively in the challenging competitive environment. The distribution of the Tata ACE, which has created a niche for itself in the below-1 ton category of the commercial vehicle industry since the launch in May 2005, was extended across the country during fiscal 2007. The successful introduction of such products has helped us to become the market leader in the LCV category in India.

Our subsidiary, TDCV, is not only helping us strengthen our position in the international markets but is also improving our technological capability in design and development of new products in commercial vehicle category. Further, the launch of MCVs in

 

23


Table of Contents

the Korean market by TDCV has helped us to further consolidate our position in the domestic Korean market. Our joint venture with Marcopolo in Brazil, which we announced in May 2006, and our 21% stake in Hispano are expected to enhance our leadership position in the bus market through better technological capabilities in bus body building. Our proposed joint venture with Fiat to manufacture passenger cars, engines and transmissions would provide us with access to world class car engine technology and is expected to help us to further strengthen our position in the passenger vehicle category. Further, TMETC provides us with design engineering support and development services, complementing and strengthening our skill sets.

Capacity utilization of our automotive facilities in India increased marginally from 85.2% in fiscal 2006 to 85.7% in fiscal 2007. However, consequent to the increase of capacity utilization levels at TDCV from 28.3% in fiscal 2006 to 42.7% in fiscal 2007, the capacity utilisation of our total automotive operations, including TDCV operations, increased to 84.5% in fiscal 2007 from 83.2% in fiscal 2006.

Our vehicle sales (including TDCV, Fiat and, with respect to fiscal 2007 only, Hispano) increased 28.2% to 589,428 units in fiscal 2007 from 459,863 units in fiscal 2006. In fiscal 2007, our market share of all four-wheel vehicles sold in India increased marginally to 28.5% from 27% in fiscal 2006. During fiscal 2007, nearly 10 million automobiles were sold in India, an increase of 13.5% over the previous fiscal year, and 1 million automobiles were exported from India, an increase of 25.4% over the previous fiscal year. The Indian automotive industry, after experiencing a slowdown in growth rate in fiscal 2006, bounced back in fiscal 2007 with a growth of 21.4% to post strong volumes in all segments.

Our overall sales in international markets (including TDCV and Hispano sales) increased 11.9% to 62,622 units in fiscal 2007 as compared to 55,957 units in fiscal 2006. This was driven by sustained efforts towards a focused entry in to new export markets and also strengthening of our presence in existing markets. Key export markets for our automotive operations were south Africa, west Asia, Europe and south-east Asia.

The auto-component business, which caters to both captive and external demand is expected to benefit from the growth in the automobile business in the country. Our key auto component subsidiaries, HV Axles Ltd, HV Transmission Limited and TACO, are expected to improve their revenues and profitability through internal growth, and we may consider opportunities to grow through mergers and acquisitions.

Tata Motors Finance Limited, or TMFL, was incorporated on June 1, 2006 as a wholly-owned subsidiary to support our vehicle financing and related activities. We seek to offer complete vehicle financing solutions in line with global best practices in the auto industry and we believe this business will provide a hedge against the cyclicality of the automotive business in India.

Interest rate movements in the economy have a significant impact on vehicle financing operations. Despite an increase in interest rates during the latter half of fiscal 2007, our vehicle-financing registered a strong growth on the back of an increased focus in the business and strong vehicle demand during the fiscal year.

Other Operations.

Our revenue from other operations was Rs.27,017 million in fiscal 2007, an increase of, 49.6% from Rs.18,061 million in fiscal 2006. These revenues represent 8.1% and 7.4% of our total revenues, before inter-segment eliminations, in fiscal 2007 and 2006, respectively.

Geographical breakdown.

On a geographical basis, revenues from sales in India increased by 34.9% to Rs.267,419 million in fiscal 2007 from Rs.198,172 million in fiscal 2006.

Our share of revenues earned from outside India has increased steadily over the last five years from 5.4% in fiscal 2003 to 19.3% in fiscal 2007, mainly as a result of our strategy to increase exports of our vehicles to new and existing markets in significant numbers and improved performance of our subsidiary in South Korea, TDCV. Successful operations of INCAT and its subsidiaries following acquisition by TTL also facilitated a significant increase in our sales to international market.

The following table sets forth our revenue from our Indian and international operations:

 

     Fiscal 2005     Fiscal 2006     Fiscal 2007  

Revenue

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

Within India

   170,883    86.1 %   198,172    82.4 %   267,419    80.7 %

Outside India

   27,504    13.9 %   42,443    17.6 %   64,106    19.3 %
                                 

Total

   198,387      240,615      331,525   
                     

The revenue from our exports has been steadily increasing in the last three years as our products are increasingly finding acceptance in key markets such as South Africa, Turkey, Sri Lanka and Russia. We have been pursuing growth in various geographic areas through organic and inorganic means in our automotive and other business operations.

Vehicles manufactured by us, in India almost exclusively use components produced in India. Many of these components, including engines, transmissions and axles, are produced by us or our subsidiaries and affiliates, and the remaining parts are procured from various suppliers through our extensive supply chain. We import a limited number of specialized parts and components for our vehicles, as well as specialized grades of steel.

 

24


Table of Contents

Our South Korean vehicles are assembled primarily from aggregates and components manufactured in South Korea. However, some major aggregates are sourced from the United States and various European component suppliers.

Significant Factors Influencing Our Results of Operations.

Our results of operations are dependent on a number of factors, including:

 

   

General economic conditions. We, similar to the rest of the domestic automotive industry, are substantially affected by general economic conditions in India. See Item 3.D “—Risk Factors—Risks associated with Our Business and the Indian Automotive Industry”. General economic conditions could have a significant adverse impact on our sales and results of operations. Economic conditions have improved since fiscal 2002, which has led to our strong growth in fiscal 2005,2006 and 2007.

 

   

Interest rates and availability of credit for vehicle purchases. While interest rates steadily declined from the beginning of fiscal 2001 and credit finance for vehicle purchases became more widely available, interest rates began to increase during the second half of fiscal 2006 and increased further during the latter part of fiscal 2007. For further discussion of our credit support programs, see Item 4.B “—Business Overview—Automotive Operations—Sales and Distribution of Vehicles”.

 

   

Excise duty and sales tax rates. For a detailed discussion regarding tax rates applicable to us, please see Item 4.B “—Business Overview—Government Regulations—Excise Duty”.

 

   

Our competitive position in the market. For a detailed discussion regarding our competitive position, see Item 4.B “—Business Overview—Automotive Operations—Competition”.

 

   

Cyclicality. Our results of operations are also dependent on the cyclicality in demand in the automotive market, new government regulations, and, to a limited extent, to fluctuations in foreign currency rates.

 

   

Environmental Regulations. There has been a greater emphasis by the government on the emission and safety norms for the automobile industry. Compliance with these norms will have a significant bearing on the costs and product life cycles in the Indian automotive industry. For further details with respect to these regulations, please see Item 4.B “—Business Overview—Government Regulations—Emission and Safety”.

 

   

Foreign Currency Rates. We are sensitive to fluctuations in foreign currency rates with respect to our import and export activities. Our consolidated financial results are affected by foreign currency exchange fluctuations through both translation risk and transaction risk. 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. However, the translation effect is a reporting consideration and does not impact our underlying results of operations.

 

   

Transaction risk is the risk that the currency structure of our costs and liabilities will deviate from the currency structure of sales proceeds and assets. Transaction risk relates primarily to sales proceeds from our automotive business segment exports sales produced in India. However, we enter into commercial borrowings and other hedging instruments to address some of these transaction risks. These instruments enable us to reduce, but not eliminate, the impact of fluctuations in foreign currency rates. Please see Item 11. “—Quantitative and Qualitative Disclosures About Market Risk” for further detail.

Results of Operations.

Strong economic growth, increased industrial activity and continued development of better road infrastructure contributed to a robust growth of the Indian automobile industry in fiscal 2007.

In fiscal 2007, we sold 589,428 units (including 8,588 units sold by TDCV and 560 units sold by Hispano), as compared to 459,863 units (including 5,734 units by TDCV) sold in fiscal 2006, representing an increase of 28.2%. Our domestic market share in the four wheel vehicle market in India was 28.5% in fiscal 2007 as compared to 27% in fiscal 2006. The volumes in the international business grew 11.9% to 62,622 units sold in fiscal 2007 from 55,957 units sold in fiscal 2006.

Restrictions on overloading and increased demand from construction and mining activities had a favorable impact on the MHCV category where we achieved a market share of 62.7%, the highest in the last 6 years, and the continued strong performance of the Tata Ace led us to outperform the LCV category and achieve a market share of 65.4%. Strong performance in passenger vehicles was facilitated by the lower excise duty on small cars announced in the Indian Union Budget of fiscal 2007 and the launch of new models/variants, where we have maintained our position as the second largest manufacturer in the Indian market. The performance of

 

25


Table of Contents

the automobile industry however, was adversely impacted due to increased interest rates in the latter half of the year, which was caused by the Reserve Bank of India’s initiatives to contain the inflationary pressures in the economy. This impacted our borrowing costs and vehicle financing rates during fiscal 2007.

In June 2006, we signed a Memorandum of Understanding with the Fiat group to establish an industrial joint venture in India to manufacture passenger vehicles, engines and transmissions for the Indian and the overseas markets. We also distribute Fiat cars in India through select dealer outlets. We sold over 1,300 units of Fiat cars during fiscal 2007. We licensed our LCV pick-up manufacturing technology to Fiat for manufacture and sale of LCV pick-ups under the Fiat brand in South America. Also, we entered into a Memorandum of Understanding with Marcopolo, a leading bus body manufacturing company from Brazil, for setting up a joint venture company to manufacture and assemble fully-built buses and coaches in India which we currently expect will enable us to improve production and technological capabilities in bus body building. In December 2006, we entered into a joint venture agreement with Thonburi Automotive Assembly Plant Co., or Thonburi, Thailand, to manufacture pick-ups in Thailand. We own 70% of the joint venture, while Thonburi owns the remaining 30%. This joint venture will facilitate our efforts to address the Thailand market, which is a major market for pick-ups, and other potential markets in that region. In February 2007, we announced the signing of a Memorandum of Understanding with Iveco, a company of Fiat Group, to analyze the feasibility of cooperation, across markets, in the area of Commercial Vehicles. The Memorandum of Understanding would encompass a number of potential developments in engineering, manufacturing, sourcing and distribution of products, aggregates and components. Definitive agreements are anticipated to be entered into in the course of the coming months, if the venture is found feasible.

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 total revenues:

 

     Percentage of Total Revenues     Percentage Change
     Fiscal 2005     Fiscal 2006     Fiscal 2007     2005 to 2006    2006 to 2007

Total Revenues

   100 %   100 %   100 %   21.3    37.8

Cost of sales

   79.1     78.7     79.5     20.7    39.2

Selling, general and administrative expenses

   10.2     11.0     10.7     32.0    34.0

Research and development expenses

   1.3     1.9     1.8     84.1    29.1

Total operating expenses

   11.4     13.0     12.5     37.7    33.2

Operating income

   9.5     8.3     8.0     6.7    31.9

Non-operating income

   0.9     1.5     1.4     *92.2    *36.4

Interest income

   0.4     0.3     0.2     -13.0    -9.7

Interest expense

   -1.5     -1.5     -1.6     24.2    45.6

Income before tax

   9.3     8.5     8.0     11.5    28.8

Income tax expense

   -2.6     -2.3     -2.4     10.2    44.4

Net income

   6.7     6.2     5.5     13.2    20.7

*  Includes gain on shares issued by subsidiary companies and gain on sale of holding in subsidiary companies with respect to fiscal 2006.

The following table sets forth selected data regarding our automotive operations for the periods indicated and the percentage change from period to period.

 

                    Percentage Change
     Fiscal 2005    Fiscal 2006    Fiscal 2007    2005 to 2006    2006 to 2007

Total Revenues (Rs. Millions)

   188,980    224,753    307,113    18.9    36.6

Net Income (Rs. Millions)

   12,814    14,861    17,249    16.0    16.1

Net margin (%)

   6.8    6.6    5.6      

India (Unit Sales)

   369,069    403,906    526,806    9.4    30.4

Outside India (Unit Sales)

   35,035    55,957    62,622    59.7    11.9

Market Share in India (%)

   26.8    27    28.5      

The following table sets forth selected data regarding our other operations for the periods indicated and the percentage change from period to period.

 

                    Percentage Change
     Fiscal 2005    Fiscal 2006    Fiscal 2007    2005 to 2006    2006 to 2007

Total Revenues (Rs. Millions)

   11,014    18,061    27,017    64.0    49.6

Net Income (Rs. Millions)

   487    385    1,064    -20.9    176.4

Net margin (%)

   4.4    2.1    3.9      

Cost Reduction:

We have been maintaining our cost advantage vis-à-vis foreign manufacturers who have entered the Indian market, by aggressively pursuing a number of cost reduction initiatives, including the following:-

 

   

Outsourcing vehicle design, development and testing activities to third parties and procurement of major aggregates and sub-assemblies from approved vendors.

 

26


Table of Contents
   

Procurement of parts and consumables by e-sourcing and reverse auctions.

 

   

Sourcing of raw materials and components from global sources.

 

   

Value engineering and the use of alternate and new materials.

 

   

Adopting target costs, productivity and process improvements and rationalizing of our vendor base.

 

In the coming years, the globalization of the auto component industry in India may give us an opportunity to get international quality components at local prices. The opening of the Indian economy may also give us an opportunity to establish a global supply chain for meeting our cost and quality targets.

Fiscal 2007 Compared to Fiscal 2006

Revenues.

Our total consolidated gross revenues including finance revenues increased to Rs.377,753 million in fiscal 2007 from Rs.276,080 million in fiscal 2006, an increase of Rs.101,673 million, or 36.8%. The growth was driven by an increase in total vehicle volumes of 28.2%, improved realization per vehicle, continued robust growth in our vehicle financing activity resulting in 36.6% increase in revenues from automotive operations. Further, growth in revenues of our key non-automotive subsidiaries, namely Telcon, which registered a 39.8% increase in its revenues during fiscal 2007 and TTL which registered a 97.0% increase in its revenues during fiscal 2007.

Revenues from the domestic market for fiscal 2007 increased by 34.9% to Rs.267,419 million from Rs.198,172 million while revenues from markets outside India increased by 51% to Rs.64,106 million from Rs.42,443 million in 2006. The proportion of total revenues from markets outside India has increased from 5.4% in fiscal 2003 to 19.3% in fiscal 2007. This has been driven by our continued focus on improving our presence in international markets, through expansion of both our automotive and non-automotive businesses. We seek to continue to grow the proportion of revenues we draw from international operations.

The following is a discussion of our revenues for each of our business segments.

Revenues from Automotive Operations.

Automotive operations with revenue of Rs.307,113 million generate the largest proportion of our total revenues. Revenues from this segment increased by Rs.82,360 million, or 36.6% from Rs.224,753 million in fiscal 2006. This increase was primarily due to:

 

   

30.4% increase in domestic vehicle unit sales in India;

 

   

6.5% increase in international sales of vehicles;

 

   

89% increase in automotive financing revenues and;

 

   

Increase in revenues reported by automotive subsidiaries.

Domestic sales of vehicles produced by us during fiscal 2007 grew by 30.4%, crossing the half million vehicle sales mark in a year for the first time in our history. The increase was largely due to the continuing success of the Tata Ace, the launch of Indica facelift, Indica Xeta (1.2 litre), Indigo XL and Indigo DICOR during the fiscal year and also due to the successful implementation of the ban on overloading of trucks in India. International sales continued to grow during fiscal 2007 as a result of our successful entry into South Africa and increased focus on other traditional export markets, as well as the launch of MCVs in the South Korean market by TDCV. Continued focus on the Auto Financing business, following the merger of TFL with us, facilitated increased growth of this business. As of the end of fiscal 2007, “TataMotorfinance” (“TMF”), the brand name under which our vehicle financing division and our wholly-owned subsidiary, Tata Motors Finance Limited, operate, financed 31.0% of our domestic sales compared to 24.0% of our vehicles sold in the domestic market in fiscal 2006.

Revenues from Other Operations.

Revenues from our other operations increased by Rs.8,956 million or 49.6% to Rs.27,017 million in fiscal 2007 compared to the previous fiscal year, mainly due to an increase in revenues of significant non-automotive subsidiaries. In fiscal 2007, revenues of TTL and Telcon increased by 97 % and 39.8%, respectively. During fiscal 2006, HCM increased its stake in Telcon from 20% to 40% facilitating access to improved technology, overseas markets and increased manufacturing and component outsourcing opportunities for Telcon. Similarly, efficiencies derived from the acquisition of INCAT during fiscal 2006 helped increase the revenue growth of TTL.

Cost of Sales and Operating Expenses.

Cost of sales as a percentage of total revenues has increased to 79.5% from 78.7% The increase reflects primarily the combined impact of an increase in input prices, partially offset by the impact of continued cost cutting efforts. Also, an increase in depreciation expenses relating to production equipment and factory overheads as a result of capacity expansion and ongoing product development program contributed to the increase in cost of sales.

 

27


Table of Contents

Selling, general and administrative expenses increased by Rs.9,037 million to Rs.35,623 million in fiscal 2007 from Rs.26,586 million in fiscal 2006. This was partially due to an increase in outward shipping expenses of Rs.8,549 million during fiscal 2007 as compared to Rs.6,092 million during fiscal 2006. Selling, general and administrative expenses as a percentage of total revenues decreased to 10.7% during fiscal 2007 compared with 11.0% during fiscal 2006.

Research and development expenses increased by 29.1% to Rs.6,018 million in fiscal 2007 from Rs.4,663 million in fiscal 2006 as a result of our ongoing initiative towards design and development of new vehicle models across all product categories, including the small car. As a percentage of total revenues, research and development expenses was 1.8% in fiscal 2007 compared to 1.9% in fiscal 2006.

Operating Income.

In fiscal 2007, our consolidated operating income increased by Rs.6,388 million to Rs.26,431 million from Rs.20,042 million in fiscal 2006.

Operating income from our automotive operations was Rs.23,607 million in fiscal 2007, an increase of Rs.4,685 million or 24.8% from Rs.18,922 million in fiscal 2006. Growth in sales volume by 28.2% , growth in vehicle financing revenues, cost reduction efforts, partly offset by increase in selling and general administration expenses in line with increase in volume and increase in research and development expenses contributed to the increase in operating income for fiscal 2007.

Operating income from our other operations increased by Rs.1,720 million or 162.3% to Rs.2,779 million in fiscal 2007 from Rs.1,059 million in fiscal 2006. This increase was primarily due to an improvement in the revenues of our key subsidiaries, especially Telcon (posting a 39.8% increase) and TTL (posting a 97% increase).

Other Income and Expenses.

We had total net non-operating expenses of Rs.40 million in fiscal 2007 as compared to a total net non-operating income of Rs.446 million in fiscal 2006. The interest expense (net) increased from Rs.3,055 million to Rs.4,816 million mainly due to increased financing requirements and increase in interest rates during fiscal 2007. This increase was offset by foreign exchange gains (net) Rs.1,856 million and increase in other non-operating income of Rs.951 million. Non-operating income for fiscal 2006 included Rs.1,532 million on account of gain of sale of equity interest in subsidiary.

Income Taxes

Income tax expense increased to Rs.8,113 million from Rs.5,618 million during fiscal 2007. The effective tax rate during fiscal 2007 was 30.7% compared to 27.4% in fiscal 2006. Increase in tax rate is primarily on account of tax on undistributed earnings of subsidiaries and a tax benefit recorded in fiscal 2006 on sale of shares of a subsidiary company. The increase was partially offset by higher tax benefit on research and development and tax free dividend income.

Minority Interest in Consolidated Subsidiaries and Equity in Earnings of Affiliates.

Share of minority interest in profits of consolidated subsidiaries in fiscal 2007 increased to Rs.719 million compared to Rs.331 million in fiscal 2006. The increase is on account of profits attributable to minorities consequent to increased minority holding in Telcon from 20% to 40% in December 2005, coupled with higher profits of Telcon during the fiscal 2007.

Equity in the net income of affiliates was Rs.552 million during fiscal 2007, representing an increase of 17.2% from Rs.471 million during fiscal 2006. This change was primarily due to an increase in profits of our affiliate Tata Cummins Ltd.

Net Income.

Our consolidated net income for fiscal 2007 was Rs.18,112 million, representing an increase of 20.7% from Rs.15,011 million fiscal 2006. This increase was the result of:

 

   

28.2% increase in vehicle unit sales in fiscal 2007 compared to fiscal 2006.

 

   

Continued cost reductions, which were partially offset by an increase in input commodity prices. Prices of commodity items, particularly steel, non-ferrous metals, rubber and engineering plastics, witnessed an upward movement, which was partially offset by the cost reduction initiatives pursued by the company. Consequently, our raw material cost as a proportion of our total revenues increased to 62.6% in fiscal 2007 from 62.4% in fiscal 2006.

