Post-Graduate Diploma in Management, 2020-22

Term 2
Managerial Accounting Project

Cost Management System & Corporate Sustainability

Initiatives Analysis of

Submitted By: Group-4, Section E

Roll No. Name Email
200101089 Milind Dougall pgp20milinddougall@imt.ac.in
200102051 Rushi Nileshbhai Khetani pgp20rushinileshbhaikhetani@imt.ac.in
200103054 Dhairya Arora pgp20dhairyaarora@imt.ac.in
200103116 Puneet Singh Gill pgp20puneetsinghgill@imt.ac.in
200201005 Abishaek J. S. dcp20abishaekjs@imt.ac.in
200201093 Vibhuti Gupta dcp20vibhutigupta@imt.ac.in
 OBJECTIVE OF THE STUDY

 To conduct cost management system analysis of Tata Motors

 Analysis of their Corporate Sustainability initiatives and its impact on
profitability/costing
 Comparative analysis of financial statements of past three years

RATIONALE OF THE STUDY

 Comprehensive study of the automobile sector

 To develop an understanding of the costing systems, including cost

classification and cost behaviour for planning and control
 To learn how companies cut their costs in order to increase the profits
 To understand what all Corporate Sustainability initiatives companies take in
order to make profits and how various costs are attributed to the same
 INTRODUCTION

The Automobile Industry

With the sale of about 3.99 million units in the categories of passenger and
commercial vehicles, India became the fourth largest automotive market in 2019,
displacing Germany. By 2021, India is projected to overtake Japan as the third
largest market for automobiles. Due to the rising middle class and young population,
the two-wheeler segment dominates the industry in terms of volume. In addition, the
increasing interest of companies in exploring rural markets has further aided the
sector's growth.

India is also a leading exporter of cars and has high hopes of export growth for the
near future. Moreover, it is predicted that several initiatives by the Government of
India and major car players in the Indian market will render India a world leader in
the two-wheeler and four-wheeler markets by 2020.

Domestic vehicle production increased between FY16-20 at 2.36 percent CAGR,

with 26.36 million vehicles being produced in the country in FY20. Overall, domestic
car sales between FY16-FY20 increased by 1.29 percent CAGR, with 21.55 million
vehicles being sold in FY20. The domestic Indian auto industry is dominated by two
wheelers and passenger vehicles. Small and mid-sized cars dominate passenger car
sales. Two wheelers and passenger cars accounted for 80.8 percent and 12.9
percent of the market share, respectively, totalling over 20.1 million vehicles sold
together in FY20.

Overall, car exports in FY20 reached 4.77 million cars, increasing at a 6.94 percent
CAGR during FY16-FY20. 73.9 percent of the vehicles exported were two wheelers,
followed by passenger vehicles at 14.2 percent, three wheelers at 10.5 percent and
1.3 percent of commercial vehicles. EV sales, excluding E-rickshaws, grew by 20
percent in India and reached 1.56 lakh units powered by two wheelers in FY20.

Various factors benefit the automotive industry, such as the availability of low-cost
skilled labour, robust R&D centres, and low-cost steel production. The sector also
offers great investment opportunities and direct and indirect job opportunities for
skilled and unskilled workers.
 Share of Each Segment
13%

3%
3% Passenger Vehicles
Commercial Vehicles
Three Wheelers
Two Wheelers

81%

Production volume of vehicles across India from financial year 2011 to 2020,
by segment (in millions)

35

30

25
Production volume in millions

20

15

10

0
FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020

Two wheelers Three wheelers Passenger vehicles Commercial vehicles

Export volume of vehicles from India between financial year 2010 and 2020 (in
millions)
5.0 4.76
4.63
4.5
4.04
4.0
3.57 3.64
3.48
Vehicle exports in millions

3.5
3.11
2.94 2.9
3.0

2.5 2.32

2.0 1.8

1.5

1.0

0.5

0.0
FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020

Cost Breakup of Automobile Industry

Others(Advertisement,…) 7%

Logistics 3%

Depreciation 6%

R&D 6%

Administration 10%

Direct Labour 21%

Materials 47%

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

Cost Breakup of Automobile Industry

The cost breakup analysis indicates that approximately 47% of the cost is incurred
towards to the materials and the second highest expenditure of rental direct labour
amounts to 13% of the total cost. Therefore, we can infer that companies need to
focus on reducing material costs to generate more profits.
 About the Company

