Days after Tata Group joined hands with Montezomolo family of the Fiat group to bid for global luxury hotel chain Orient-Express, the two groups are planning to perk up their Indian manufacturing affiliation, Fiat India Automobiles, by setting off piled up losses of Rs.300 crore and reconstituting its processes.
The two stockholders have settled to set off collected losses in the reports of Fiat India Automobiles by setting it off in opposition to Rs.175.24 crore accessible in the project’s securities premium balance and Rs.124.76 crore of its paid-up capital, a person near to the development stated.
As part of its reconstituting, the manufacturing JV is thinking about charging Fiat a specific fee for fabricating its vehicles, they said.
This accompanies the development of Fiat’s national sales firm, Fiat Group India Automobile Pvt Ltd that will nowadays separately market and sell all the Fiat vehicles in the nation. Previously, all the incomes or losses made by Fiat on the advertising front were borne by the manufacturing JV.
“With the modification in the marketing arrangement, the payment structure will also be altering and, therefore, there are many things under consideration, but nothing is settled at present,” said one person near to the development.
Thus far, Tata Motors paid a definite flat charge for manufacturing vehicles at the Ranjangaon facility of Fiat India Automobiles. However, the JV incurred all the marketing as well as distribution costs linked with marketing Fiat cars.
When met, a Fiat India representative said, “We do not remark on the financial situation of the firm.”
Aside from setting off losses, Fiat India Automobiles has also broadened its 2011-12 fiscal year by an additional six months, to begin with the clean slate with a 6-months financial year from October 2012 to March 2013.
Fiat Group India Automobiles Limited is commencing with a principal sum of Rs.50 crore to handle the day to day requirements of the marketing firm. Presently, the firm is in the route of nominating independent dealers crosswise the nation. It directs to have 70-90 franchises by the coming 18 month period.
Specialists said that the said move is expected to fortify the financial situation of the manufacturing project and may assist makers to lessen losses, manage profits and control the balance sheet to lift up loans for future to meet growth.
Deepesh Rathore, head, IHS Automotive, said, “The move will help to reinforce the balance sheet of the joing venture firm and will provide them a clear thought of the loss making firm. It may also assist them in lifting further funds for manufacturing firm for future growth.”
The JV registered a loss of around Rs.288.69 crore during 2009-10 and brought it down slightly to Rs.227.04 crore in 2010-11 with augmented constituent exports.
The venture has been taking actions in order to pick up capacity use, particularly of engines that it provides to Maruti Suzuki, Premier and export markets. The company proposes to make around 2 lakh engines that entail a capacity utilization of 80%.
But, Fiat cars carry on struggling in the Indian market.
In 2011-12, the company’s domestic sales dropped around 24% to just 16,095 units despite heavy discounts of around Rs.1 lakh. In 2010-11 as well, its sales declined 15% when the overall market originated 25-30%.