 

   

31.9% increase in operating income from Rs. 20,042 million in fiscal 2006 to Rs.26,431 million in fiscal 2007, which was the result of an increase of 24.8% and 162.3% of the operating income of our automotive operations and other operations, respectively.

Net income as a percentage of total revenues declined to 5.5% in fiscal 2007 from 6.2% in fiscal 2006.

 

28


Table of Contents

Fiscal 2006 Compared to Fiscal 2005

Revenues.

Our total consolidated gross revenues including finance revenues increased to Rs.276,080 million in fiscal 2006 from Rs.230,158 million in fiscal 2005, an increase of Rs.45,922 million, or 20%. The growth was driven by an increase in total vehicle volumes of 13.8%, improved realization per vehicle and robust growth in our vehicle financing business following the amalgamation of the erstwhile Tata Finance Ltd. This has resulted in 30.9% increase in revenues of automotive segment. Further, growth in revenues of our key non-automotive subsidiaries, namely TTL, registered a 200% increase in its revenues and Telcon which registered a 39.3% increase in its revenues during fiscal 2007.

Revenues from the domestic market for fiscal 2006 increased by 16.0% to Rs.198,172 million from Rs.170,883 million and revenues from markets outside India increased by 54.3% to Rs.42,443 million from Rs.27,504 million in 2005. This was primarily due to our continued focus on improving our presence in international markets, through expansion of both our automotive and non-automotive business. The revenues from markets outside India accounted for approximately 17.6% and 13.9% respectively, of our total revenue in fiscal 2006 and 2005. International business has increased in importance to us in recent fiscal years and we seek to continue to grow the proportion of revenues we draw from international operations.

The following is a discussion of our revenues for each of our business segments.

Revenues from Automotive Operations.

Automotive operations generate the largest portion of our revenues. Revenues from this segment increased by Rs.35,773 million, or 18.9%, to Rs.224,753 million in fiscal 2006 compared to fiscal 2005. This increase was primarily due to:

 

   

9.4% increase in domestic vehicle unit sales in India

 

   

59.7% increase in international sales of vehicles

 

   

132% increase in automotive financing revenues to Rs.3,729 million

 

   

increase in revenues reported by automotive subsidiaries during fiscal 2006.

Domestic sales of vehicles produced by us during fiscal 2006 grew by 9.4% despite the uncertainties created by changes in automotive regulations. The increase was largely due to the successful launch of Tata Ace, Indica Turbo diesel, Indica Xeta and other variants during the fiscal year and also partially due to the successful implementation of the ban on overloading of trucks in the country towards the end of the fiscal year. International sales continued to grow during fiscal 2006 as a result of our successful entry into South Africa and increased focus on other traditional export markets. Continued focus on the Auto Financing business, following the merger TFL with us, facilitated increased growth of this business. As of the end of fiscal 2006, 23.8% of our vehicles sold in the domestic market were financed by this unit as against 18.3% in fiscal 2005.

Revenues from Other Operations.

Revenues from our other operations increased by Rs.7,047 million or 64.0% to Rs.18,061 million in fiscal 2006 compared to the previous fiscal year, mainly on account of an increase in revenues of significant non automotive subsidiaries. In fiscal 2006, revenues of TTL and Telcon increased by 200% and 39.3% respectively. During fiscal 2006, HCM increased its stake in Telcon from 20% to 40% facilitating access to improved technology, overseas markets and increased manufacturing and component outsourcing opportunities for Telcon. Similarly, efficiencies derived from the acquisition of INCAT during fiscal 2006 helped increase the revenue growth of TTL.

Cost of Sales and Operating Expenses.

Cost of sales as a percentage of total revenues has increased to 78.7% from 79.1%. The increase reflects primarily the combined impact of an increase in input prices, particularly for steel, rubber and engineering plastics, partially offset by the impact of continued cost cutting efforts. Also, an increase in depreciation expenses relating to production equipment and factory overheads as a result of capacity expansion contributed to the increase in cost of sales.

Selling, general and administrative expenses increased by Rs.6,441 million to Rs.26,586 million from Rs.20,145 million in fiscal 2005. This was partially due to an increase in outward shipping expenses of Rs.6,092 million during fiscal 2006 as compared to Rs.4,193 million during fiscal 2005. Selling, general and administrative expenses as a percentage of total revenues increased to 11.0% during fiscal 2006 from 10.2% during fiscal 2005.

Research and development expenses increased by 84.1% to Rs.4,663 million during fiscal 2006 from Rs.2,532 million as a result of our ongoing initiative towards design and development of new vehicle models across all product categories, including the small car. Research and development expenses as a percentage of total revenues increased to 1.9% during fiscal 2006 from 1.3% in fiscal 2005.

 

29


Table of Contents

Operating Income.

Our consolidated operating income increased by Rs.1,251 million to Rs.20,042 million during fiscal 2006 from Rs.18,791 million in fiscal 2005.

Operating income from our automotive operations increased by Rs.1,004 million or 5.6% to Rs.18,922 million from Rs.17,918 million in fiscal 2005. 13.8% growth in volume sales, growth in vehicle financing revenues and cost reduction efforts offset by increase in operating expenses resulted in the growth in operating income for the fiscal year.

Operating income from our other operations increased by Rs.314 million or 42.1% to Rs.1,059 million from Rs.745 million in fiscal 2005. This increase was primarily due to an improvement in the revenues of our key subsidiaries, especially Telcon (39.3% increase) and TTL (200.0% increase).

Other Income and Expenses.

We had a total net non-operating income of Rs.446 million during fiscal 2006 as compared to a total net non-operating expense of Rs.410 million in fiscal 2005, representing an increase of Rs. 856 million.

Interest expense (net) increased to Rs.3,055 million in fiscal 2006 from Rs.2,232 million in fiscal 2005, primarily due to an increase in borrowings on account of the vehicle financing business and also due to an increase in our borrowing costs caused by an increase in interest rates in India during the fiscal year. This increase was offset by gain on sale of holding in subsidiaries of Rs. 1,532. The balance represents net increase in other non-operating revenue.

Income Taxes.

Income tax expense increased to Rs.5,618 million during fiscal 2006 compared to Rs.5,100 million in fiscal 2005. The effective tax rate during fiscal 2006 was 27.4% as compared to 27.7% in the fiscal 2005. During fiscal 2006, a reduction in permanent tax benefits on account of lower dividend income as well as higher tax provision on undistributed income of subsidiaries, were partly offset by permanent tax benefits on account of a weighted deduction of 150% on research and development expenses and long term capital gain benefits of the sale of stake in a subsidiary.

Minority Interest in Consolidated Subsidiaries and Equity in Earnings of Affiliates.

Share of minority interest in profits of consolidated subsidiaries during fiscal 2006 was Rs.331 million as compared to Rs.366 million in fiscal 2005. The decline is mainly on account of the reduction in the rate of profit by TACO.

Equity in earnings of affiliates was Rs.471 million during fiscal 2006 as compared to Rs.340 million in fiscal 2005. This change was primarily due to an increase in profits of our affiliates, particularly Tata Cummins Ltd and Tata Holset Ltd.

Net Income.

Our consolidated net income for fiscal 2006 was Rs.15,011 million, an increase of 13.2% from Rs.13,256 million in fiscal 2005. The increase was the result of:

 

   

13.8% increase in vehicle unit sales

 

   

Continued cost reductions, which were partially offset by an increase in input commodity prices. While the prices of steel softened during fiscal 2006, the prices of non-ferrous commodities continued an upward trend during the year. Consequently, our raw material cost as a proportion of our total revenues decreased to 62.4% in fiscal 2006 from 64.2% in fiscal 2005. The other elements of cost of sales increased to 16.3% in fiscal 2006 from 14.8% in fiscal 2005

 

   

6.7% increase in operating income from Rs 18,791 million in fiscal 2005 to Rs. 20,042 million in fiscal 2006. The operating income of our automotive operations increased 5.6% during fiscal 2006 to Rs.18,922 million, while operating income of our other operations increased by 42.1% to Rs.1,059 million in fiscal 2006.

Net income as a percentage of total revenues was 6.2% for fiscal 2006 as compared to 6.7% for fiscal 2005.

 

30


Table of Contents

Recent Accounting Pronouncements

In June 2006, the FASB issued FIN 48, Accounting for Uncertainty in Income Taxes an interpretation of FASB Statement No. 109. This Interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. This Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This Interpretation also provides guidance on de-recognition, classification, interest and penalties, disclosure, etc. This interpretation is applicable from the fiscal year beginning after December 15, 2006. The impact, if any, on account of this interpretation is under evaluation.

In September 2006, FASB issued SFAS No. 158, Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements No. 87, 88, 106, and 132(R) (“SFAS 158”). FAS 158 requires employers to recognize the overfunded or underfunded status of their defined benefit postretirement plans as an asset or a liability on their balance sheets, and to recognize changes in that funded status in the year in which the changes occur through comprehensive income. The company adopted the provisions regarding recognition of funded status and disclosure under FAS 158 for the year ended March 31, 2007. See note 20 to the consolidated financial statements for the impact of the adoption of the provisions of SFAS 158.

In September 2006, the FASB issued SFAS 157 Fair Valuation Measurement which provides a definition of fair value, establishes a framework for measuring fair value and requires expanded disclosures about fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The provisions of SFAS 157 should be applied prospectively. The company is evaluating the application of this statement.

In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities. SFAS 159 permits measurement of recognized financial assets and liabilities at fair value with some certain exceptions such as investments in subsidiaries, obligations for pension or other postretirement benefits, and financial assets and financial liabilities recognized under leases. Changes in the fair value of items for which the fair value option is elected should be recognized in income or loss. The election to measure eligible items at fair value is irrevocable and can only be made at defined election dates or events, generally on an instrument by instrument basis. Items for which the fair value option is elected should be separately presented or parenthetically be disclosed in the statement of financial position. SFAS 159 also requires significant new disclosures that apply for interim and annual financial statements. SFAS 159 shall be effective for fiscal years beginning after November 15, 2007 with earlier adoption permitted, if certain conditions are met. The company is evaluating the application of this statement.

Critical Accounting Policies.

The preparation of our consolidated financial statements in conformity with US GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate and reevaluate our estimates, which are based on historical experience, industry standards, economic conditions and various other assumptions that we believe are reasonable based on currently available information. The results of these evaluations and reevaluations form the basis for our judgments about the carrying values of our assets and liabilities and the reported amounts of our revenues and expenses that are not readily apparent from other sources. Actual results may differ from these estimates, and these estimates could differ under different assumptions. We believe the following accounting policies are important to our financial condition and results and require the most significant management judgments and estimates.

Property, plant and equipment.

Property, plant and equipment is stated at cost of acquisition or construction less accumulated depreciation. Cost includes the purchase price, taxes and duties, labor cost and direct overheads for self constructed assets, interest cost during the construction period and other direct costs incurred up to the date the asset is available for use.

Depreciation is charged on a straight line basis over the useful lives of the assets.

We review our estimated useful lives on an ongoing basis to ensure that they are appropriate. We test our long-lived assets for impairment using undiscounted cash flows whenever events or circumstances arise that may indicate impairment. If a long lived asset is impaired, it is written down to its estimated fair value. Any assets which relate to discontinued or obsolete vehicle models are written off.

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 at the time 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 continuously 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 expense.

Employee Benefits.

Employee benefit costs and obligations are dependent on assumptions used in calculating such amounts. These assumptions include salary increase, discount rates, health care cost trend rates, benefits earned, interest cost, 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.

Finance Receivables, deferred origination costs and allowance for credit losses.

We finance vehicle sales with hire purchase and loan financing provided to our customers. Finance receivables are reported at their outstanding unpaid principal balance reduced by a valuation allowance and net of any deferred origination costs.

Origination fees and certain direct origination costs are deferred and amortized as an adjustment to the yield of the related finance receivable.

We recognize specific and unallocated allowance for credit losses for finance receivables, based on our best estimate of losses inherent in the finance receivable portfolio.

The Company provides a specific allowance for credit losses for hire purchase and loan receivables that are in arrears for eleven months and six months or more, respectively, in an amount equivalent to the outstanding principal and interest balance.

B. Liquidity and Capital Resources.

We finance our capital requirements by cash from operations, debt, capital market borrowings and sale of investments. As of March 31, 2007 our borrowings (including short term debt) were Rs.79,137 million. We believe that we have sufficient resources available to us to meet our planned capital requirements. However, our sources of funding could be adversely affected by an economic slowdown or other macro economic factors in India, which are beyond our control. A decrease in the demand for our products and services could lead to an inability to obtain funds from external sources on acceptable terms or in a timely manner, or at all. For our loan maturity profile, See Item 5.B “— Liquidity and Capital Resources — Liabilities and Sources of Financing”.

 

31


Table of Contents

Subsequent to March 31, 2007 our shareholders at the Annual General Meeting held on July 9, 2007, approved of the increase in borrowing limits (apart from temporary loans obtained or to be obtained from our bankers in the ordinary course of business) from Rs.75 billion to Rs.120 billion.

Cash Flow Data

The following table sets forth selected items from our consolidated statements of cash flows for the periods indicated and shows the percentage change between periods.

 

                       Percentage Change  
     2005     2006     2007     2005 to 2006     2006 to 2007  

Net Cash provided by Operating Activities:

   23,627     5,666     17,498     -76.0 %   208.9 %

Net Income

   13,256     15,011     18,112      

Adjustments

   5,276     5,254     7,887      

Changes in Operating Assets and Liabilities

   5,095     (14,599 )   (8,501 )    

Net Cash used in Investing Activities

   35,406     9,050     53,964     -74.4 %   496.3 %

Purchase of Property,Plant and Equipment and Intangible Assets (Net)

   8,847     10,539     24,236      

Net Investments, Short Term deposits and Loans given

   15,704     (20,215 )   (6,155 )    

Acquisitions

   187     4,304     —        

Finance Receivables (net of proceeds from sale)

   10,946     14,611     36,333      

Others

   (278 )   (189 )   (450 )    

Net Cash provided by Financing Activities

   9,987     4,450     38,474     -55.4 %   764.5 %

Equity Issuance (Net of issue expenses)

   756     259     (1 )    

Proceeds from issue of shares by a subsidiary to minority shareholders

   739     415     162      

Dividends Paid (including to minority shareholders

of subsidiaries)

   (1,773 )   (5,275 )   (5,830 )    

Net Borrowings

   10,265     9,051     44,143      

See consolidated statement of cash flows on Pages F-6 and F-7 for details.

Net cash provided by operating activities was Rs.23,627 million, Rs.5,666 million and Rs.17,498 million in fiscal 2005, 2006 and 2007, respectively. An increase in accounts payable was offset by an increase in inventories, accounts receivable and other current assets. Our accounts receivable increased by Rs.1,720 million, Rs.2,782 million and Rs. 4,993 million in fiscals 2005, 2006 and 2007, respectively.

Net cash used in investing activities was Rs.35,406 million, Rs.9,050 million and Rs.53,964 million in fiscal 2005, 2006 and 2007, respectively. During fiscal 2007, cash used in investing activities was primarily towards increase in finance receivables and capital expenditure relating mostly to a capacity expansion of our production facilities, introduction of new products, quality and reliability improvement aimed at operating cost reductions. Cash outflow on account of capital expenditures for property, plant and equipment were Rs.8,557 million, Rs.10,355 million and Rs.24,122 million in fiscal 2005, 2006 and 2007, respectively.

There was a net cash inflow from financing activities of Rs.9,987 million, Rs.4,450 million and Rs.38,474 million during fiscals 2005, 2006 and 2007, respectively. During fiscal 2007, we repaid long term debt of Rs.2,292 million, and Rs.21,667 million was received from proceeds related to the issue of long term debt.

Certain of our subsidiaries and equity method affiliates have contractual and other limitations in respect of their ability to transfer funds to us in the form of cash dividends, loans or advances. However this has not had and is not expected to have any impact on our ability to meet our cash obligations.

Balance Sheet Data.

Total Assets were Rs.271,015 million and Rs.202,158 million as of March 31, 2007 and 2006, respectively. The increase in the total assets during fiscal 2007 was primarily due to a significant increase in finance receivables following the robust growth in the vehicle financing business, increase in property, plant and equipment and other non-current assets.

Total shareholders’ equity was Rs.91,369 million and Rs.81,016 million as of March 31, 2007 and 2006, respectively. Share capital increased from Rs.3,829 million as of March 31, 2006 to Rs.3,854 million as of March 31, 2007 and additional paid-in-capital increased from Rs.38,774 million to Rs.39,711 million as of March 31, 2007. The increase was attributable to the conversion of outstanding convertible debt securities. As of March 31, 2007, an aggregate of 99.94% of our issued $100 million 1% Convertible Notes due 2008 and 93.89% of our issued $100 million Zero Coupon Convertible Notes due 2009 were converted into ADSs/ordinary shares. Retained earnings were Rs.32,135 million as of March 31, 2007 compared to Rs.20,401 million as of March 31, 2006.

 

32


Table of Contents

Our total debt stood at Rs.79,137 million as of March 31, 2007 compared to Rs.36,641 million as of March 31, 2006. This increase was mainly on account of an increase in short term debt raised during the fiscal year to fund the growth in our vehicle financing activity and an increase in long term debt raised to support our on going capital expenditure program and our growing vehicle financing activity. The short term debt, excluding the current portion of the long-term debt, was Rs.33,145 million as of March 31, 2007 as compared to Rs.7,973 million as of March 31, 2006, while the long term debt, excluding the current portion, increased from Rs.27,203 million to Rs.40,235 million as of March 31, 2007. Including the current portion of long-term debt, the short term debt was Rs.38,902 million as of March 31, 2007 compared to Rs.9,438 million as of March 31, 2006, respectively.

As of March 31, 2007, we had cash and cash equivalents of Rs.7,653 million of which Rs. 997 million is held foreign currencies compared to Rs.6,316 million of which Rs. 1,678 million is held in foreign currencies as of March 31, 2006. Short-term bank deposits were Rs.173 million as of March 31, 2007 as compared to Rs.4,915 million as of March 31, 2006. This decline is attributable to utilization of such deposits.

Gross accounts receivables increased by 35.1% during fiscal 2007 by Rs.5,203 million to Rs.20,031 million as of March 31, 2007.

Gross finance receivables (excluding non-current receivables) stood at Rs.29,434 million as of March 31, 2007 as compared to Rs.21,300 million as of March 31, 2006. This increase was primarily due to a significant increase in vehicle financing driven by increased units financed.

As of March 31, 2007, inventories stood at Rs.33,923 million as compared to Rs. 26,304 million as of March 31, 2006, primarily reflecting the impact of increased unit production. Also, on account of an increase in prices of commodities, especially steel and non-ferrous metals, inventory of raw materials and components increased during the fiscal year. Inventory number of days decreased to 33 days in fiscal 2007, compared to 35 days in fiscal 2006.

Our investment portfolio decreased to Rs.22,258 million as of March 31, 2007 compared to Rs.24,851 million as of March 31, 2006. The decrease was primarily due to the sale of available-for-sale investments during the year.

As of March 31, 2007, goodwill and intangible assets stood at Rs.10,229 million compared to Rs.9,389 million as of March 31, 2006.

Capital Expenditure

Capital expenditure aggregated Rs.25,277 million, Rs.10,734 million and Rs.9,163 million during fiscals 2007, 2006 and 2005, respectively. Our capital expenditures during the past three years have related mostly to capacity expansion of our production facilities, the introduction of new products like Tata Ace, quality and reliability improvements aimed at operating cost reductions.

We will continue to invest in our business units and research and development over the next several years, including committed capital expenditures for our ongoing projects, new projects, product development programs, mergers, acquisitions and strategic alliances. In particular, we have been implementing a program to build and expand our presence in the passenger vehicle market and to expand and enhance our leading position in the Indian commercial vehicle market, both by improving our existing product range and developing new products and platforms.

As a part of our future growth strategy for the domestic market and to seek a meaningful presence in the global markets, we plan to incur approximately Rs.120 billion in the next three to four fiscal years towards product development, capital expenditure in capacity enhancement, plant renewal and modernization and other meaningful growth opportunities. 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

Liabilities and Sources of Financing

We fund our short-term working capital requirements with cash generated from operations, overdraft facilities with banks, short and medium term borrowings from lending institutions, banks and commercial paper. The maturities of these short and medium term borrowings and debentures are generally matched to particular cash flow requirements. We had short term borrowings (including the current portion of long-term debt) of Rs.38,902 million and Rs.9,438 million as of March 31, 2007 and 2006, respectively. We had unused short-term credit facilities of Rs.19,871 million and Rs.23,637 million as of March 31, 2007 and 2006, respectively.

In July 2003, we raised US$ 100 million through an offering of 1% convertible notes, due in 2008. The notes are convertible into ordinary shares or global depositary shares, at the option of the holder, at a price of Rs.250.745 per ordinary share. The notes are subject to redemption at our option any time after July 31, 2006. Unless previously converted, redeemed or purchased and cancelled, the Notes are redeemable on July 31, 2008 at 116.824% of the principal amount. US$ 0.06 million of these notes were outstanding as on March 31, 2007.

On April 27, 2004, we raised $400 million through a two-tranche offering of zero coupon and 1% convertible notes due in 2009 and 2011, respectively. The $100 million zero coupon notes, due in 2009, are convertible into ordinary shares or global depositary shares at a price of Rs.573.106 per share, subject to adjustment, from and including June 7, 2004 to and including March 28, 2009 and are subject to redemption at our option any time on or after April 27, 2005. The $300 million 1% notes, due in 2011, are convertible into ordinary shares or depositary shares at a price of Rs.780.400 per share, subject to adjustment, from and

 

33


Table of Contents

including June 7, 2004 to and including March 28, 2011. For each tranche, there is a fixed rate of exchange of on conversion of Rs.43.85 =US$ 1.00. $6.2 million of the $100 million zero coupon notes, due in 2009, were outstanding as on March 31, 2007. None of $300 million 1% notes, due in 2011 were converted prior to March 31, 2007

On March 20, 2006, we issued an aggregate principal amount of JP ¥ 11,760 million (Rs.4,500.3 million) of Zero Coupon Convertible Notes due on March 21, 2011, resulting in proceeds to us of $100 million. The noteholders have an option to convert these notes into ordinary shares or ADSs at an initial conversion price of Rs.1,001.39 per share with a fixed rate of exchange on conversion of Rs.1.00 per JP¥ 2.66, from and including May 2, 2006 to and including February 19, 2011. The conversion price will be subject to certain adjustments. Further, we have a right to redeem in whole, but not in part, these notes at any time on or after March 20, 2009 but prior to February 8, 2011, subject to certain conditions. Unless previously converted, redeemed or purchased and cancelled, these notes will be due for redemption on March 21, 2011, at 99.253% of the principal amount. None of these Notes were converted prior to March 31, 2007.

On July 11, 2007, we issued an aggregate principal amount of US $ 490 million (Rs.19,927.08 million) of Zero Coupon Convertible Alternative Reference Securities (“CARSTM”) due on July 12, 2012. The noteholders have an option to convert these notes into (i) in the event there has been a Qualifying Issue (as defined in the Indenture relating to the CARSTM ) by the time of conversion, into Qualified Securities (“QSs”), or (ii) in the event that there has not been a Qualifying Issue by the time of conversion or there has been a Qualifying Issue but we notify the holders of the CARS™ (the “Holders”) that the CARS™ are no longer convertible into QSs, into our newly issued ordinary shares or ADSs at the option of the Holders. The conversion may be made by the Holders at any time during the period from and including October 11, 2011 to and including June 12, 2012 at an initial conversion price (the “Conversion Price”) of Rs. 960.96 per Share (equivalent to US$23.67 at a fixed rate of exchange on conversion of Rs.40.59 = US$1.00 (the “Fixed Conversion Rate”)). The Conversion Price is subject to adjustment in certain circumstances. Further, we have a right to redeem in whole, but not in part, these notes at any time on or after October 11, 2011, subject to certain conditions. Unless previously converted, redeemed or purchased and cancelled, these notes will be due for redemption on July 12, 2012, at 131.82% of the principal amount. None of these Notes were converted prior to March 31, 2007.

Our ability to incur additional debt in the future is subject to a variety of uncertainties including, among other things, the amount of capital that other Indian entities may seek to raise in the domestic and foreign capital markets, economic and other conditions in India that may affect investor demand for our securities and those of other Indian entities, the liquidity of Indian capital markets and our financial condition and results of operations. We have a dynamic risk management policy concerning foreign exchange and asset risks faced by the Company.

The following table sets forth our short-term and long-term debt position:

 

     Fiscal 2006    Fiscal 2007
     (Rs. in millions)

Total short-term debt (excluding current portion of long-term debt)

   7,973    33,145

Total current portion of long-term debt

   1,465    5,757

Long-term debt net of current portion

   27,203    40,235
         

Total Debt

   36,641    79,137
         

During fiscal 2007 and 2006 , the effective weighted average interest rate on our long-term debt was 4.84% and 4.60% per annum, respectively.

As of March 31, 2007, approximately 53.4% of our long-term debt was denominated in rupees and the balance was denominated in dollars and other non-rupee currencies. During fiscal 2007, our effective cost of borrowing increased due to increase in interest rates in India during the fiscal year.

The following table sets forth a summary of the maturity profile for our outstanding long-term debt obligations as of March 31, 2007.

 

Payments Due by Period

   Rs. in millions

Repayment within 1 year

   5,757

After one and up to two years

   14,448

After two and up to five years

   25,719

After five and up to ten years

   68
    

Total

   45,992
    

Some of the long-term debt agreements contain financial covenants that require us to satisfy and/or maintain financial tests and ratios on a non-consolidated basis under Indian GAAP, including debt service coverage ratios, long term debt to equity ratios, minimum net worth and external liabilities to net worth ratios and maintaining non-performing assets of less than 3% of finance receivables. The terms of certain of our long-term debt agreements require us to obtain prior consent for certain specified actions including amendment of our charter documents and for creation of any lien on our properties other than for specified purposes.

As a result of our increase in our long term debt during fiscal 2007 as compared to fiscal 2006, the ratio of net debt to

 

34


Table of Contents

shareholders’ equity (total debt less cash and cash equivalents and liquid marketable securities divided by total shareholders’ equity) under US GAAP increased from 0.34 to 0.77 as of March 31, 2006 and 2007, respectively. Details of the calculation of this ratio are set forth in Exhibit 7.1 to this annual report.

The following table sets forth our contingent liabilities as of the dates indicated.

 

     Fiscal 2005    Fiscal 2006    Fiscal 2007
     (Rs. in millions)

Income tax

   1,157    2,837    6,342

Excise duties

   1,231    479    869

Sales tax

   3,842    1,907    2,463

Other taxes and claims(1)

   1,241    1,179    1,161

Other contingencies(2)

   9,894    24,184    58,083
              

Total

   17,365    30,586    68,918

(1) Other taxes and claims include claims by other revenue authorities and distributors. See Item 4.B “—Business Overview — Legal Proceedings”, of this annual report.
(2) Other contingencies consisted of:
   

Rs.3,271 million, Rs.6,522 million, and Rs.5,700 million in fiscal 2005, 2006 and 2007, respectively with respect to liabilities for bills discounted and export sales on deferred credit,

   

Rs.799 million, Rs.5,113 million and Rs.11,767 million in fiscal 2005, 2006 and 2007 respectively with respect to other guarantees, including with respect to receivables assigned by way of securitization, and

   

Rs.5,823 million, Rs.12,549 million and Rs.40,616 million in fiscal 2005, 2006 and 2007 respectively with respect to executory contracts on capital accounts not otherwise provided for.

On an ongoing basis, our legal department reviews pending cases, claims by third parties against us and other contingencies. For the purposes of financial reporting, we periodically classify these matters into gain contingencies and loss contingencies. Gain contingencies are not recognized until the contingency has been resolved and amounts are received or receivable. For loss contingencies that are considered probable, an estimated loss is recorded as an accrual in our accounts and, if the matter is material, the estimated loss is disclosed in our financial statements. We do not consider any of these matters to be individually sufficiently material to warrant disclosure in our financial statements. Loss contingencies that are considered reasonably possible are not provided for in our accounts, but if we consider such contingencies to be material, individually or in the aggregate, they are disclosed in our financial statements. Most loss contingencies are classified as reasonably possible unless clearly frivolous, in which case they are classified as remote and are monitored by our legal department on an ongoing basis for possible deterioration. We do not disclose remote matters in our financial statements. See note 22 of our audited consolidated financial statements for additional information regarding our material claims and contingencies.

Since fiscal 1997, we have benefited from participation in the Export Promotion Capital Goods Scheme, or the EPCG Scheme, which permits us to import capital equipment under a special license at a substantially reduced customs duty, 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 insurance and freight value of these imports or customs duty saved, over a period of 8 or 12 years from the date of obtaining the special license. We currently hold eight licenses that require us to export our products of a value of approximately Rs.71.49 billion between 2002 and 2015, and we carefully monitor our progress in meeting our incremental milestones. Of this amount, we have already achieved exports of approximately Rs.50.05 billion as of March 31, 2007. This leaves us with a remaining obligation to export products of a value of approximately Rs.21.44 billion by March 2015. 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 obligations in the required time frame.

 

35


Table of Contents

Finance Receivables

In fiscal 2007 and 2006, 31% and 24%, respectively, of our sales volumes were financed under hire-purchase/loan contracts to our customers. As of March 31, 2007 and 2006, our customer finance receivable portfolio was comprised of 383,738 contracts and 228,838 contracts, respectively, with gross stock-on-hire of approximately Rs.157,330 million and Rs.90,167 million, respectively. We follow specified internal procedures including quantitative guidelines for selection of our finance customers to assist in managing default and repayment risk in our portfolio, and take security against loans extended. We originate all the contracts through our authorized dealers with whom we have long-term agreements. All our marketing and sales activity is undertaken through dealers, including our division known as Tata Motorfinance and our subsidiary company Tata Motor Finance Ltd., and collections are carried out by our authorized dealers.

We securitize or sell most of our finance receivables on a regular basis to monetize these assets. We undertake a sale of the receivables in respect of finance agreements due from pools of purchasers. 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 as to the marketability of a pool. We undertake these securitizations of our receivables in either or both of the following forms:

 

   

assignment of the receivables due from purchasers under hire-purchase agreements; and

 

   

securitization of receivables due from purchasers by means of private placement.

We act as collection agent on behalf of the investors, representatives, special purpose vehicles or banks in whose favor the receivables are to be 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. We also secure the payments to be made by the purchasers of amounts constituting the receivables under the hire-purchase agreements to the extent specified by rating agencies by any one or all of the following methods:

 

   

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

 

   

by depositing, in favor of the investors, amounts not exceeding 10% of the gross receivables as cash collateral to secure the obligations of the purchasers and our obligations as the collection agent; and

 

   

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

The following table sets forth details of the securitization undertaken by us as of the periods indicated:

 

     Fiscal 2006     Fiscal 2007  
     (Rs. million )  

Securitized value

   72,684     122,967  

Balance payable

   35,972     59,847  

Overdue as a % of amount securitized

   1.3 %   2.2 %

Recent Developments.

On July 11, 2007, we issued an aggregate principal amount of US $ 490 million (Rs.19,927.08 million) of Zero Coupon Convertible Alternative Reference Securities (“CARSTM”) due on July 12, 2012. The noteholders have an option to convert these notes into (i) in the event there has been a Qualifying Issue (as defined in the Indenture relating to the CARSTM ) by the time of conversion, into Qualified Securities (“QSs”), or (ii) in the event that there has not been a Qualifying Issue by the time of conversion or there has been a Qualifying Issue but we notify the holders of the CARS™ (the “Holders”) that the CARS™ are no longer convertible into QSs, into our newly issued ordinary shares, or ADSs, each currently representing one Share, at the option of the Holders.

In June 2007, we launched two new products: the Magic and the Winger. The Magic, developed on the platform of our successful Tata Ace, is a four-wheel vehicle for public transportation in the urban and rural areas. The Winger—India’s only maxi-van, offers a blend of the comfort of a car with the spaciousness of a bus for intra-city and long distance transportation needs. We believe that the two products will create new segments and in a complementary manner help to cover the full spectrum of customer needs in mass transportation.

On September 18, 2007, Mr. Praveen P. Kadle resigned from his position as Executive Director (Finance and Corporate Affairs) of Tata Motors and was appointed as Managing Director of Tata Capital Limited. Tata Capital Limited is a new company promoted by Tata Son, and will be the main financial services provider among the Tata Sons promoted entities. Mr. C. Ramakrishnan was appointed as the Chief Financial Officer of Tata Motors with effect from September 18, 2007.

Capacity expansion plans.

We have acquired land on a long term lease in Singur at West Bengal and Dharwad at Karnataka for setting up additional manufacturing capacities for passenger and commercial vehicles.

 

36


Table of Contents

C. Research and Development, Patents and Licenses, etc.

Please see Item 4.B of this annual report for the information required by this item.

D. Trend Information.

Please see Item 5.A of this annual report for the information required by this item.

E. Off-balance Sheet Arrangements

We use off-balance sheet arrangements where the economics and sound business principles warrant their use. Our principal use of off-balance sheet arrangements occurs in connection with the securitization and sale of finance receivables generated in the ordinary course of our business. The receivables securitized and sold consist primarily of retail loans secured by vehicles sold through our dealer network.

Assets in off-balance sheet entities were as follows:

 

     Fiscal 2006    Fiscal 2007    Fiscal 2007
     (in Rs. millions)    (in US$ millions)

Finance receivables

   35,972    59,847    1,389

We have provided bank guarantees aggregating Rs. 11,767 million relating to certain securitized receivables to certain special purpose entities (“SPEs”). Our liability would crystallize in the event customers fail to fulfill their obligations under the contract and the SPE serves a notice of shortfall in collections on us. The term of each guarantee depends upon the weighted average term of each pool of finance receivables securitized. In the event a guarantee is called, we have the right to repossess the financed vehicle and to auction the vehicle. The maximum potential amount of future payment that we would be required to make is Rs.11,767 million as of March 31, 2007. We have recognized a liability of Rs.1,079 million for these guarantees.

F. Tabular Disclosure of Contractual Obligations.

 

     Payments due by Period
     (Rs. in millions)
     Total    Less than 1 year    1 year to 3 years    3 years to 5 years    5 years or more

Long Term Debts

   45,992    5,757    21,546    18,621    68

Capital Leases

   95    30    41    24    —  

Operating Leases

   623    175    262    132    54

Purchase obligations

   40,616    37,983    2,633    —      —  

Other Liabilities

   8,595    —      5,237    826    2,532
                        

Total

   95,921    43,945    29,719    19,603    2,654
                        

 

Item 6. Directors, Senior Management and Employees.

A. Directors and Senior Management.

Board of Directors.

Under our Articles of Association, the number of our Directors cannot be less than three nor more than fifteen. At present, there are ten Directors, including a nominee Director of Tata Steel Limited, or Tata Steel. Our Board of Directors, or the Board, has the power to appoint Managing Directors and Executive Directors.

Our Articles of Association provide that the Board of Directors of Tata Steel, which, with its subsidiary, owns, as of March 31, 2007, 8.62% of our shares, has the right to nominate one Director (the Steel Director) to the Board. Dr. J.J. Irani is the current nominee Director of Tata Steel.

In addition, our Articles of Association provide that (a) our debenture holders have the right to nominate one Director (the Debenture Director) if the trust deeds relating to outstanding debentures require the holders to nominate a Director; and (b) Financial Institutions in India, have the right to nominate two Directors, (the Financial Institutions Director) to the Board pursuant to the terms of loan agreements. Currently, there is no Debenture Director or Financial Institutions Director on the Board.

Mr. S. A. Naik, previously Director, retired at the Annual General Meeting held on July 9, 2007 and did not seek re-election.

In May 2007, Mr. P. M. Telang was appointed as our Executive Director and is now responsible for Commercial Vehicle Business. In August 2007, Dr. R. A. Mashelkar was appointed as our Non-Executive Independent Director.

 

37


Table of Contents

The Directors may be appointed by the Board or by a General Meeting of the shareholders. The Board may appoint any person as an additional Director, but such a Director must retire at the next Annual General Meeting unless re-elected by the shareholders after complying with the provisions of the Companies Act. A casual vacancy caused on the Board due to death or resignation of a sitting member can be filled by the Board; but such a person can remain in office only for the unexpired term of the person in whose place he was appointed. On the expiry of the term, he will retire unless re-elected by the shareholders. The Board may appoint an Alternate Director in accordance with the provisions of the Companies Act to act for a Director during his absence, which period of absence shall not be less than three months.

Two-thirds of the total numbers of Directors on the Board are subject to retirement by rotation, and of these Directors, one third must retire every year. The Directors to retire are those who have been the longest in office. Our Directors are not required to hold any of our shares by way of qualification shares.

As of March 31, 2007, our Directors and Executive Officers, in their sole and joint names, beneficially held an aggregate of 77,572 shares (approximately 0.02% of our issued share capital). In addition, some of our Directors hold as trustees for various non-affiliated trusts, an aggregate of 354,976 shares (representing approximately 0.09% of our issued share capital).

The following table provides information about our current Directors, Executive Officers and Chief Financial Officer as at September 24, 2007:

 

Name

  

Position

  

Date of Birth/

Business
Address (1)

  

Year
appointed as
Director

or Executive
Officer or
Chief
Financial
Officer

   Expiration of
Term
  

Number of
shares
beneficially
owned as of

September 24,
2007 (2)

Ratan N. Tata

   Chairman    Dec. 28, 1937    1981    2008    53,288

N.A. Soonawala

   Director    Jun. 27, 1935    1989    2007    Nil

J.J. Irani

   Director    Jun. 2, 1936    1993    Non-rotational    1,850

V.R. Mehta

   Director    Jan. 12, 1934    1998    2009    9,332

R. Gopalakrishnan

   Director    Dec. 25, 1945    1998    2008    3,750

N.N. Wadia

   Director    Feb. 15, 1944    1998    2009    Nil

Ravi Kant

   CEO & Managing Director    Jun. 1, 1944    2000    Non-rotational    Nil

S. M. Palia

   Director    Apr. 25,1938    2006    2010    200

P. M. Telang

   Executive Director    Jun. 21, 1947    2007    2012    1120

R. A. Mashelkar

   Director    Jan. 1, 1943    2007    2008    Nil

C. Ramakrishnan

   Chief Financial Officer    Jun. 27, 1955    2007       372

(1) The business address of each of our Directors, Executive Officers and Chief Financial Officer, other than as described immediately below, is Bombay House, 24 Homi Mody Street, Mumbai 400 001. The business address of V.R. Mehta is Ganesh Deep, 373, Anand Vihar, Block ‘D’, New Delhi 110 092, India, the business address of N.N. Wadia is The Bombay Dyeing & Manufacturing Co. Ltd., Hemming Building Office, Pandurang Budhkar Marg, Prabhadevi, Mumbai 400 025, India, the business address of S. M. Palia is 16, Ruchir Bungalows, Vastrapur, Beyond Sarathi Hotel, Ahmedabad-380054, the business address of R. A. Mashelkar is Raghunath, D-4, Varsha Park, Baner, Pune 411045, India.
(2) Each of our Directors, Executive Officers and Chief Financial Officer beneficially owns less than 1% of our shares as of March 31, 2007.

Biographies

Set forth below is a short biography of each of our Directors, Executive Officers and Chief Financial Officer:

Mr. Ratan N. Tata (Chairman). Mr. Tata holds a B.Sc. (Architecture) degree from Cornell University, USA and has completed the Advanced Management Program at Harvard University, USA. He joined NELCO Limited in 1962 and is the Chairman of the Tata Sons Limited and other Tata Sons promoted entities including us. Mr. Tata is associated with various organizations in India and abroad. He is the Chairman of the Government of India’s Investment Commission and a member of Prime Minister’s Council on Trade and Industry, the National Hydrogen Energy Board and the National Manufacturing Competitiveness Council. He also serves, on the International Investment Council, South Africa, the International Business Advisory Council of the British Government, the Asia-Pacific Advisory Committee to the Board of Directors of the New York Stock Exchange and the International Advisory Boards of the Mitsubishi Corporation, the American International Group and JP Morgan Chase. Mr. Tata has been on our Board since August 1981 and has spent more than 14 years in an executive capacity and is actively involved with product development and other business strategies pursued by us.

Mr. N.A. Soonawala. Mr. Soonawala is an honors graduate in commerce from the University of Bombay and a Chartered Accountant from the Institute of Chartered Accountants of India. He has wide exposure in the field of finance, including having previously worked with ICICI, Washington. He joined Tata Sons Limited in 1968 and was a Finance director until June 2000. He is on the boards and committees of various Tata Sons promoted entities including Tata Sons as Director. Mr. Soonawala has been on our Board since May 1989.

Dr. J.J. Irani. Dr. Irani obtained a B.Sc. degree from Science College, Nagpur in 1956 with a Gold Medal in Geology and a M.Sc. (Geology) degree from the Nagpur University in 1958, both with first class. He also obtained M.Met. and Ph.D. degrees from the University of Sheffield, UK, in 1960 and 1963 respectively, with a Gold Medal for the Ph.D. Thesis. In 1993, the University of Sheffield conferred upon him the Honorary Degree of “Doctor of Metallurgy”. Dr. Irani was conferred an honorary knighthood in 1997 by the Queen of England for his contribution towards strengthening the Indo-British Partnership. He is also on the boards of various Tata companies and has been on our Board as a Tata Steel Nominee since June 1993.

 

38


Table of Contents

Mr. V.R. Mehta. Mr. Mehta holds a B.E. (Honours) degree from the University of Rajasthan. Mr. Mehta has considerable financial and project evaluation expertise, both at national and international levels. Mr. Mehta worked as a senior expert for the Asian Development Bank and earlier held a senior level position with the Indian Federal Ministries of Railways, Shipping and Transport. He played a key role in financial revamping and rationalization processes of major ports in India and has participated in important diplomatic missions and has represented India in International Conferences. Mr. Mehta is on the Board of other companies in his individual capacity or a nominee of financial institutions or foreign companies. Mr. Mehta joined our Board in June 1998 as a Financial Institutions nominee and is now on the Board in his individual capacity since September 2005.

Mr. R. Gopalakrishnan. Mr. Gopalakrishnan holds a Bachelor’s degree in Science and a B.Tech (Electronics) degree from the Indian Institute of Technology (IIT), Kharagpur. He is also an Executive Director of Tata Sons Limited and a member of the Group Executive Office of Tata Sons Limited, besides being on the Boards of various Tata companies. Prior to joining Tata Motors in August 1998, he was the Vice-Chairman of Hindustan Lever Limited.

Mr. N.N. Wadia. Educated in the UK, Mr. Wadia is the Chairman of Bombay Dyeing & Manufacturing Company Limited and heads the Wadia Group. He is also the Chairman/Trustee of various charitable institutions and non-profit organizations. Mr. Wadia has been on our Board since December 1998.

Mr. S. M. Palia. Mr. Palia is a graduate, both in Commerce and Law with CAIIB and AIB ( London ) degree in banking. Mr.Palia was a development banker by profession prior to his retirement. From 1964-1989, he worked for the Industrial Development Bank of India, where he held a number of positions, including that of an Executive Director. He has also acted as an advisor to the Industrial Bank of Yeman and the Industrial Bank of Sudan, under World Bank assistance programmes. In addition, he was the Managing Director of Kerala Industrial and Technical Consultancy Organization Limited, a company set up to provide consultancy services to micro, small and medium enterprises. Mr. Palia is on the Boards of various companies in the industrial and financial service sectors and is also actively involved as a trustee in various non governmental organizations and trusts. He was appointed on our Board with effect from May 19, 2006. Mr. Palia is also the financial expert on the Audit Committee.

Dr. R. A. Mashelkar, Dr. Mashelkar is a chemical engineer who has recently retired from the post of Director General from the CSIR, an industrial research and development institutions chain. Dr. Mashelkar is the President of the Indian National Science Academy (INSA), National Innovation Foundation, Institution of Chemical Engineers, and UK and Global Research Alliance. Dr. Mashelkar has also been elected as a Fellow / Associate of the Royal Society (FRS), London (1998), National Academy of Science (USA) (2005), US National Academy of Engineering (2003), Royal Academy of Engineering, UK (1996) and World Academy of Art & Science, USA (2000). Dr Mashelkar has won over 50 awards and medals at national and international levels, including the JRD Tata Corporate Leadership Award and the Stars of Asia Award (2005).

Mr. Ravi Kant (Managing Director). Mr. Kant holds a Bachelor of Technology degree from the IIT, Kharagpur and a Masters in Science in management techniques from Aston University, Birmingham, UK. Mr. Kant has wide and varied experience in the manufacturing and marketing field, particularly in the automobile industry. Prior to joining us, he was with Philips India Limited as Director of Consumers Electronics business and prior to that, with LML Ltd. as Senior Executive Director (Marketing) and Titan Watches Limited as Vice President (Sales & Marketing). Mr. Kant was also employed with Kinetic Engineering Limited, Hindustan Aluminum Company Limited and Hawkins Cookers Limited. Mr. Kant had been an Executive Director since May 2000, responsible for manufacturing and marketing of commercial vehicles and manufacturing of utility vehicles and was appointed as our Managing Director on July 29, 2005 and now overseas our day to day operations. Mr. Kant is our CEO.

Mr. P. M. Telang (Executive Director). Mr. Prakash Telang holds a Bachelor’s Degree in Mechanical Engineering and an MBA from IIM, Ahmedabad. Mr. Telang has over three decades of functional expertise in the automotive industry and machinery manufacturing. From August 1967 to June 1970, he served as Assistant Engineer at M/s Larsen & Toubro, he joined the TAS (Tata Administrative Services) cadre in June 1972. Since joining Tata Motors Limited, he has been responsible for product development, manufacturing, sales and marketing functions of the Strategic Business unit of the Light & Small Commercial Vehicles division. Mr. Telang has been appointed as Executive Director (Commercial Vehicles) of the Company effective May 18, 2007.

(Chief Financial Officer)

Mr. C. Ramakrishnan. Mr. C. Ramakrishnan, aged 51 years, joined Tata Motors Limited in 1980 as a Junior Accounts Officer in H.O. Accounts, Mumbai. He handled corporate treasury and accounting functions as well as management accounting. After a two-year company-wide IT project responsibility covering R&D, manufacturing, sourcing and sales & service, he has been working in the Chairman’s Office for the last 6 years. Mr. Ramakrishnan holds a B.Com. degree and is a qualified Chartered Accountant and Cost Accountant. Post Mr Kadle’s resignation as Executive Director and Chief Financial Officer, Mr Ramakrishnan was appointed as the Chief Financial Officer of Tata Motors with effect from September 18, 2007.

There is no family relationship between any of our Directors, Executive officers or Chief Financial Officer.

B. Compensation.

The following table provides the annual compensation paid to our Directors and Executive Officers for fiscal 2007.

 

Name

  

Position

   Remuneration 2 (in Rupees)

Ratan N. Tata 4

   Chairman    5,331,000

N.A. Soonawala

   Director    3,645,000

J.J. Irani

   Director    1,520,000

J.K. Setna 1, 4

   Director    965,000

V.R. Mehta 4

   Director    6,480,000

R. Gopalakrishnan5

   Director    2,530,000

N.N. Wadia

   Director    745,000

S.A. Naik

   Director    2,530,000

S.M. Palia

   Director    1,840,000

Ravi Kant 3

   Managing Director & CEO    24,051,000

P.P. Kadle 3, 5, 6

   Executive Director & CFO    21,682,000

C. Ramakrishnan 3, 5, 7

   Chief Financial Officer    8,735,000

1 Ceased to be a Director with effect from July 11, 2006.
2 Includes salary, allowance, taxable value of perquisites, commission and our contribution to provident fund and superannuation fund for Managing/Executive Directors and sitting fees and commission for Non-Executive Directors.
3 Rounded to nearest thousands of rupees and excludes provision for cashable leave and gratuity as a separate actuarial valuation is not available.
4 The remuneration paid to Mr. J. K. Setna and Mr. V. R. Mehta includes sitting fees and commission paid by Telco Construction Equipment Company Limited and in case of Mr. V. R. Mehta sitting fees paid by TML Financial Services Ltd. and for Mr. R. N. Tata sitting fees paid by Tata Motors European Technical Centre plc.
5 The above does not include Employee Stock Options granted by TTL, our unlisted subsidiary, to Mr. R. Gopalakrishnan and Mr. C. Ramakrishnan who have exercised 10,000 options each, which were vested in them during fiscal 2006 and 2007 (at 5000 options p.a.), respectively, at Rs.30 per share of TTL and Mr. P.P. Kadle who has exercised 5,000 options, which were vested in him during fiscal 2007 at Rs.30 per share of TTL.
6 Ceased to be Executive Director and Chief Financial Officer with effect from September 18, 2007
7 Chief Financial Officer with effect from September 18, 2007.

 

39


Table of Contents

Apart from the above, the Managing and Executive Director are also eligible to receive special retirement benefits at the discretion of the Board on their retirement, which include housing, monthly pension and medical benefits.

Our Managing Director and our Executive Director are entitled to six months’ salary as severance fees upon termination of their contracts by us.

C. Board Practices.

The Board size of ten directors is commensurate with our size and in line with the industry. The Board consists of executive, non-executive and independent directors. Appointments of new directors are considered by the full Board and our shareholders at each year’s Annual General Meeting.

The role of the Chairman and the Chief Executive are distinct and separate with appropriate powers being delegated to the Managing Director and the Executive Directors to perform the day to day activities of the Company.

The Board, along with its Committees, provides leadership and guidance to our management, in particular with respect to corporate governance, business strategies and growth plans, the identification of risks and their mitigation strategies, entry into new businesses, product launches, demand fulfillment and capital expenditure requirements, and the review of our plans and targets.

The Board has delegated powers to the Committees of the Board through written/stated terms of reference and oversees the functioning operations of the Committees through various circulars / minutes circulated to it. The Board also undertakes our subsidiaries’ oversight functions through review of their performance against their set targets, advises them on growth plans and, where necessary, gives strategic guidelines.

Committees.

The Audit Committee is comprised of the following three independent directors: V. R. Mehta, Chairman, S. M. Palia, S A Naik (until July 2007) and N. N. Wadia. The scope of the Audit Committee includes:

 

 

Reviewing the quarterly financial statements before submission to the Board, focusing primarily on:

 

  -  

any changes in accounting policies and practices and reasons for any such change;

 

  -  

major accounting entries involving estimates based on an exercise of judgment by Management;

 

  -  

qualifications in draft audit reports;

 

  -  

significant adjustments arising out of audits;

 

  -  

compliance with accounting standards;

 

  -  

analysis of the effects of alternative GAAP methods on the financial statements;

 

  -  

compliance with listing and other legal requirements concerning financial statements;

 

  -  

disclosure of related party transactions;

 

  -  

review Reports on the Management Discussion and Analysis of financial condition Report, Results of Operations and the Directors’ Responsibility Statement;

 

  -  

overseeing our financial reporting process and the disclosure of its financial information, including any earnings press release, to ensure that the financial statements are correct, sufficient and credible; and

 

  -  

disclosures made under the CEO and CFO certification to the Board and investors.

 

Reviewing with the management, external auditor and internal auditor the adequacy of our internal control systems and recommending improvements to the management.

 

 

Recommending the appointment / removal of the statutory auditor, fixing audit fees and approving non-audit, consulting services provided by the firms of statutory auditors to us and our subsidiaries; evaluating auditors performance, qualifications and independence.

 

 

Reviewing the adequacy of the internal audit function, including the structure of the internal audit department, coverage and frequency of internal audits, appointment, removal, performance and terms of remuneration of the chief internal auditor.

 

 

Oversight of the companies external financial reporting and monitoring components of internal control over financial reporting.

 

40


Table of Contents
 

Discussing with the internal auditor and senior management, significant internal audit findings and follow-up thereon.

 

 

Reviewing the findings of any internal investigation by the internal auditor into matters involving suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting any such matters to the Board.

 

 

Discussing with the external auditor before the audit commences the nature and scope of such audit, as well as conducting post-audit discussions to ascertain any area of concern.

 

 

Reviewing our financial and risk management policies.

 

 

Reviewing the effectiveness of the system for monitoring compliance with laws and regulations.

 

 

Initiating investigations into the reasons for substantial defaults in payments to the depositors, debenture holders, shareholders (in case of non payment of declared dividends) and creditors.

 

 

Reviewing the functioning of the Whistle-Blower mechanism (which is an extension of the Tata Code of Conduct).

 

 

Reviewing the financial statements and investments made by our subsidiary companies.

The Committee has also adopted policies for the approval of services to be rendered by our independent statutory auditor, based on a procedure for ensuring such auditor’s independence and objectivity, as well as for the oversight of audit work for streamlining the audit process across our subsidiaries.

The Remuneration Committee is empowered to review the remuneration of whole-time directors, retirement benefits to be paid to them and dealing with matters pertaining to Employees’ Stock Option Scheme.

We have not issued any stock options to our directors/employees. The Remuneration Committee is comprised of two independent and two non-executive directors, namely N.N. Wadia (from July 2007), Chairman, Ratan N. Tata, N.A. Soonawala, V.R. Mehta and S. A. Naik (until July 2007).

The Investor Grievance Committee oversees the redressing of investors’ complaints pertaining to securities transfers, interest/dividend payments, non-receipt of annual reports, issue of duplicate certificates and other miscellaneous complaints. Its scope also includes delegation of powers to the executives of the Company or the share transfer agents to process share transfers and other investor-related matters. The Investor Grievance Committee is comprised of R. Gopalakrishnan, S. A. Naik (until July 2007), S. M. Palia, Ravi Kant and P. P Kadle (until September 18, 2007).

The Executive Committee of the Board is comprised of Ratan N. Tata, Chairman, N. A. Soonawala, J. J. Irani, R. Gopalakrishnan, N. N. Wadia, Directors, Ravi Kant, Managing Director and P. P. Kadle, (until September 18, 2007). This Committee came into effect from July 25, 2006, upon the dissolution of the Finance Committee and the Committee of the Board. The Committee reviews revenue and capital expenditure budgets, long-term business strategy, the organizational structure, raising of finance, property related issues, review and sale of investments and the allotment of securities within established limits.

The Ethics and Compliance Committee sets forth policies relating to the implementation of the Tata Code of Conduct for Prevention of Insider Trading, and takes on record the monthly reports and dealings in securities by the “Specified Persons”. It also implements appropriate actions in respect of violations of the Tata Code of Conduct. The Ethics and Compliance Committee is comprised of R. Gopalakrishnan, S. A. Naik (until July 2007) and S. M. Palia. P. P. Kadle, was the Compliance Officer under the said Code until his resignation as Executive Director of Tata Motors with effect from September 18, 2007. Mr. C. Ramakrishnan, our new Chief Financial Officer, currently perform the functional equivalent of the position of compliance officer and is expected to be appointed as the new Compliance Officer.

The Nominations Committee was constituted on July 25, 2006, with the objective of identifying independent directors to be appointed to the Board from time to time to refresh its constitution. The Nominations Committee is comprised of N. N. Wadia, Chairman, Ratan N. Tata, N. A. Soonawala and S. M. Palia.

Apart from the Committees described above, the Board of Directors also constitutes committee(s) of Directors with specific terms of reference as it may deem fit.

Summary Comparison of Corporate Governance Practices

The following is a summary comparison of significant differences between our corporate governance practices and those required by the NYSE for non-U.S. issuers.

Independent directors: The Board has determined the independence of its directors pursuant to applicable Indian listing requirements. Four directors of the Board of Directors are independent directors pursuant to such requirements. Under such requirements, a non-executive director is considered independent if he:

 

 

apart from receiving director’s remuneration, does not have any material pecuniary relationships or transactions with us or our promoters, our directors, our senior management or our holding company, its subsidiaries and associates which may affect the independence of the director;

 

 

is not related to promoters or person occupying management position at the board level or at one level below the board;

 

 

has not been our executive in the immediately preceding three financial years;

 

 

is not a partner or an executive or was not a partner or an executive during the preceding three years, of our statutory audit firm or internal audit firm or a legal/consulting firm that has a material association with us.

 

 

is not a material supplier, service provider or customer or a lessor or lessee of the Company, which may affect their independence; and

 

 

is not our substantial shareholders, owning two percent or more of our voting shares.

 

41


Table of Contents

Non-management directors meetings: There is no such requirement under applicable Indian legal requirements.

Board Governance and Remuneration Committee and the Audit Committee: The requisite number of members of our Board Governance and Remuneration Committee are independent, as defined under applicable Indian legal requirements. All members of our Audit Committee are independent as defined under Rule 10A-3 under the Exchange Act. The constitution and main functions of these committees as approved by our Board are described above and, we believe, comply with the spirit of the NYSE requirements for non-U.S. issuers.

D. Employees.

We consider our human capital as a critical factor to our success. Under the aegis of Tata Sons and the Tata Sons promoted entities, we have drawn up a comprehensive human resource strategy that addresses key aspects of human resource development such as:

 

   

Code of conduct and fair business practices.

 

   

A fair and objective performance management system linked to the performance of the businesses which identifies and differentiates high performers while offering separation avenues for non-performers.

 

   

Creation of a common pool of talented managers across Tata Sons and the Tata Sons promoted entities with a view to increasing their mobility through inter-company job rotation.

 

   

Evolution of performance based compensation packages to attract and retain talent within Tata Sons and the Tata Sons promoted entities.

 

   

Development of comprehensive training programs to impart and continuously upgrade the industry/function specific skills.

In line with the Human Resource strategy, we, in turn, have recently implemented various initiatives in order to build better organizational capability that we believe will enable us to sustain competitiveness in the global market place.

Our human resources focus is to attract talent, retain the better and advance the best.

Some of the initiatives to meet this objective include:

 

   

Recruitment across the country to meet the requirements of the expansion plans.

 

   

Extensive process mapping exercise to benchmark and align the human resource processes with global best practices.

 

   

Introduction of a globally benchmarked employee engagement survey.

 

   

Succession planning through identification of second level of managers for all units, locations, functions.

 

   

Implementation of a “Fast Track Selection Scheme”, which is a system for identifying potential talent in the areas of general, commercial and operations management and offering them opportunities for growth within the organization. Our human resources team has been invited to replicate this system in other Tata companies.

 

   

Our “Talent Management Scheme” which includes the identification of high performers and high potentials through various routes such as our Performance Management System and Development Centers. Subsequent to the identification process, we provide them with challenging assignments for faster development.

 

   

Introduction of performance rating based salary review and quality linked variable payment for supervisory category of employees.

Other initiatives include:

 

   

Extensive brand building initiatives at university campuses to increase recruiting from premium universities

 

   

Introduction of an employee self service portal and employee help desk for the benefit of employees.

We employed approximately 29,500; 33,536 and 33,900 permanent employees as of March 31, 2005, 2006 and 2007, respectively. The average number of temporary employees for the fiscal year ended March 31, 2007, was approximately 17,832.

The following tables set forth a breakdown of persons employed by our business segments and by geographic location as of March 31, 2007.

 

Segment

  

No. of Employees

  

Location

  

No. of Employees

Automotive

   29,024    India    31,942

Other

   4,876    Abroad    1,958

Total

   33,900    Total    33,900

 

42


Table of Contents

Training and Development

We are committed to building the competences of our employees and improving their performance through training and development. Our focus is on identifying gaps in our employees’ competencies and preparing employees for changes in competitive environments, as well as to meet organizational challenges.

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

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

Union Wage Settlements

All our regular employees in India, other than management, are members of labor unions. We have generally enjoyed cordial relations with our employees at our factories and offices.

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

 

Location

  

Wage Agreement valid until

Pune CVBU

   August 31, 2009

Pune Car Plant

   August 31, 2007

Jamshedpur

   March 31, 2010

Mumbai

   January 31, 2009

Lucknow

   March 31, 2008

A cordial industrial relations environment prevailed in all our manufacturing units.

The performance rating system, introduced for the first time, for the bargainable category in Mumbai and PCBU, has completed two full cycles and the feedback of the process received from all the quarters has been encouraging. Return-ability in wage settlements was built in by introducing quality linked payments based on a quality index as perceived by the customer.

Operatives support in the outsourcing low value added activities and in the implementation of other reforms that impact quality, cost cutting and productivity improvements across all locations.

E. Share Ownership.

The information required by this item is set forth in Item 6.A of this annual report.

 

Item 7. Major Shareholders and Related Party Transactions.

A. Major Shareholders

We are a widely held, listed company with approximately 234,629 shareholders of record. To our knowledge, as of July 1, 2007, the following persons beneficially owned 1% or more of our 385,381,536 Ordinary Shares outstanding at that time:

 

Name of Shareholder

   Holding    Percentage

Tata Sons Limited and subsidiaries

   84,988,908    22.05

Citibank N.A., as Depositary(2)

   42,294,157    10.97

Tata Steel Ltd.(1) and subsidiaries

   33,226,383    8.62

DaimlerChrysler AG

   25,596,476    6.64

Life Insurance Corporation of India Ltd.

   23,519,685    6.10

Tata Industries Limited

   7,734,255    2.01

HSBC Global Investment Funds A/C HSBC Global Investment Funds Mauritius Limited

   7,032,699    1.82

The New India Assurance Company Limited

   5,306,110    1.38

Merrill Lynch Capital Markets Espana S.A. S.V.

   4,248,426    1.10
 
  (1) Formerly, Tata Iron and Steel Company Limited
  (2) Citibank, N.A. as depositary for our ADRs, was the holder on record on July 2007 of 42,294,157 shares on behalf of the beneficial owners of deposited shares.

 

43


Table of Contents

From March 31, 2004 to March 31, 2007, the holdings of our largest shareholder, Tata Sons Limited (together with its subsidiaries), have marginally declined from 22.55% to 22.05%. Tata Steel Ltd. (together with its subsidiaries) has substantially increased its shareholdings, but its percentage shareholding has decreased slightly from 9.22% as of March 31, 2004 to 8.62% as of March 31, 2007, as a result of our new issuances of shares. Daimler Chrysler AG has kept its shareholdings steady, but its percentage shareholding has declined from 7.25% to 6.64% as a result of our new issuances of shares. Citibank N.A. as Depositary for our ADRs, has increased its shareholding from 7.12% to 10.97% because of the two-way fungibility of Depositary Receipts. Life Insurance Corporation of India Limited has increased its shareholding and has seen its shareholding percentage increase from 5.50% to 6.10%.

According to our register of shareholders and register of beneficial shareholders, as of March 31, 2007, there were 248 record holders of our shares with addresses in the United States, whose shareholdings represented approximately 0.05% of our outstanding Ordinary Shares on that date, excluding any of our shares held by United States residents in the form of depositary shares. Because some of these shares were held by brokers or other nominees, the number of record holders with addresses in the United States may be fewer than the number of beneficial owners in the United States.

The total permitted holding of Foreign Institutional Investors, or FIIs, in our paid up share capital has been increased to 35% by a resolution passed by our shareholders on January 22, 2004. The holding of FIIs in us as of March 31, 2007, was approximately 18.01%. See Item 10.D “— Exchange Controls” for further details.

None of our shares of common stock entitles the holder to any preferential voting rights.

Under the Takeover Regulations of India, any person who acquires more than 5%, 10% , 14%, 54% or 74% of our shares or who is entitled to exercise voting rights with respect to more than 5%, 10%, 14%, 54% or 74% of our shares must file a report concerning the shareholding or the voting rights with us and the stock exchanges on which our ordinary shares are traded. Please see Item 9.A “— The Offer and Listing —Markets” for information with respect to these stock exchanges. Similar disclosures would be applicable under the Insider Trading Regulations of India with respect to any person who acquires more than 5% of our shares or voting rights with respect to the shares. Any increases or decreases by 2% or more in the shareholding by such persons must also be disclosed. Furthermore, under our listing agreement with the stock exchanges where our shares are listed, we are required to periodically disclose to such stock exchanges the name and percentage of shares held by persons or entities that hold more than 1% of our Ordinary Shares. For the purposes of the above, reporting and takeover requirements under our listing agreements, shares withdrawn from our ADS facility will be included as part of a person’s shareholding in us.

To our knowledge, we are not, directly or indirectly, owned or controlled by any other corporation or by any government or by any other natural or legal persons severally or jointly. We are not aware of any arrangements the operation of which may at a later time result in our change of control.

For details regarding voting rights, please refer to Item 10.B “— Memorandum and Articles of Association — Voting Rights”.

 

44


Table of Contents

B. Related Party Transactions.

Business Relationships

We purchase materials, supplies, assets and services from numerous suppliers throughout the world in the ordinary course of business, including from our affiliates and firms with which certain members of our board of directors are interested. We purchased materials, supplies, fixed assets and services from these entities in the amount of Rs.13,701 million, Rs.16,498 million and Rs.21,857 million in fiscal 2005, 2006 and 2007, respectively. We also sell our products, assets and services to our affiliates and firms with which certain members of our board of directors are interested. We sold products and services to these entities in the amount of Rs.3,538 million, Rs.1,468 million and Rs.2,059 million in fiscal 2005, 2006 and 2007, respectively. We believe all of these purchase and sale transactions were arm’s-length transactions, none of which were material to our overall operations. See note 26 of our audited consolidated financial statements for additional information regarding our related party transactions with our affiliates and other related parties. The foregoing do not include transactions with and among our consolidated subsidiaries, the amounts of which are eliminated upon consolidation when preparing our financial statements.

Loans

We regularly have trade accounts and other receivables payable by, and accounts payable to, our affiliates and firms with which certain members of our board of directors are interested. We had outstanding trade accounts and other receivables payable by these entities in the amount of Rs.367 million, Rs. 392 million and Rs. 158 million as of March 31, 2005, 2006 and 2007, respectively. We had accounts payable to these entities in the amount of Rs.723 million and Rs.1,284 million as of March 31, 2006 and 2007, respectively.

From time to time, we provide short to medium-term loans to our subsidiaries and affiliates, as well as loans under a loan program established by us and our affiliates to assist executives and directors with the purchase of housing. We believe that each of these loans was entered into in the ordinary course of business. The total amount receivable by us from our affiliates and other companies in which certain members of our board of directors are interested as at March 31, 2005, 2006 and 2007 was Rs.406 million Rs. 645 million and Rs. 297 million respectively. We had amounts payable for medium term loans taken from our affiliates to the tune of Rs.105 million and Rs.105 million as at March 31, 2006 and 2007, respectively.

From time to time, we also provide security deposits to the lessors of residential properties that we lease for our employees, including our Executive Directors. No extension of credit has been made, arranged or renewed by us, directly or indirectly, in the form of a personal loan to or for any of our directors or executive officers, nor has there been any material modification to any term of any such extension of credit or any renewal of any such extension of credit on or after July 30, 2002.

C. Interests of Experts and Counsel.

Not applicable.

 

Item 8. Financial Information.

A. Consolidated Statements and Other Financial Information.

Financial Statements.

The information required by this item is set forth beginning on page F-1 of this annual report.

Legal or Arbitration Proceedings.

The information on legal or arbitration proceedings required by this item is set forth in Item 4.B of this annual report.

Dividend Policy.

Based on the net income available for appropriation, dividends are recommended by the Board of Directors for approval by the shareholders at our Annual General Meeting. Further, the Board of Directors may also pay an interim dividend at its discretion. Since fiscal year 1956, we have had an uninterrupted dividend distribution except for the fiscal years 2001 and 2002. We returned to dividend distribution in fiscal 2003. In view of our profitable performance, we declared dividends (net of tax) totaling) Rs.4,522 million, Rs.4,979 million and Rs.5,781 million for fiscal 2005, 2006 and 2007, respectively.

B. Significant Changes

Other than as set forth in this annual report, no significant change has occurred with respect to us since the date of our audited consolidated US GAAP financial statements included elsewhere in this annual report.

 

Item 9. The Offer and Listing

A. Offer and Listing Details.

There has been no SEC-registered offering of our shares in the United States.

The details on our share and ADS price history are included in Item 9.C “— Markets” below.

 

45


Table of Contents

B. Plan of Distribution.

Not Applicable.

C. Markets.

Our ADSs are have been listed on the New York Stock Exchange or NYSE, since September 27, 2004. Each ADS represents one Ordinary Share. Our shares are listed on The Bombay Stock Exchange Limited, which is also referred to as the Bombay Stock Exchange, Mumbai or the BSE, and the National Stock Exchange of India, or NSE. The following table shows closing price and trading volume data for our ordinary shares on the NSE and BSE and for our ADSs on the NYSE:

 

     NSE    Avg Daily
Trading
Volume
(in ‘000)
   BSE    Avg Daily
Trading
Volume
(in ‘000)
   NYSE   

Avg Daily
Trading
Volume

(in ‘000)

     Closing Price per
Share
      Closing Price per
Share
     

Closing Price per

ADS

  
     Period
High
   Period
Low
      Period
High
   Period
Low
     

Period

High

  

Period

Low

  
     (Rs. Per Share)       (Rs. Per Share)       ($ Per ADS)   

Fiscal

                          

2007

   986.25    659.2    1590.12    985.35    658.05    435.96    22.1    14.27    417.14

2006

   941.35    406.4    2003.55    939.00    406.2    659.20    21.5    9.3    282.99

2005

   525.2    366.7    3,837.70    524.8    366.6    1,604.90    12.1    8.7    237.92

2004

   563.5    422.3    4,443.10    563.3    150.2    1,765.10         

2003

   169.7    119.45    1,729.20    169.9    119.4    676         

Fiscal

                          

2008

                          

1st Quarter

   766.6    641.2    1615.13    766.9    641.35    362.03    19.09    15.94    630.40

2007

                          

1st Quarter

   986.25    660.45    1981.12    985.35    659.9    620.93    21.96    14.91    538.69

2nd Quarter

   899.5    659.2    1600.88    898    658.05    473.04    19.5    14.27    308.81

3rd Quarter

   912.2    802.1    1349.76    911.75    802.2    353.57    20.83    17.92    307.75

4th Quarter

   964.75    716.45    1416.47    964.55    715.1    298.32    22.1    16.21    516.57

2006

                          

1st Quarter

   450.2    406.4    1,715.32    449.3    406.2    532    10.4    9.3    168.21

2nd Quarter

   546.1    427    1780.54    545.2    426.75    563.11    12.41    9.7    245.04

3rd Quarter

   659.55    461.6    2323.85    659.5    460.8    770.35    14.37    10.44    269.38

4th Quarter

   941.35    617.2    2210.21    939    617.45    781.31    21.46    13.93    453.32

Month

                          

August 2007

   701.75    619.5    1627.48    701.85    618.95    542.39    17.16    15.56    563.73

July 2007

   776.75    682.2    1532.68    778.05    684.05    348.86    19.09    16.64    557.99

Jun 2007

   747.95    641.2    1686.25    747.15    641.35    314.36    18.78    16.00    672.41

May 2007

   755.7    708    1409.18    757.5    707.95    340.47    18.64    17.33    401.96

April 2007

   766.6    670.9    1756.68    766.9    669.25    434.71    19.09    15.94    837.57

March 2007

   805.1    716.45    1687.06    805.5    715.1    365.67    18.4    16.21    682.53

On September 24, 2007, the reported closing price of our shares on the BSE was Rs.745.2 per share, and Rs.747.2 per share on NSE on September 24, 2007, the ADS closing price on NYSE was $18.5 per ADS.

D. Selling shareholders.

Not applicable.

E. Dilution.

Not applicable.

F. Expenses of the issue.

Not applicable.

 

46


Table of Contents
Item 10. Additional Information.

A. Share Capital

Our Authorised Share Capital is Rs. 4,500,000,000 divided into 450,000,000 ordinary shares of Rs.10 each.

Under the Companies Act, as well as our Articles of Association, if our share capital is divided into different classes of shares, all or any of the rights or privileges attached to each class of shares may be varied, modified or abrogated with the consent in writing of the holders of not less than three-fourths of the issued shares of that class, or with the sanction of a special resolution passed at a separate meeting of the holders of the issued shares of that class. Our Articles of Association further provide that the rights conferred upon the holders of the shares of any class issued with preferential or other rights shall not, unless otherwise expressly prohibited by the terms of the issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu thereto.

B. Memorandum and Articles of Association

Objects and Purposes

Our principal objects, as provided by Clause 3 of our Memorandum of Association, include:

 

   

manufacturing, marketing, import, export, hiring and letting on hire of commercial vehicles, automobile cars, two wheeler vehicles, heavy and construction equipment including components, accessories and spare parts in relation thereto;

 

   

to carry on the business as manufacturers and dealers of machinery articles and goods of all classes;

 

   

to carry on the business of manufacturing materials which may be usefully combined with our manufacturing and engineering business; and

 

   

to carry on the business of financing and re-financing of all types of vehicles, construction equipment, capital equipment and services by way of credit, hire purchases, leases and loans.

Directors

Under the Companies Act, as well as our Articles of Association, each of our Directors, who is in any way directly or indirectly concerned or interested in a contract or arrangement or proposed contract or arrangement entered into or to be entered into by or on our behalf is required to disclose the nature of his interest at a meeting of the first meeting of the Board held after the Director becomes concerned. Under the Companies Act, as well as the Articles of Association, an interested Director is not allowed to take part in the discussion of, or vote on, any contract, arrangement or proposal in which the Director is interested.

Under the Companies Act and our Articles of Association, we are restricted from making loans to Directors and the prior approval of the Central Government is required before we can make any loans, directly or indirectly, to any Director or provide, directly or indirectly, any guarantees or security in connection with any loan made by a third party to a Director.

Under our Articles of Association, a director is not required to hold any qualification shares. Our Articles of Association do not prescribe an age limit for the retirement of the Directors. As per the policy adopted by our Board, executive directors retire at the age of 65 and non-executive directors retire at the age of 75.

Dividends

Under the Companies Act, unless the Board recommends the payment of a dividend, the shareholders at a general meeting have no power to declare any dividend. Subject to certain conditions laid down by Section 205 of the Companies Act, no dividend can be declared or paid by a company for any fiscal year except out of the profits of the company calculated in accordance with the provisions of the Companies Act or out of the profits of the company for any previous fiscal year(s) calculated pursuant to the provisions of the Companies Act.

Under our Articles of Association, the shareholders at a general meeting may declare a lower, but not higher, dividend than that recommended by the Board. Dividends are generally declared as a percentage of the par value. The dividend recommended by the Board and approved by the shareholders at a general meeting is distributed and paid to shareholders in proportion to the paid-up value of their shares as on the record date for which such dividend is payable. In addition, the Board may declare and pay interim dividends. The shares to be issued upon the conversion of the ADSs will be fully paid-up when delivered as provided herein. Under the Companies Act, dividends can only be paid in cash to shareholders listed on the register of shareholders on the date which is specified as the “record date” or “book closure date”. No shareholder is entitled to a dividend while any lien in respect of unpaid calls on any of their shares is outstanding.

Shares issued upon conversion of ADSs will rank pari passu with our existing shares in all respects including entitlement of the dividend declared.

Dividends must be paid within 30 days from the date of the declaration and any dividend which remains unpaid or unclaimed after that period must be transferred within seven days to a special unpaid dividend account held at a scheduled bank. Any money which remains unpaid or unclaimed for seven years from the date of such transfer must be transferred by us to the Investor Education and Protection Fund established by the Government pursuant to which no claim shall lie against us or the said Fund.

 

47


Table of Contents

Under the Companies Act, we may only pay a dividend in excess of 10% of paid-up capital in respect of any year out of the profits of that year after we have transferred to our reserves a percentage of our non consolidated Indian GAAP profits for that year ranging between 2.5% to 10% depending on the rate of dividend proposed to be declared in that year. The Companies Act further provides that if the profit for a year is insufficient, the dividend for that year may be declared out of the non consolidated Indian GAAP accumulated profits earned in previous years and transferred to reserves, subject to the following conditions: (i) the rate of dividend to be declared may not exceed the lesser of the average of the rates at which dividends were declared in the five years immediately preceding the year, or 10% of paid-up capital; (ii) the total amount to be drawn from the accumulated profits from previous years may not exceed an amount equivalent to 10% of paid-up capital and free reserves and the amount so drawn is first to be used to set off the losses incurred in the financial year before any dividends in respect of preference or equity shares; and (iii) the balance of reserves after withdrawals must not be below 15% of paid-up capital.

Capitalization of Reserves and Issue of Bonus Shares

Our Articles of Association permit us by a resolution of our shareholders in a general meeting to resolve that amounts standing to the credit of reserves or securities premium can be capitalized by the issue of fully paid bonus shares (also referred to as a stock dividend) or by crediting shares not fully paid-up with the whole or part of any sum outstanding. Bonus shares must be issued pro rata to the amount of capital paid-up on existing shareholdings. Any issue of bonus shares would be subject to the guidelines issued by SEBI in this regard.

Calls on Shares, Pre-Emptive Rights and Alteration of Share Capital

Under the Companies Act, as well as our Articles of Association, the Board of Directors may from time to time make such calls as they think fit upon the members of the Company in respect of all moneys unpaid on the shares held by them respectively and each member is required to pay the amount of every call so made on him to the Company.

Subject to the provisions of the Companies Act, we may increase our share capital by issuing new shares on such terms and with such rights as we, by action of shareholders in a general meeting, determine. These new shares will be offered to existing shareholders listed on the members’ register on the record date in proportion to the amount paid-up on these shares at that date. The offer will be made by notice specifying the number of shares offered and the date (being not less than 15 days from the date of the offer) after which the offer, if not accepted, will be deemed to have been declined. After this date, the Board may dispose of the shares offered in respect of which no acceptance has been received, in such manner as the Board thinks most beneficial to us. The offer is deemed to include a right exercisable by the person concerned to renounce the shares offered to such person in favor of any other person provided that the person in whose favor these shares have been renounced is approved by the Board in their absolute discretion.

Under the Companies Act, new shares may be offered to any persons whether or not those persons include existing shareholders, if a special resolution to that effect is passed by the shareholders of the company in a general meeting. The issuance of shares upon conversion of our outstanding Convertible Notes has been duly approved by a special resolution of our shareholders and our shareholders have waived their pre-emptive rights with respect to these shares.

The Company can also alter its share capital by way of a reduction of capital or by undertaking a buy-back of shares under the prescribed SEBI guidelines.

Our Articles of Association provide that, by a special resolution passed at the general meeting, we may consolidate or sub-divide our share capital, convert all or any of our fully paid-up shares into stock and re-convert that stock into fully paid-up shares or cancel shares which have not been taken up by any person. The Company may also from time to time by special resolution reduce its capital.

General Meetings of Shareholders

We must hold our Annual General Meeting each year within 15 months of the previous Annual General Meeting and in any event not later than six months after the end of each accounting year, unless extended by the Registrar of Companies at our request for any special reason. Our Board of Directors may convene an Extraordinary General Meeting of shareholders when necessary or at the request of a shareholder or shareholders holding in the aggregate not less than 10% of our capital. Written notices convening a meeting setting out the date, place and agenda of the meeting must be given to members at least 21 days prior to the date of the proposed meeting. A general meeting may be called after giving shorter notice if consent is received from all shareholders in the case of an Annual General Meeting, and from shareholders holding not less than 95% of our paid-up capital in the case of any other general meeting. Currently, we give written notices to all members and, in addition, give public notice of general meetings of shareholders in a daily newspaper of general circulation in Mumbai. General meetings are generally held at some place in Mumbai. The quorum for a general meeting of the company is five shareholders personally present.

A company intending to pass a resolution relating to matters such as, but not limited to, amendment in the objects clause of the memorandum, buy back of shares under the Companies Act, giving loans or extending guarantee in excess of limits prescribed under the Companies Act, and guidelines issued thereunder, is required to obtain the resolution passed by means of a postal ballot instead of transacting the business in the general meeting of the company. A notice to all the shareholders shall be sent along

 

48


Table of Contents

with a draft resolution explaining the reasons therefore and requesting them to send their assent or dissent in writing on a postal ballot within a period of 30 days from the date of posting the letter. Postal ballot voting also allows shareholders to cast their votes by electronic means.

Voting Rights

At a general meeting upon a show of hands, every member holding shares and entitled to vote and present in person has one vote. Upon a poll, the voting rights of each shareholder entitled to vote and present in person or by proxy is in the same proportion as the capital paid-up on each share held by such holder bears to the total paid-up capital. Voting is by show of hands, unless a poll is ordered by the Chairman of the meeting or demanded by shareholder or shareholders holding at least 10% of the voting rights in respect of the resolution or by those holding paid-up capital of at least Rs.50,000. The Chairman of the meeting has a casting vote.

Holders of ADSs may exercise voting rights with respect to the Ordinary Shares represented by ADSs only in accordance with the provisions of our ADS deposit agreement and Indian law. Holders of ADSs are not entitled to attend or vote at shareholders meetings. A holder of ADSs may withdraw from the ADS facility the related underlying shares and vote as a direct shareholder, but there may not be sufficient time to do so after the announcement of an upcoming vote. If requested by us, the depositary will notify holders of ADSs of upcoming votes and arrange to deliver our voting materials to holders of ADSs. The materials will describe the matters to be voted on and explain how holders of ADSs on a record date specified by the depositary may instruct the depositary to vote on the deposited securities underlying the ADSs as directed by the holders of ADSs. For the instructions to be valid, the depositary must receive them in writing on or before a date specified by the depositary. The depositary will try, insofar as practicable, subject to Indian laws and the provisions of our Articles of Association, to vote or have its agents vote the deposited securities as instructed. The depositary will only vote as instructed and is not entitled to exercise any voting discretion. If the depositary timely receives voting instructions from a holder of ADSs and which fails to specify the manner in which the depositary is to vote the shares underlying such holder’s ADSs, such holder will be deemed to have instructed the depositary to vote in favor of the items set forth in such voting instructions. If the depositary does not receive timely instructions from a holder of ADSs, the holder shall be deemed to have instructed the depositary to give a discretionary proxy to a person designated by us, subject to the conditions set forth in the deposit agreement. If requested by us, the depositary is required to represent all shares underlying the outstanding ADSs, regardless whether timely instructions have been received from the holders of such ADSs, for the sole purpose of establishing a quorum at a meeting of shareholders.

Ordinary resolutions may be passed by simple majority of those shareholders present and voting at the meeting. Special resolutions require that the votes cast in favor of the resolution must be at least three times the votes cast against the resolution. The Companies Act provides that in order to amend the Articles of Association, a special resolution is required to be passed in a general meeting. Dissolutions, mergers or consolidations, transfers of the whole or a significant part of our business to another company or taking over the whole of the business of any other company and, in any case where shareholding of public financial institutions and banks exceeds 25%, appointment of statutory auditors, each require a special resolution. Our Articles of Association do not permit cumulative voting for the election of our directors.

A shareholder may exercise his voting rights by proxy to be given in the form required by our Articles of Association. The instrument appointing a proxy is required to be lodged with the company at least 48 hours before the time of the meeting. A shareholder may, by a single power of attorney, grant a general power of representation regarding several general meetings of shareholders. Any of our shareholders may appoint a proxy. A corporate shareholder is also entitled to nominate a representative to attend and vote on its behalf at general meetings. A proxy may not vote except on a poll and does not have a right to speak at meetings. A shareholder which is a legal entity may appoint an authorized representative who can vote in all respects as if a shareholder both on a show of hands and a poll.

The Companies Act allows for a company to issue shares with differential rights as to dividend, voting or otherwise subject to other conditions prescribed under applicable law. In this regard, the laws require that for a company to issue shares with differential voting rights the company must have had distributable profits in terms of the Companies Act for a period of three financial years, the company has not defaulted in filing annual accounts and annual returns for the immediately preceding three years, the articles of association of such company must allow for the issuance of such shares with differential voting rights and such other conditions set forth in the Companies (Issue of Share Capital with Differential Voting Rights) Rules, 2001 must be fulfilled.

Convertible Securities/Warrants

We may issue from time to time debt instruments that are partly and fully convertible into shares and/or warrants to purchase shares.

Register of Shareholders and Record Dates

We are obliged to maintain a register of shareholders at our registered office in Mumbai or at some other place in the same city. The register and index of our beneficial owners maintained by a depository under the Depositories Act, 1996 is deemed to be a part of the index of members and register of shareholders. We recognize as shareholders only those persons who appear on our register of shareholders and we cannot recognize any person holding any Share or part of it upon any trust, express, implied or constructive, except as permitted by law. In the case of shares held in physical form, we register transfers of shares on the register of shareholders upon lodgment of the share transfer form duly complete in all respects accompanied by a share certificate or if there is no certificate, the letter of allotment in respect of shares transferred together with duly stamped transfer forms. In respect of electronic transfers, the depository transfers shares by entering the name of the purchaser in its books as the beneficial owner of the shares. In turn, we enter the name of the depository in our records as the registered owner of the shares. The beneficial owner is entitled to all the rights and benefits as well as the liabilities with respect to the shares that are held by the depository.

 

49


Table of Contents

For the purpose of determining the shareholders, the register may be closed for periods not exceeding 45 days in any one year or 30 days at any one time. In order to determine the shareholders entitled to dividends, we keep the register of shareholders closed for approximately 21 days, generally in June or July of each year. Under the listing regulations of the stock exchanges on which our outstanding shares are listed, we may, upon at least 15 days’ advance notice to these stock exchanges, set a record date and/or close the register of shareholders in order to ascertain the identity of shareholders entitled to the dividend. The trading of shares and the delivery of certificates in respect thereof may continue while the register of shareholders is closed.

Annual Report and Financial Results

Our Indian GAAP audited financial statements for the relevant fiscal year, the directors’ report and the auditors’ report, (collectively the Annual Report), must be laid before the Annual General Meeting. These also include other financial information, a corporate governance section and management’s discussion and analysis report and general shareholders’ information and are also made available for inspection at our registered office during normal working hours for 21 days prior to our annual general meeting.

Under the Companies Act, we must file the Annual Report with the Registrar of Companies within seven months from the close of the accounting year or within 30 days from the date of the annual general meeting, whichever is earlier. As required under listing agreements with the applicable stock exchanges, copies are required to be simultaneously sent to all the stock exchanges on which our shares are listed. We must also publish our financial results in at least one English language daily newspaper circulating in the whole or substantially the whole of India and also in a newspaper published in the language of the region where our registered office is situated.

We submit information, including our Annual Report, half yearly financial statements, report on corporate governance and the shareholding pattern statement, in accordance with the requirements of the listing agreement with the Singapore Stock Exchange.

Transfer of Shares

Shares held through depositories are transferred in book-entry form or in electronic form in accordance with the regulations laid down by the SEBI. These regulations provide the regime for the functioning of the depositories and the participants and set out the manner in which the records are to be kept and maintained and the safeguards to be followed in this system. Transfers of beneficial ownership of shares held through a depository are exempt from stamp duty. We have entered into an agreement for these depository services with National Securities Depository Limited and the Central Depository Services (India) Limited.

The SEBI requires that all investors hold our shares in book-entry form for trading and settlement purposes, except for transactions that are not made on a stock exchange and transactions that are not required to be reported to the stock exchange.

The requirement to hold shares in book-entry form will apply to ADS holders when the shares are withdrawn from the depositary facility upon surrender of the ADSs. In order to trade in our shares in the Indian market, the withdrawing ADS holder will be required to comply with the procedures above.

Our ordinary shares are freely transferable, subject only to the provisions of the Companies Act under which, if a transfer of shares contravenes the SEBI provisions or the regulations issued under it or any other law for the time being in force or the Sick Industrial Companies (Special Provisions) Act, 1985, or SICA, or any other similar law, the Indian Company Law Board may, on an application made by the company, a depository incorporated in India, an investor, the SEBI or other parties, direct a rectification of the register of records. If a company without sufficient cause refuses to register a transfer of shares within two months from the date on which the instrument of transfer is delivered to the company, the transferee may appeal to the Indian Company Law Board seeking to register the transfer of equity shares. The Indian Company Law Board may in its discretion, issue an interim order suspending the voting rights attached to the relevant equity shares before completing its investigation of the alleged contravention. Under the Companies (Second Amendment) Act, 2002, the operative provisions of which are yet to come into force, the Indian Company Law Board is proposed to be replaced with the National Company Law Tribunal. Further, under the Sick Industrial Companies (Special Provisions) Repeal Act, 2003, the SICA is sought to be repealed and the Board of Industrial and Financial Reconstruction, as constituted under the SICA, is to be replaced with the National Company Law Tribunal.

Pursuant to the Listing Agreement, in the event we have not effected the transfer of shares within one month or where the Issuer has failed to communicate to the transferee any valid objection to the transfer within the stipulated time period of one month, the Issuer is required to compensate the aggrieved party for the opportunity loss caused during the period of the delay.

The Companies Act provides that the shares or debentures of the public listed company (like the Issuer) shall be freely transferable. Our Articles of Association provide for restrictions on the transfer of shares, including granting power to the board of directors in certain circumstances to refuse to register or acknowledge transfer of shares or other securities issued by us. However, under the Companies Act the enforceability of these transfer restrictions is unclear.

 

50


Table of Contents

Acquisition of Our Own Shares

The Company is prohibited from acquiring its own shares unless the consequent reduction of capital is effected by an approval of at least 75% of its shareholders voting on the matter in accordance with the Companies Act, 1956 and is also sanctioned by a High Court of competent jurisdiction. Moreover, subject to certain conditions, a company is prohibited from giving, whether directly or indirectly and whether by means of a loan, gurantee, the provision of security or otherwise, any financial assistance for the purpose of or in connection with a purchase or subscription made or to be made by any person of or for any shares in the company or its holding company. However, pursuant to amendments to the Companies Act, a company has been empowered to purchase its own shares or other specified securities out of its free reserves, or the securities premium account or the proceeds of any shares or other specified securities (other than the kind of shares or other specified securities proposed to be bought back) subject to the following conditions:

 

(i) the buy back should be authorized by the Articles of Association;

 

(ii) a special resolution has been passed at our general meeting authorizing the buy back;

 

(iii) the buy back is limited to 25% of the total paid up capital and free reserves;

 

(iv) the debt owed by us (including all amounts of unsecured and secured debt) is not more than twice the capital and free reserves after the buy back; and

 

(v) the buy-back is in accordance with the Securities and Exchange Board of India (Buy-Back of Securities) Regulations, 1998.

The condition mentioned above in (ii) would not be applicable if the buy-back is for less than 10% of the total paid-up equity capital and free reserves of the company and provided that this buy-back has been authorized by the board of directors of the company. A company buying back its securities is required to extinguish and physically destroy the securities so bought back within seven days of the last date of completion of the buy-back. Further, a company buying back its securities is not permitted to buy-back any securities for a period of one year from the buy-back and to issue securities for six months. The aforesaid restriction relating to the one year period does not apply to a buyback authorized by a special resolution of the shareholders in general meeting. Every buy-back has to be completed within a period of one year from the date of passing of the special resolution or resolution of the Board, as the case may be.

A company is also prohibited from purchasing its own shares or specified securities through any subsidiary company including its own subsidiary companies or through any investment company (other than a purchase of shares in accordance with a scheme for the purchase of shares by trustees of or for shares to be held by or for the benefit of employees of the company) or if the company is defaulting on the repayment of deposit or interest, redemption of debentures or preference shares or payment of dividend to a shareholder or repayment of any term loan or interest payable thereon to any financial institution or bank, or in the event of non-compliance with other provisions of the Companies Act.

Liquidation Rights

Subject to the rights of creditors, workmen and of the holders of any other shares entitled by their terms of issue to preferential repayment over the shares, in the event of our winding up, the holders of our shares are entitled to be repaid the amounts of capital paid-up or credited as paid-up on these shares, or in case of shortfall, proportionately. All surplus assets after payments due to workmen, the holders of any preference shares and other creditors belong to the holders of the equity shares in proportion to the amount paid up or credited as paid-up on these shares respectively at the commencement of the winding-up.

C. Material Contracts.

Except as given below, neither Tata Motors Limited nor any of its consolidated subsidiaries or associated companies is a party to any material contract other than contracts entered into in the ordinary course of business:

 

   

the Tata Brand Equity and Business Promotion Agreement incorporated by reference into this annual report as Exhibit 4.1, which is described in Item 4.C of this annual report; and

 

   

the agreement entered into by us with Mr. Ravi Kant for his appointment as Managing Director, which is included as Exhibit 4.2 of this annual report.

D. Exchange Controls.

General

Prior to June 1, 2000, foreign investment in Indian securities, including the acquisition, sale and transfer of securities of Indian companies, was regulated by the Foreign Exchange Regulation Act, 1973, or FERA, and the notifications issued by the Reserve Bank of India or RBI thereunder.

With effect from June 1, 2000, foreign investment in Indian securities is regulated by the Foreign Exchange Management Act 1999, or FEMA (as amended from time to time), and the rules, regulations and notifications made under FEMA. A person resident outside India can transfer any security of an Indian company or any other security to an Indian resident only under the terms and conditions specified in FEMA and the rules and regulations made thereunder or as permitted by the RBI.

The RBI issued the Foreign Exchange Management (Transfer or issue of Security by a Person Resident Outside India) Regulations 2000, or the Regulations, to regulate the issue of Indian securities including American depository receipts to persons resident outside India and the transfer of Indian securities by or to persons resident outside India.

 

51


Table of Contents

The Regulations provide that an Indian entity may issue securities to a person resident outside India or record in its books any transfer of security from or to such person only in the manner set forth in FEMA and the rules and regulations made thereunder or as permitted by the RBI.

Foreign Direct Investment

The Government of India, pursuant to its liberalization policy, set up the Foreign Investment Promotion Board, or the FIPB, to regulate all foreign direct investment into India. Foreign Direct Investment, means investment by way of subscription and/or purchase of securities of an Indian company by a non resident investor. FIPB approval is required for investment in some sectors, including housing, petroleum (other than refining), defense and strategic industries. Also, the following investments would require the prior permission of the FIPB:

 

 

investments , including a transfer of shares, in excess of specified sectoral caps;

 

 

investments by a foreign investor who has an existing joint venture or technology transfer/trade mark agreement in the same field. However, prior FIPB approval will not be required in case of investment made by a venture capital fund registered with SEBI or where the investment in the existing joint venture is less than 3.0 per cent. or where the existing joint venture is defunct or sick

 

 

investment being more than 24% in the equity capital of units manufacturing items reserved for small scale industries;

 

 

investments by an unincorporated entity;

 

 

investment in industries for which industrial licensing is compulsory; and

 

 

all proposals relating to acquisition of shares of an Indian company by a foreign investor (including individuals of Indian nationality or origin residing outside India (a “Non-Resident Indian”), the activities of which company are not under the “automatic” route under existing Indian foreign investment policy or where the Indian company is engaged in the financial services sector or where the acquisition of shares attracts the provisions of the Takeover Code. However, pursuant to a recent Press Note issued by the Government of India, the prior permission of the FIPB would not be required for the transfer of shares from residents to non-residents in the financial services sector or, in transactions subject to the Indian Takeover Code in cases where approvals are required from the RBI, under the Takeover Code, or the Insurance Regulatory and Development Authority.

Subject to certain exceptions, Foreign Direct Investment and investment by individuals of Indian nationality or origin residing outside India, or Non-Resident Indians, in Indian companies does not require the prior approval of the FIPB or the RBI. The Government has indicated that in all cases where Foreign Direct Investment is allowed on an automatic basis without FIPB approval the RBI would continue to be the primary agency for the purposes of monitoring and regulating foreign investment. In cases where FIPB approval is obtained, no approval of the RBI is required, although a declaration in the prescribed form, detailing the foreign investment, must be filed with the RBI once the foreign investment is made in the Indian company. The foregoing description applies only to an issuance of shares by, and not to a transfer of shares of, Indian companies.

The Government has set up the Foreign Investment Implementation Authority, or the FIIA in the Ministry of Commerce and Industry. The FIIA has been mandated to (i) translate foreign direct investment approvals into implementation, (ii) provide a proactive one-stop after-care service to foreign investors by helping them obtain necessary approvals, (iii) sort out operational problems and (iv) meet with various Government agencies to find solutions to foreign investment problems and maximize opportunities through a co-operative approach.

Pricing

The price of shares of a listed Indian company issued to non-residents under the foreign direct investment scheme on an automatic basis cannot be less than the price worked out in accordance with the guidelines issued by the SEBI for the preferential allotment of shares. Where an Indian company is not listed on any recognized stock exchange in India the minimum issue price of the shares would be based on a fair valuation of shares done by a chartered accountant as per the guidelines issued by the erstwhile Controller of Capital Issues.

Every Indian company issuing shares or convertible debentures in accordance with the Regulations is required to submit a report to the RBI within 30 days of receipt of the consideration and another report within 30 days from the date of issue of the shares to the non-resident purchaser. The above description applies only to an initial issue of shares or convertible debentures by an Indian company.

The above description applies only to a fresh issue of shares or convertible debentures by an Indian company.

Portfolio Investment by Foreign Institutional Investors

In September 1992, the Government issued guidelines that enable foreign institutional investors, including institutions such as pension funds, investment trusts, asset management companies, nominee companies and incorporated/institutional portfolio managers referred to as Foreign Institutional Investors, or FIIs, to make portfolio investments in all securities of listed and unlisted companies in India. Investments by registered Foreign Institutional Investors or Non-Resident Indians made through a stock exchange are known as Portfolio Investments. Foreign investors wishing to invest and trade in Indian securities in India under these guidelines are required to register with the SEBI and obtain a general permission from the RBI under the Foreign Exchange Management Act, 1999. However, since the SEBI provides a single window clearance, a single application must be made to the SEBI. Foreign investors are not necessarily required to register with the SEBI under the Securities and Exchange Board of India (Foreign Institutional Investors) Regulations 1995 (the “Foreign Institutional Investor Regulations”) as Foreign Institutional Investors and may invest in securities of Indian companies pursuant to the Foreign Direct Investment route discussed above.

 

52


Table of Contents

Foreign Institutional Investors who are registered with the SEBI are required to comply with the provisions of the Securities and Exchange Board of India (Foreign Institutional Investors) Regulations, 1995, or Foreign Institutional Investor Regulations. A registered foreign institutional investor may buy, subject to the ownership restrictions discussed below, and sell freely securities issued by any Indian company, (excluding companies engaged in the print media sector) realize capital gains on investments made through the initial amount invested in India, subscribe to or renounce rights offerings for shares, appoint a domestic custodian for custody of investments made and repatriate the capital, capital gains, dividends, income received by way of interest and any compensation received towards sale or renunciation of rights offerings of shares. A Foreign Institutional Investor may not hold more than 10% of the total issued capital of a company in its own name; a corporate/individual sub-account of the Foreign Institutional Investor may not hold more than 5% of the total issued capital of a company, and a broad based sub-account may not hold more than 10% of the total issued capital of a company. The total holding of all Foreign Institutional Investors in a company is subject to a cap of 24% of the total paid up capital of a company, which can be increased to the relevant sectoral cap/ceiling applicable to the said company under the Foreign Direct Investment Regime with the passing of a special resolution by the shareholders of the company in a general meeting.

In terms of recent amendments made to the Foreign Institutional Investor Regulations, FIIs are permitted to purchase shares and convertible debentures, subject to the FII limits, of an Indian company either through:

 

 

a public offer, where the price of the shares to be issued is not less than the price at which the shares are issued to Indian residents, or

 

 

a private placement, where the price of the shares to be issued is not less than the price according to the terms of the relevant guidelines or the guidelines issued by the former Controller of Capital Issues.

Registered FIIs are generally subject to tax under Section 115AD of the Income Tax Act of 1961. There is uncertainty under Indian law as to the tax regime applicable to FIIs that hold and trade in ADSs and Shares. See Item 10.E “— Taxation — Taxation of Capital Gains —Indian Taxation”.

Portfolio Investment by Non-Resident Indians

A variety of methods for investing in shares of Indian companies are available to Non-Resident Indians. These methods allow Non-Resident Indians to make Portfolio Investments in shares and other securities of Indian companies on a basis not generally available to other foreign investors. In addition to Portfolio Investments in Indian companies, non-resident Indians may also make foreign direct investments in Indian companies pursuant to the Foreign Direct Investment route discussed above.

Transfer of shares and convertible debentures of an Indian company by a person resident outside India

Until recently, the sale of shares of an Indian company from a non-resident to a resident required RBI approval, unless the sale was made on a stock exchange at the market price. The Government has granted general permission to persons residing outside India to transfer shares and convertible debentures held by them to an Indian resident, subject to compliance with certain terms and conditions and reporting requirements. A resident who wishes to purchase shares from a non-resident must, pursuant to the relevant notice requirements, file a declaration with an authorised dealer in the prescribed Form FC-TRS, together with the relevant documents and file an acknowledgment thereof with the Indian company to effect transfer of the shares to his name. However, in such cases, the person to whom the shares are being transferred is required to obtain the prior permission of the Central Government of India to acquire the shares if such person has an existing venture (in which such person holds over 3% shares) or tie-up in India through investment in shares or debentures or a technical collaboration or a trade mark agreement or investment by whatever name in the same field to that in which the Indian company whose shares are being transferred is engaged. Further, a non-resident may transfer any security held by such resident to a person resident in India by way of gift.

Moreover, the transfer of shares between an Indian resident and a non-resident does not require the prior approval of the Government or RBI, provided that: (i) the activities of the investee company are under the automatic route pursuant to FDI Policy and the transfer is not subject to regulations under the Indian Takeover Code; (ii) the non-resident shareholding complies with sector limits under the FDI policy; and (iii) the pricing is in accordance with the guidelines prescribed by SEBI and RBI.

Sponsored ADR Schemes

By notification dated November 23, 2002, the RBI has permitted existing shareholders of Indian companies to sell their shares through the issuance of ADRs against the block of existing shares of the Indian company, subject to the following conditions:

 

 

The facility to sell the shares would be available pari passu to all categories of shareholders.

 

 

The sponsoring company whose shareholders propose to divest existing shares in the overseas market through issue of ADRs will give an option to all its shareholders indicating the number of shares to be divested and the mechanism how the price will be determined under the ADR norms. If the shares offered for divestment are more than the pre-specified number to be divested, shares would be accepted from the existing shareholders in proportion to their existing shareholdings.

 

 

The proposal for divestment of the shares would have to be approved by a special resolution of the Indian company.

 

 

The proceeds of the ADR issue raised abroad shall be repatriated into India within a period of one month from the closure of the issue. However, the proceeds of the ADR issue can also be retained abroad to meet the future foreign exchange requirements of the company and by a recent notification this facility has been extended indefinitely until further notice.

 

 

The issue related expenses in relation to public issue of ADRs under this scheme would be subject to a ceiling of 4% of the issue size in the case of public issues and 2% of the issue size in the case of private placements. The issue related expenses would include underwriting commissions, lead managers’ charges, legal expenses and reimbursable expenses. The issue expenses shall be passed on to the shareholders participating in the sponsored issue on a pro rata basis.

 

53


Table of Contents

Transfer of ADRs by Non-residents

The Ministry of Finance, Government of India, has granted general permission for the transfer of ADRs outside India and also permitted non-resident holders of ADRs to surrender ADRs in exchange for the underlying shares. Pursuant to the terms of the Deposit Agreement an investor who surrenders ADRs and withdraws shares is permitted to re-deposit such shares subject to the total issued ADRs and obtain ADRs at a later time.

Fungibility of ADRs

In March 2001, the RBI permitted the re-conversion of shares of Indian Companies into ADRs, subject to the following conditions:

 

 

the Indian company has issued ADRs;

 

 

the shares of the Indian company are purchased by a registered stock broker in India in the name of the Depository, on behalf of the non-resident investor who wishes to convert such shares into ADRs;

 

 

shares are purchased on a recognized stock exchange;

 

 

the shares are purchased with the permission of the custodian of the ADRs of the Indian company and are deposited with the custodian;

 

 

the issuer company has authorized the custodian to accept shares from non-resident investors for re-issuance of ADRs;

 

 

the number of shares so purchased do not exceed the ADRs converted into underlying shares, and are in compliance with the sectoral caps applicable under the Foreign Direct Investment regime; and

 

 

the non-resident investor, broker, custodian and the overseas depository comply with the provisions of the Depository Receipt Mechanism and the guidelines issued thereunder from time to time.

Also the RBI has prescribed that the domestic custodians are the entity required to ensure compliance with the RBI guidelines and to file reports with the RBI from time to time. The domestic custodian is also required to perform the following functions:

 

 

provide a certificate to the RBI and the SEBI stating that the sectoral caps for foreign investment in the relevant company have not been breached;

 

 

monitor the total number of ADRs that have been converted into underlying shares by non-resident investors;

 

 

liaise with the issuer company to ensure that the foreign investment restrictions, if any, are not being breached; and

 

 

file a monthly report about the ADR transactions under the two-way fungibility arrangement with the RBI and the SEBI.

E. Taxation.

This section describes the material United States federal and Indian stamp duty and income and service tax consequences of owning shares or ADSs. It applies to you only if you hold your shares or ADSs as capital assets for tax purposes. This section does not apply to you if you are a member of a special class of holders subject to special rules, including:

 

 

a dealer in securities,

 

 

a trader in securities that elects to use a mark-to-market method of accounting for securities holdings,

 

 

a tax-exempt organization,

 

 

a life insurance company,

 

 

a person liable for alternative minimum tax,

 

 

a person that actually or constructively owns 10% or more of our voting stock,

 

 

a person that holds shares or ADSs as part of a straddle or a hedging or conversion transaction, or

 

 

a U.S. holder (as defined below) whose functional currency is not the dollar.

This section is based on the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations, published rulings and court decisions, and the laws of India all as currently in effect, as well as on the Convention Between the Government of the United States of America and the Government of the Republic of India for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (the “Treaty”). These laws are subject to change, possibly on a retroactive basis. In addition, this section is based in part upon the representations of the Depositary and the assumption that each obligation in the Deposit Agreement and any related agreement will be performed in accordance with its terms.

You are a U.S. holder if you are a beneficial owner of shares or ADSs and you are, for U.S. federal income tax purposes:

 

   

a citizen or resident of the United States,

 

   

a domestic corporation,

 

   

an estate whose income is subject to United States federal income tax regardless of its source, or

 

   

a trust if a United States court can exercise primary supervision over the trust’s administration and one or more United States persons are authorized to control all substantial decisions of the trust.

With regard to Indian tax, the following discussion addresses only the tax consequences for persons that are “non-residents” of India, as defined in the Indian Income Tax Act of 1961, or the Income Tax Act and is based on the provisions of Section 115AC and other applicable provisions of the Income Tax Act and the Issue of Foreign Currency Convertible Bonds and Ordinary Shares (through Depository Receipt Mechanism) Scheme 1993 promulgated by the Government of India, or together the Section 115AC Regime.

 

54


Table of Contents

You should consult your own tax advisor regarding the United States federal, state and local and the Indian and other tax consequences of owning and disposing of shares and ADSs in your particular circumstances.

This discussion addresses only United States federal income taxation and Indian stamp duty and income and service taxation.

In general, and taking into account the earlier assumptions, for United States federal income and Indian tax purposes, if you hold ADRs evidencing ADSs, you will be treated as the owner of the shares represented by those ADRs. Exchanges of shares for ADRs, and ADRs for shares, generally will not be subject to United States federal income or to Indian tax, but such exchange may give rise to Indian stamp duty as described below under “— Stamp Duty”.

Taxation of Dividends

Indian Taxation. Dividends paid to non-residents of India will not be liable to tax. However, the Company will be liable to pay a “dividend distribution tax” currently at the rate of 15% (plus a surcharge at 10% and education cess at the rate of 3% on the dividend distribution tax and surcharge) on the total amount distributed as a dividend. The effective rate of dividend distribution tax is 17%.

Distributions to non-residents of India of additional ADSs or shares or rights to subscribe for such shares made with respect to ADSs or shares are not subject to Indian tax.

U.S. Holders. Under the United States federal income tax laws, and subject to the passive foreign investment company, or PFIC rules described below, if you are a U.S. holder, the gross amount of any dividend we pay out of our current or accumulated earnings and profits (as determined for United States federal income tax purposes) is subject to United States federal income taxation. If you are a noncorporate U.S. holder, dividends paid to you in taxable years beginning before January 1, 2011 that constitute qualified dividend income will be taxable to you at a maximum tax rate of 15% provided that you hold the shares or ADSs for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date and meet other holding period requirements. Dividends we pay with respect to the shares or ADSs generally will be qualified dividend income.

The dividend is taxable to you when you, in the case of shares, or the Depositary, in the case of ADSs, receive the dividend, actually or constructively. The dividend will not be eligible for the dividends-received deduction generally allowed to United States corporations in respect of dividends received from other United States corporations.

The amount of the dividend distribution that you must include in your income as a U.S. holder will be the U.S. dollar value of the rupee payments made, determined at the spot rupee/U.S. dollar rate on the date the dividend distribution is includible in your income, regardless of whether the payment is in fact converted into U.S. dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date you include the dividend payment in income to the date you convert the payment into U.S. dollars will be treated as ordinary income or loss and will not be eligible for the special tax rate applicable to qualified dividend income. The gain or loss generally will be income or loss from sources within the Untied States for foreign tax credit limitation purposes.

Distributions in excess of current and accumulated earnings and profits, as determined for United States federal income tax purposes, will be treated as a non-taxable return of capital to the extent of your basis in the shares or ADSs and thereafter as capital gain.

Dividends will be income from sources outside the United States. Dividends paid in taxable years beginning before January 1, 2007 generally will be “passive” or “financial services” income, and dividends paid in taxable years beginning after December 31, 2006 will, depending on your circumstances, be “passive” or “general” income which, in either case, is treated separately from other types of income for purposes of computing the foreign tax credit allowable to you.

Distributions of additional shares to you with respect to shares or ADSs that are made as part of a pro rata distribution to all of our shareholders generally will not be subject to United States federal income tax.

Taxation of Capital Gains

Indian Taxation

Capital Gains Generally. Under Section 115AC and other applicable provisions of the Income tax act 1961, any gain realized on the sale outside India of the ADSs from one non-resident of India to another non-resident holder is not subject to Indian capital gains tax. However, it is unclear whether a capital gain derived from the sale of rights by a non-resident of India to another non-resident holder outside India may be subject to Indian capital gains tax.

Capital gains arising to the non-resident investor on the transfer of the equity shares (including shares received in exchange of the ADSs) whether in India or outside India to a non-resident investor or Indian resident, will be liable for income tax under the provisions of the Income Tax Act.

 

55


Table of Contents

Equity shares (including shares issuable on the exchange of the ADSs) held by the non-resident investor for a period of more than 12 months are treated as long-term capital assets. If the equity shares are held for a period of 12 months or less, the capital gains arising on the sale thereof is to be treated as short-term capital gains. A non-resident holder’s holding period (for purposes of determining the applicable Indian capital gains tax rate) in respect of shares received in exchange for ADSs commences on the date of the advice of withdrawal of such shares by the relevant depository to its custodian.

For the purpose of computing capital gains tax on the sale of the equity shares, the cost of acquisition of equity shares received in exchange for ADSs will be determined on the basis of the prevailing price of the shares on the Indian Stock Exchanges as on the date on which the relevant depository gives notice to its custodian for the delivery of such equity shares upon redemption of the ADSs, while the cost of acquisition of shares directly converted from the ADSs will be determined on the basis of the price prevailing on the Indian Stock Exchanges on the date of conversion into equity shares.

Gain realized on the sale of listed equity shares held for more than 12 months will not be subject to Indian capital gains tax if the Securities Transaction Tax (“STT”) has been paid on the transaction. The STT will be levied on and collected by a domestic stock exchange on which equity shares are sold at the rate of 0.025% to 0.125% depending upon the nature of the transaction.

Any gain realized on the sale of equity shares held for more than 12 months on which no STT has been paid will be subject to Indian capital gains tax at the rate of 10% plus applicable surcharge on income tax and education cess at the applicable rates.

Capital gains realised in respect of equity shares held (calculated in the manner set forth in the prior paragraph) for 12 months or less (short term gain) on which STT is paid in the manner and rates set out above, is subject to tax at the rate of 10% plus applicable surcharge on income tax and an education cess at the applicable rate. In the event that no STT is paid, short term gain is subject to tax at variable rates with the maximum rate of 40% plus applicable rate of surcharge on income tax and education cess at the rate of 3% of the tax and surcharge. The actual rate of tax on short term gains depends on a number of factors, including the legal status of the non-resident holder and the type of income chargeable in India.

Tax on capital gains is to be deducted at source by the person paying for the shares in accordance with the relevant provisions of the Income Tax Act.

Capital Losses. The Section 115AC Regime does not deal with capital losses arising on a transfer of shares. In general terms, losses arising from a transfer of a capital asset in India can only be set off only against capital gains and not against any other income. A short-term capital loss can be set off against a capital gain, whether short-term or long-term. However, long term capital loss can only be set off against long term capital gain and not against short term capital gain. To the extent that the losses are not absorbed in the year of transfer, they may be carried forward for a period of eight assessment years immediately succeeding the assessment year for which the loss was first determined and may be set off against the capital gains assessable for such subsequent assessment years. In order to set off capital losses in this manner, the non-resident investor would be required to file appropriate and timely tax returns in India. The long term capital loss arising on sale of equity shares in respect of which STT is paid may not be available for set-off against any capital gains.

United States Federal Income Taxation.

U.S. Holders. Subject to the PFIC rules discussed below, if you are a U.S. holder and you sell or otherwise dispose of your shares or ADSs, you will recognize capital gain or loss for United States federal income tax purposes equal to the difference between the dollar value of the amount that you realize and your tax basis, determined in dollars, in your shares or ADSs. Capital gain of a non-corporate U.S. holder that is recognized on taxable years beginning before January 1, 2011 is generally taxed at a maximum rate of 15% where the holder has a holding period greater than one year. The gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes.

Tax Treaties.

The provisions of the Agreement of Avoidance of Double Taxation entered into by Government with the country of residence of the non-resident investor will be applicable to the extent that they are more beneficial to the non-resident investor.

Dividend income is not subject to tax in India in the hands of the holder of the shares. If any Shares are held by a non resident investor following withdrawal thereof from the depository facility under the Deposit Agreement, provisions of double taxation treaty, if any, entered into by India with the country of residence of such non resident investor will be applicable to taxation of any capital gain arising from transfer of such shares.

However, during the period of fiduciary ownership of Shares in the hands of the Overseas Depository Bank, the provisions of Double Taxation Avoidance Agreement entered into by the Government of India with the country of residence of the Overseas Depository Bank will be applicable in the matter of taxation of capital gains in respect of ADSs.

Stamp Duty. Under Indian law, any transfer of ADSs will be exempt from liability to Indian stamp duty. Purchasers of shares who seek to register such shares on the share register of the company are required to pay Indian stamp duty at the rate of

 

56


Table of Contents

Rs.0.25 for every Rs.100 or part thereof of the market value of such shares. In order to register a transfer of shares in the physical form with the company, it is necessary to present a stamped deed of transfer. An acquisition of shares in physical form from the Depository in exchange for ADSs representing such shares will not render an investor liable to Indian stamp duty but the company will be required to pay stamp duty at the applicable rate on the Share Certificate. However, since our shares are compulsorily deliverable in dematerialized form (except for trades of up to 500 shares which may be delivered in physical form), no stamp duty is payable on the acquisition or transfer of shares in dematerialized form.

Service Tax. Brokerage or commission fees paid to stockbrokers in India in connection with the sale or purchase of shares are now subject to an Indian service tax of 12% (plus a 2% education cess). A stockbroker is responsible for collecting such service tax at such rate and for paying the same to the relevant authority.

PFIC. We believe that shares and ADSs should not be treated as stock of a PFIC for United States federal income tax purposes, but this conclusion is a factual determination that is made annually and thus may be subject to change. If we were to be treated as a PFIC, unless a U.S. holder elects to be taxed annually on a mark-to-market basis with respect to the shares or ADSs, gain realized on the sale or other disposition of your shares or ADSs would in general not be treated as capital gain. Instead, if you are a U.S. holder, you would be treated as if you had realized such gain and certain “excess distributions” ratably over your holding period for the shares or ADSs and would be taxed at the highest tax rate in effect for each such year to which the gain was allocated, together with an interest charged in respect of the tax attributable to each such year. With certain exceptions, your shares or ADSs will be treated as stock in a PFIC if we were a PFIC at any time during your holding period in your shares or ADSs. Dividends that you receive from us will not be eligible for the special tax rates applicable to qualified dividend income if we are treated as a PFIC with respect to you either in the taxable year of the distribution or the preceding taxable year, but instead will be taxable at rates applicable to ordinary income.

F. Dividends and Paying Agents

Not applicable.

G. Statement by Experts

Not applicable.

H. Documents on Display.

You may review a copy of this annual report at the Securities and Exchange Commission’s public reference room at 100 F Street, N.E., Washington, D.C. 20549. You may call the SEC at 1-800-732-0330 for additional information on how to obtain copies of all or any portion of the documents we file with or furnish to the SEC. The Securities and Exchange Commission also maintains a web site www.sec.gov that contains reports, proxy statements and other information regarding registrants that file electronically with the Securities and Exchange Commission.

We are subject to the information requirements of the Securities Exchange Act of 1934 and, in accordance therewith, will file annual reports on Form 20-F within six months of our fiscal year end and furnish other reports and information on Form 6-K with the Securities and Exchange Commission. These reports and other information can be inspected at the public reference room at the Securities and Exchange Commission and at the Securities and Exchange Commission regional offices listed above. You can also obtain copies of this material from the public reference room, the regional offices or by calling or writing the Securities and Exchange Commission upon payment of a prescribed fee. As a foreign private issuer, we are exempt from the rules under the Securities Exchange Act of 1934 prescribing the furnishing and content of proxy statements to shareholders.

I. Subsidiary Information

Not applicable.

 

Item 11. Quantitative and Qualitative Disclosures about Market Risk.

Our exposure to financial risks derives primarily from changes in interest rates and foreign exchange rates. To mitigate these risks, we utilize derivative financial instruments, including interest rate option contracts and currency swap agreements, the application of which is primarily for hedging purposes and not for speculative purposes.

Interest Rate and Swap Agreements

Our exposure to interest rate risks relates primarily to:

 

   

our long term debt, which is normally utilized to finance capital expenditure;

 

   

our investment in marketable securities; and

 

   

our finance receivables

We are subject to market risk from exposure to changes in interest rates based on our financing, investing and cash management activities. We enter into various financial instrument transactions to maintain the desired level of exposure to the risk of interest rate fluctuations and to minimize interest expense. We have entered into exchange traded future and option contracts, interest rate caps and floors, along with various investments, to reduce the interest rate risk related to these activities.

 

57


Table of Contents

There are particular shortcomings inherent in the sensitivity analyses presented below. The model assumes interest rate changes are instantaneous parallel shifts in the yield curve; however, in reality, changes are rarely instantaneous. Although some assets and liabilities may have similar maturities or periods to repricing, they may not react correspondingly to changes in market interest rates. Also, the interest rates on some types of assets and liabilities may fluctuate with changes in market interest rates, while interest rates on other types of assets may lag behind changes in market rates.

The sensitivity to a change in interest rates of 1% on our unhedged floating rate loans as at March 31, 2006 and March 31, 2007 is Rs. 111 million and Rs. 252 million, respectively, on an annual basis. The sensitivity to a change in interest rates of 1% on the value of our portfolio of marketable securities as at March 31, 2006 and 2007 is Rs. 33 million and Rs. 29 million, respectively.

We may have a prepayment and default risk with respect to our finance receivables due to any change in interest rates.

Foreign Exchange Risk

The following table sets forth information relating to our foreign currency debt exposure for the periods indicated:

 

     Fiscal 2007    Fiscal 2006
     Percentage (%)

Total Foreign Currency denominated debt as percentage of total outstanding debt

   46.6    73.6

Total US$ debt as percentage of total outstanding debt

   37.4    59.1

We have foreign currency exposure related to buying, selling and financing in currencies, primarily in the dollar, other than the local currencies in which we operate. We are also exposed to foreign currency risk related to future earnings or assets and liabilities that are exposed due to operating cash flows and various financial instruments that are denominated in foreign currencies.

We use derivative instruments primarily to hedge our foreign exchange exposure, and also to hedge our interest rate exposure. Nevertheless, a weakening of the rupee against the dollar and other major foreign currencies may have an adverse effect on our cost of borrowing and cost of imported goods / technology and consequently may increase the cost of financing our capital expenditures. In addition, we have experienced and expect to continue to experience foreign exchange losses and gains on obligations denominated in foreign currencies in respect of our borrowings.

The sensitivity to a change in currency prices of 1% per US$ on our unhedged foreign currency loans as at March 31, 2007 and 2006 is Rs. 362 million and Rs.260 million, respectively.

We hedge most of our exports. However, some of our imports and exports have remained unhedged during the year. The sensitivity to a 1% change in exchange rates of individual currencies against the rupee for the unhedged portion of our imports payables for the year ending March 31, 2007 and 2006 is Rs.11 million and Rs.19 million, respectively, and sensitivity to a 1% change in exchange rates of individual currencies against the rupee for the unhedged portion of our exports receivables for the year ending March 31, 2007 is Rs.6 million.

Investment price risk

The fair value of some of our investments in available-for-sale securities exposes us to equity price risks. In general, these securities are not held for trading purposes. These investments are subject to changes in the market prices of the securities. The fair value of our available-for-sale, equity securities as of March 31, 2007 and 2006 was Rs.15,870 million and Rs.17,311 million respectively. A 1% change in equity prices of available-for-sale securities held as at March 31, 2007 and 2006 would result in an impact of Rs.159 million and Rs.173 million, respectively.

Commodity price risk

Commodity price risk is the possibility of impact from changes in the prices of commodities, such as non-ferrous metals (like aluminum), ferrous alloys (like steel) and others (like rubber), which we use in the production of automotive vehicles and their components. We do not use derivative instruments to hedge the price risk associated with the purchase of these commodities. However, we cover some of these risks through long-term purchase contracts.

Our exposure to financial risks derives primarily from changes in interest rates and foreign exchange rates. To mitigate these risks, we utilize derivative financial instruments, including interest rate option contracts and currency swap agreements, the application of which is primarily for hedging purposes and not for speculative purposes.

 

Item 12. Description of Securities Other than Equity Securities.

Not applicable.

 

58


Table of Contents

PART II

 

Item 13. Defaults, Dividend Arrearages and Delinquencies.

None.

 

Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds.

None.

 

Item 15. Controls and Procedures.

Disclosure Controls and Procedures. Based on their evaluation as of March 31, 2007, our Managing Director, Mr. Ravikant, who is our chief executive officer and Mr. C. Ramakrishnan who is our chief financial officer, respectively, have concluded that our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act) are effective.

Management’s Annual Report on Internal Control Over Financial Reporting. Management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed under the supervision of our principal executive and principal financial officers to provide reasonable assurance regarding the reliability of financial reporting and the preparation of our financial statements for external reporting purposes in accordance with Indian GAAP and U.S. GAAP. Our internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with Indian GAAP and U.S. GAAP, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Our disclosure committee comprising of our senior executives has reviewed the adequacy of disclosure pertaining to its respective functions.

Our management conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined that our internal control over financial reporting as at March 31, 2007 is effective.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Management’s assessment of the effectiveness of our internal control over financial reporting as at March 31, 2007 has been audited by Deloitte Haskins and Sells, an independent registered public accounting firm, as stated in their report appearing on the accompanying consolidated financial statements in Item 18, which expresses an unqualified opinion on management’s assessment and on the effectiveness of our internal control over financial reporting as at March 31, 2007.

Attestation Report of the Registered Public Accounting Firm. The attestation report of Deloitte Haskins and Sells, an independent registered public accounting firm, regarding its audit of our internal control over financial reporting is set forth in Item 18 “—Financial Statements”.

Changes in Internal Control over Financial Reporting. During the period covered by this annual report, there were no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

 

Item 16A. Audit Committee Financial Expert.

Our Board has determined that Mr. Palia, an independent director and a member of our Audit Committee, is an audit committee financial expert as defined under the applicable rules of the SEC issued pursuant to Section 407 of the Sarbanes – Oxley Act of 2002.

 

Item 16B. Code of Ethics.

We have adopted the “Tata Code of Conduct” (hereinafter referred as to ‘the Code’) a written Code of Ethics which is applicable to all our employees, including the chief executive officer, chief financial officer, principal accounting officer, senior management, as well as all officers working in accounts, finance, treasury, internal audit, taxation, legal, secretarial, investor relations, Disclosure Committee, Audit Committee, Board of Directors and other departments. We have a separate Code of Conduct applicable to Non-Executive Directors. The Codes are available at all our offices and are publicly available on our website.

In August 2004, our Audit Committee adopted a Policy (the Whistle Blower Policy) that provided a formal mechanism for all our employees to approach our Management (or the Audit Committee in cases where the concern involves the Senior Management) and make protective disclosures to the Management about unethical behaviour, actual or suspected fraud or violations of the Company’s Code of Conduct or ethics policy. The Whistle Blower Policy is an extension of the Tata Code of Conduct, which requires every employee to promptly report to the Management any actual or possible violation of the Code or an event such employee becomes aware of that could affect the business or reputation of the Company. The disclosures reported are addressed in the manner and within the time frames prescribed in the Whistle Blower Policy.

 

59


Table of Contents
Item 16C. Principal Accountant Fees and Services.

Our financial statements prepared in accordance with US GAAP, are audited by Deloitte Haskins and Sells (DHS), a firm registered with the Public Company Accounting Oversight Board (PCAOB) in the United States and an Indian firm of Chartered Accountants registered with the Institute of Chartered Accountants of India (ICAI).

DHS has served as our independent public accountant for each of the years ended March 31, 2007 and March 31, 2006, for which audited financial statements appear in this annual report.

The following table presents the aggregate fees for professional services and other services rendered by DHS and the various member firms of Deloitte to us including some of our subsidiaries in fiscal 2006 and fiscal 2007.

 

     Year ended March 31,   

Description of Services

     2006    2007    2007     
     Rs. in million    US $ in
million
    

Audit Fees

   56.7    121.2    2.8    Audit and review of financial statements.

Audit Related Fees

   3.7    —      —     

Tax Fees

   7.4    5.7    0.1    Tax audit, certification of foreign remittances and tax advisory services.

All Other Fees

   3.0    2.9    0.1    Audit of employee benefit funds, other certifications and advisory services.
                 

Total

   70.8    129.8    3.0   
                 

Audit Committee pre-approval for services rendered by independent accountants:

 

 

We have adopted a policy for pre-approval of services to be rendered by our independent accountants for us and our subsidiaries based on an elaborate procedure for ensuring auditor independence and objectivity.

 

 

At the beginning of each year, the Audit Committee approves the proposed services, including the nature, type and scope of services contemplated and/or the related fees to be rendered by these firms during the year.

 

 

In addition, Audit committee pre-approval is also required for those engagements that may arise during the course of the year that are outside the scope of the initial services and such fees are pre-approved by the audit Committee.

 

 

We do not engage our independent accountants for ‘prohibited services’.

 

 

Our Audit Committee recommends the appointment and compensation of independent accountants.

 

 

In case of urgent requirements, our CFO and the Chairman of our Audit Committee jointly approve any services that may be rendered by our independent accountants or their member firms and such services are subsequently ratified at the next Audit Committee meeting.

 

 

The pre-approval is not required where the fees proposed to be paid for the non-audit services do not exceed 5% of the total amount of fees paid by us to our independent accountants and their member firms during the fiscal year, provided that such services were not recognized as non audit services at the time of the engagement of services. Such services are also brought to the attention of the Audit Committee at the next meeting.

 

Item 16D. Exemptions from the Listing Standards for Audit Committees.

Not applicable.

 

Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers.

None.

 

Item 17. Financial Statements.

We have elected to provide the financial statements and related information specified in Item 18 in lieu of Item 17.

 

Item 18. Financial Statements.

The information required by this item is set forth beginning on page F-1 of this annual report.

 

60


Table of Contents
Item 19. EXHIBITS.

 

Exhibit
Number
  

Description

  1.1—    Our Certificate of Incorporation ***
  1.2—    Our Memorandum and Articles of Association***
  2.2—    Form of Amended and Restated Deposit Agreement among Tata Motors Limited, Citibank, N.A. as Depositary and all owners and holders from time to time of American Depositary Receipts, including the form of American Depositary Receipt**
  4.1—    Tata Brand Equity & Business Promotion Agreement, dated December 18, 1998, between Tata Sons Limited and Tata Engineering and Locomotive Company Limited (now Tata Motors Limited) *
  4.2—    Agreement for appointment of Mr Ravi Kant as our Managing Director****
  7.1—    Computation of Ratio of Net Debt to Shareholders’ Equity
  8.1—    List of our Subsidiaries
11.1—    The Tata Code of Conduct*
12.1—    Certification of the Principal Executive Officer required by Rule 13a – 14(a)
12.2—    Certification of the Principal Financial Officer required by Rule 13a – 14(a)
13—    Certification of the Chief Executive Officer and Chief Financial Officer required by Rule 13a – 14(b) and Section 1350 of Chapter 63 of Title 18 of the United States Code

We have not included as exhibits certain instruments with respect to our long-term debt, the amount of debt authorized under each of which does not exceed 10% of our total assets, and we agree to furnish a copy of any such instrument to the Securities Exchange Commission upon request.


* Incorporated by reference to our Registration Statement on Form 20-F File No. 001-32294 filed on September 15, 2004
** Incorporated by reference to our Registration Statement on Form F-6 (File no 333-119066) filed on September 16, 2004
*** Incorporated by reference to our Annual Report on Form 20-F File No. 001-32294 filed on September 27, 2005
**** Incorporated by reference to our Annual Report on Form 20-F File No. 001-32294 filed on September 26, 2006

 

61


Table of Contents

SIGNATURES

The Registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.

September 24, 2007

 

TATA MOTORS LIMITED
By  

/s/ Ravi Kant

Name:   Ravi Kant
Title:   Managing Director
By  

/s/ C. Ramakrishnan

Name:   C. Ramakrishnan
Title:   Chief Financial Officer

 

66


Table of Contents

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

     Page

Consolidated Financial Statements of Tata Motors Limited

  

Report of independent registered public accounting firm

   F-2

Report of independent registered public accounting firm

   F-3

Consolidated balance sheets as of March 31, 2006 and 2007

   F-4

Consolidated statements of income for the years ended March 31, 2005, 2006 and 2007

   F-5

Consolidated statements of cash flows for the years ended March 31, 2005, 2006 and 2007

   F-6

Statements of shareholders’ equity for the years ended March 31, 2005, 2006 and 2007

   F-8

Notes to consolidated financial statements

   F-11

 

F-1


Table of Contents

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of

Tata Motors Limited

Mumbai, India

We have audited the accompanying consolidated balance sheets of Tata Motors Limited and subsidiaries (the “Company”) as of March 31, 2007 and 2006, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended March 31, 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2007 and 2006, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2007, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of March 31, 2007, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated September 24, 2007, expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

As described in Note 2 (a) to the consolidated financial statements, these consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which differ in certain material respects from accounting principles generally accepted for companies in India, which form the basis of the Company’s general purpose financial statements.

Our audit for the year ended and as of March 31, 2007, also comprehended the translation of Indian rupee amounts into U.S. dollar amounts and, in our opinion, such translation has been made in conformity with the basis stated in Note 2 (ae). Such U.S. dollar amounts are presented solely for the convenience of readers in the United States of America.

 

DELOITTE HASKINS & SELLS

Chartered Accountants

Mumbai, India

September 24, 2007.                                                         

 

F-2


Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders of

Tata Motors Limited

Mumbai, India

We have audited management’s assessment, included in Item 15 under Controls and Procedures of the accompanying Form 20F titled Management’s Annual Report on Internal Control Over Financial Reporting, that Tata Motors Limited and subsidiaries (the “Company”) maintained effective internal control over financial reporting as of March 31, 2007, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of March 31, 2007, is fairly stated, in all material respects, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2007, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended March 31, 2007 of the Company, and our report dated September 24, 2007, expressed an unqualified opinion on those financial statements.

DELOITTE HASKINS & SELLS

Chartered Accountants

Mumbai, India

September 24, 2007.                                                             

 

F-3


Table of Contents

Tata Motors Limited

Consolidated Balance Sheets

As of March 31, 2006 and 2007

 

    As of March 31,
    2006   2007   2007
    (In millions, except share and per share amounts)

ASSETS:

     

Current assets:

     

Cash and cash equivalents

  Rs. 6,315.9   Rs. 7,652.5   US$ 177.5

Short-term deposits with banks

  4,914.8   173.2     4.0

Investments – current

  3,153.0   2,589.6     60.1

Finance receivables (net of allowances of Rs. 846.8 million and Rs.730.2 million, respectively)

  20,452.9   28,704.4     666.0

Accounts receivable (net of allowances of Rs. 571.1 million and Rs. 710.1 million, respectively)

  14,256.7   19,320.7     448.3

Inventories

  26,303.6   33,923.1     787.1

Deferred income taxes

  2,216.5   2,531.2     58.8

Other current assets (net of allowances of Rs.1,074.8 million and Rs. 997.3 million, respectively)

  12,474.5   19,039.1     441.7
             

Total current assets

  90,087.9   113,933.8     2,643.5

Investments – non-current

  21,697.5   19,668.7     456.4

Equity in affiliates

  2,436.1   2,690.2     62.4

Finance receivables – non-current

  27,164.2   54,153.5     1,256.5

Property, plant and equipment, net

  45,506.3   63,649.7     1,476.8

Goodwill and intangible assets

  9,389.2   10,229.1     237.3

Other non-current assets

  5,877.0   6,690.4     155.2
             

Total assets

  Rs. 202,158.2   Rs. 271,015.4   US$  6,288.1
             

LIABILITIES AND SHAREHOLDERS’ EQUITY:

     

Liabilities:

     

Current liabilities:

     

Accounts payable

  Rs. 30,316.3   Rs. 45,474.0   US$ 1,055.1

Acceptances

  29,502.3   24,608.1     571.0

Accrued expenses and other current liabilities

  11,636.3   11,794.4     273.7

Short-term borrowings and current portion of long term debt

  9,438.1   38,902.0     902.6
             

Total current liabilities

  80,893.0   120,778.5     2,802.4

Long-term debt

  27,203.3   40,235.1     933.5

Other liabilities

  3,607.1   8,595.2     199.4

Deferred income taxes

  6,135.2   5,983.6     138.8
             

Total liabilities

  117,838.6   175,592.4     4,074.1
             

Commitments and contingencies (See Note 22)

     

Minority interest

  3,303.8   4,054.1     94.1

Shareholders’ equity:

     

Ordinary shares; Par value Rs. 10 per share; authorized 410,000,000 and 450,000,000 shares, as of March 31, 2006 and 2007 respectively, issued and fully paid up 382,820,381 and shares 385,360,135 as of March 31, 2006 and 2007 respectively; issued and partly paid up 13,750 shares partly paid up, both years

  3,828.7   3,854.1     89.4

Additional paid-in capital

  38,773.6   39,711.0     921.4

Capital redemption reserve

  22.8   52.8     1.2

Debenture redemption reserve

  3,341.5   3,341.5     77.5

Reserve for research and human resource development

  56.2   669.5     15.5

Special reserve

  75.2   127.8     3.0

Retained earnings

  20,401.3   32,135.2     745.6

Accumulated other comprehensive income

  14,516.5   11,477.0     266.3
             

Total shareholders’ equity

  81,015.8   91,368.9     2,119.9
             

Total liabilities and shareholders’ equity

  Rs. 202,158.2   Rs. 271,015.4   US$  6,288.1
             

See accompanying notes to consolidated financial statements

 

F-4


Table of Contents

Tata Motors Limited

Consolidated Statements of Income

For each of the years ended March 31, 2005, 2006 and 2007

 

     Years ended March 31,  
     2005     2006     2007     2007  
     (In millions, except share and per share amounts)  

Revenues

        

Gross sales

   Rs. 228,549.4     Rs. 272,350.8     Rs. 370,709.1     US$ 8,601.2  

Less: Excise duty

   31,771.0     35,465.0     46,227.9       1,072.6  
                          

Net sales

   196,778.4     236,885.8     324,481.2       7,528.6  

Finance revenues

   1,608.6     3,728.7     7,043.4       163.4  
                          

Total revenues

   198,387.0     240,614.5     331,524.6       7,692.0  

Cost of sales

   156,906.7     189,318.7     263,449.7       6,112.5  

Operating expenses

        

Selling, general and administrative

   20,144.9     26,586.2     35,623.3       826.5  

Research and development

   2,532.4     4,663.0     6,018.1       139.6  

Employee separation compensation (See Note 18)

   11.5     4.2     2.6       0.1  
                          

Total operating expenses

   22,688.8     31,253.4     41,644.0       966.2  
                          

Operating income

   18,791.5     20,042.4     26,430.9       613.3  
                          

Non-operating (expense) income

        

Gain on shares issued by subsidiary

   —       86.5     30.4       0.7  

Gain on sale of equity interests in subsidiary (See Note 19)

   —       1,532.1     —         —    

Other non-operating income, net

   1,821.6     1,882.6     4,745.4       110.1  

Interest income

   761.6     662.8     598.3       13.9  

Interest expense

   (2,993.3 )   (3,717.8 )   (5,413.8 )     (125.6 )
                          

Total non-operating (expense) income

   (410.1 )   446.2     (39.7 )     (0.9 )
                          

Income before equity in affiliates, minority interest and income taxes

   18,381.4     20,488.6     26,391.2       612.4  

Income tax expense

   (5,099.9 )   (5,618.3 )   (8,113.0 )     (188.2 )

Minority interest, net of tax

   (365.7 )   (331.1 )   (718.5 )     (16.7 )

Equity in net income of affiliates, net of tax

   340.4     471.4     551.9       12.8  
                          

Net income

   Rs. 13,256.2     Rs. 15,010.6     Rs. 18,111.6     US$ 420.3  
                          

Weighted average equity shares outstanding:

        

Basic

   359,837,353     373,268,040     384,544,205       384,544,205  

Diluted

   388,849,716     399,310,236     407,166,995       407,166,995  

Earnings per share:

        

Basic

   Rs. 36.8     Rs. 40.2     Rs. 47.1     US$ 1.1  

Diluted

   Rs. 34.9     Rs. 38.7     Rs. 45.4     US$ 1.1  

See accompanying notes to consolidated financial statements

 

F-5


Table of Contents

Tata Motors Limited

Consolidated Statements of Cash Flows

For each of the years ended March 31, 2005, 2006 and 2007

 

    Years ended March 31,  
    2005     2006     2007     2007  
    (In millions)  
Cash flows from operating activities:        

Net income

  Rs. 13,256.2     Rs. 15,010.6     Rs. 18,111.6     US$ 420.3  

Adjustments to reconcile net income to net cash provided by operating activities:

       

Depreciation

  4,888.8     5,470.3     5,943.1       137.9  

Amortization of intangible assets

  33.2     373.1     663.2       15.4  

Gain on sale of finance receivables

  (139.5 )   (294.3 )   (412.8 )     (9.6 )

Write offs of delinquent finance receivables

  77.3     294.2     1,333.9       30.9  

Allowances for delinquent finance receivables, net of recoveries

  8.9     717.2     (116.6 )     (2.7 )

Equity in earnings of affiliates

  (340.4 )   (471.4 )   (551.9 )     (12.8 )

Gain on sale of property, plant and equipment

  (36.4 )   (58.0 )   (132.3 )     (3.1 )

Loss on liquidation of subsidiaries

  —       —       25.8       0.6  

Gain on sale of investment in affiliate/ equity interests in subsidiary

  (29.8 )   (1,532.1 )   (214.1 )     (5.0 )

Gain on shares issued by subsidiary

  —       (86.5 )   (30.4 )     (0.7 )

Deferred tax expense

  904.9     684.6     828.8       19.2  

Gain on sale of investments

  (496.7 )   (173.8 )   (176.4 )     (4.1 )

Impairment of investments

  40.0     —       8.6       0.2  

Minority interest

  365.7     331.1     718.5       16.7  

Changes in:

       

Accounts receivable

  (1,720.1 )   (2,782.2 )   (4,993.5 )     (115.9 )

Other current assets

  (735.5 )   (10,372.9 )   (6,571.7 )     (152.5 )

Inventories

  (6,047.0 )   (4,605.2 )   (7,569.8 )     (175.6 )

Other non-current assets

  (342.8 )   (1,835.9 )   (812.8 )     (18.9 )

Accounts payable

  146.2     3,457.4     14,203.2       329.5  

Acceptances

  12,302.9     562.8     (4,908.7 )     (113.9 )

Accrued expenses and other current liabilities

  1,490.8     977.3     2,152.3       49.9  
                         

Net cash provided by operating activities

  23,626.7     5,666.3     17,498.0       405.8  
                         

Cash flows from investing activities:

       

Short-term bank deposits

  (12,939.3 )   10,884.8     4,741.6       110.0  

Loans given to affiliate and others

  (5,096.6 )   —       —         —    

Payment made to Liquidators of subsidiaries

  —       —       (4.4 )     (0.1 )

Purchases of available-for-sale investments

  (1,753.7 )   (390.6 )   (123.5 )     (2.9 )

Purchase of Held to Maturity securities

  —       —       (15.0 )     (0.3 )

Purchases of other investments

  (1,708.6 )   (300.0 )   (45.0 )     (1.0 )

Proceeds from sale of available-for-sale investments

  4,977.3     8,199.7     1,539.6       35.7  

Proceeds from sale of equity interests in subsidiary

  —       2,078.3     —         —    

Proceeds from sale of investments in affiliates

  91.2     —       396.4       9.2  

Proceeds from sale of other investments

  1,127.8     76.6     4.9       0.1  

Investments in affiliates

  (401.7 )   (181.4 )   (340.1 )     (7.9 )

Dividends received from affiliates

  277.6     188.8     449.6       10.4  

Net change in finance receivables

  (14,243.1 )   (43,368.4 )   (79,072.3 )     (1,834.6 )

Proceeds from sale of finance receivables, net of retained interests

  2,701.1     28,128.3     43,027.0       998.3  

Cash flow from retained interests in securitized transactions

  595.8     629.4     (286.6 )     (6.6 )

Purchases of property, plant and equipment

  (8,556.8 )   (10,354.9 )   (24,121.8 )     (559.7 )

Proceeds from sale of property, plant and equipment

  315.3     195.8     1,040.9       24.2  

Purchase of intangible assets

  (605.9 )   (379.5 )   (1,155.2 )     (26.8 )

Shares of subsidiary purchased from minority shareholders

  —       (152.9 )   —         —    

Payments for acquisitions, net of cash acquired

  (186.6 )   (4,304.2 )   —         —    
                         

Net cash used in investing activities

  (35,406.2 )   (9,050.2 )   (53,963.9 )     (1,252.0 )
                         

 

F-6


Table of Contents

Tata Motors Limited

Consolidated Statements of Cash Flows

For each of the years ended March 31, 2005, 2006 and 2007

 

     Years ended March 31,
     2005    2006    2007    2007
     (In millions)

Cash flows from financing activities:

           

Proceeds from issuance of shares, net of issue expenses

   Rs. 756.4    Rs. 259.2    Rs. (0.9)    US$ —  

Proceeds from issue of shares by a subsidiary to minority shareholders

   738.9    415.1    161.8      3.8

Dividend paid (including dividend tax)

   (1,653.8)    (5,147.5)    (5,678.6)      (131.8)

Dividends paid to minority shareholders of subsidiaries

   (118.7)    (127.9)    (152.0)      (3.5)

Net change in short-term debt

   (3,457.0)    4,074.9    24,768.9      574.7

Proceeds from issuance of long-term debt

   19,230.4    8,759.7    21,667.1      502.7

Repayments of long-term debt

   (5,508.8)    (3,783.1)    (2,292.7)      (53.2)
                     

Net cash provided by financing activities

   9,987.4    4,450.4    38,473.6      892.7
                     

Net change in cash and cash equivalents

   (1,792.1)    1,066.5    2,007.7      46.5

Cash and Bank balance on liquidation of subsidiaries taken over by Administrator

   —      —      (5.5)      (0.1)

Effect of foreign exchange on cash flows

   154.3    376.1    (665.6)      (15.4)

Cash and cash equivalents, beginning of the year

   6,511.1    4,873.3    6,315.9      146.5
                     

Cash and cash equivalents, end of the year

   Rs. 4,873.3    Rs. 6,315.9    Rs. 7,652.5    US$ 177.5
                     

Supplemental cash flows information:

           

Interest paid

   Rs. 2,997.8    Rs. 3,507.2    Rs. 5,017.7    US$ 116.4

Income taxes paid

   Rs. 4,685.6    Rs. 5,609.8    Rs. 7,056.3    US$ 163.7

Non-cash transactions:

           

1% Foreign Currency Convertible Notes converted into 2,490,199 and 312,955 and 1,620,003 ordinary shares

   Rs. 602.5    Rs. 75.9    Rs. 412.7    US$ 9.6

Zero Coupon Foreign Currency Convertible Notes converted into 6,264,476 and 919,297 ordinary shares

   Rs. —      Rs. 3,638.1    Rs. 551.0    US$ 12.8

14,053,791 ordinary shares issued on acquisition of Tata Finance Limited as purchase consideration

   Rs. —      Rs. 6,867.9    Rs. —      US$ —  

Shares/warrants alloted on settlement of legal cases against the rights entitlement, which were held in abeyance

   Rs. —      Rs. —      Rs. —      US$ —  

See accompanying notes to consolidated financial statements

 

F-7


Table of Contents

Tata Motors Limited

Statements of Shareholders’ Equity

For each of the years ended March 31, 2005, 2006 and 2007