Tata Motors Limited (TML) is one of the largest fully integrated automotive
companies in India, with a product mix that includes CVs, passenger cars and utility
vehicles (UVs). The TML plants in Pune, Jamshedpur, Pantnagar, Sanand, Dharwad
and Lucknow are located. The business has embraced technology from different
collaborators over the years and developed many partnerships with international
players. By acquisitions, the company has also expanded its revenue share from
foreign operations. With the purchase of the Jaguar and Land Rover brands from
Ford, TML entered the market for luxury cars in June 2008. It is one of the largest
OEMs in India with a wide range of integrated, intelligent and e-mobility solutions. Its
subsidiaries are:
 Jaguar Land Rover Automotive Plc
 Tata Motors European Technical Centre PLC (TMETC)
 Tata Motors Insurance Broking and Advisory Services Limited (TMIBASL)
 TMF Holdings Limited
 TML Distribution Company Limited (TDCL)
 TRILIX Srl
 Tata Technologies Limited
 Tata Marcopolo Motors Limited (TMML)
 TML Holdings Pte. Limited
 Tata Daewoo Commercial Vehicle Company Limited

Tata Motors Ltd Business Growth since Inception

 Market share of passenger vehicles across India in financial year 2020, by
manufacturer

0% 10% 20% 30% 40% 50% 60%

Maruti Suzuki 51.3%

Hyundai Motor India 17.6%

Mahindra and Mahindra* 6.5%

Tata Motors 4.8%

Toyota Kirloskar 4.1%

Honda Cars India 3.7%

Renault India 3.2%

Kia 3.1%

Ford India 2.4%

Volkswagen 0.9%

Nissan India 0.7%

Skoda 0.5%

MG Motors 0.8%

FCA 0.3%

Sales volume of Tata Motors across India from FY 2017 to FY 2020 (in 1,000
units)
700
639.05
600
542.32
Sales volume in thousands

500
429.41
400

300 283.93

200

100

0
FY 2017 FY 2018 FY 2019 FY 2020
 LITERATURE REVIEW

 Tata Motors’ Next Target is the Personal EV Space

Author: Prerna Lidhoo, Date: February 17, 2020, Fortune India
With Nexon EV, Tata Motors enters into the personal electric vehicle space.
They aim to establish themselves as the market leader in both fleet and
private segment. The start of their journey was with 10,000 cars which was a
government order that they had won as the early bidder. Later, the Tigor EV’s
range was extended to 213 kms from 140 kms and was launched in October
2019. They realized that while they are capturing the market in fleet segment,
it is only 10% of the market and rest 90% is still a personal vehicle segment.
To get the product into the market fast, they took the help of JLR (Jaguar
Land Rover). With their help in thermal management of batteries and design,
Tata motors was able to save a lot of time and bring in a robust product.

 What Corporate Tax Cuts Mean for Auto Sector

Author: Prerna Lidhoo, Date: September 24, 2019, Fortune India
The auto sector which had been facing a slowdown for almost a year now has
had a revival with the corporate tax cuts announced by finance minister. The
industry leaders believe that this will give push to the manufacturing sector
and attract companies to invest more, while some industry experts believe
that the auto industry will take a lot more than corporate tax cuts to recover.
Automakers declared big discounts to boost up the demand. While Tata
Motors gave benefits up to Rs. 1.5 Lakh through their festival of car
programme, Maruti Suzuki offered discounts up to Rs. 1 Lakh, and so was
followed by Hyundai and Honda. The opinion of Edelweiss securities is that
the automakers will retain the benefit from the tax cut in the absence of cut in
GST.

 Tata Motors Reports Rs. 3,238 crore Q1 loss on JLR Woes

Author: Aveek Datta, Date: July 25, 2019, Fortune India
With declining domestic auto market and higher than expected losses from
JLR (Jaguar Land Rover), Tata motors faced a huge loss in the first quarter of
FY 19-20. The company reported a loss of Rs. 3238 crore for the quarter. Last
year, for the same quarter, the reported loss was Rs. 2584 crore. Net revenue
of the company in this period declined 7.7% year-on-year to Rs. 61,467 crore.
The standalone business, which comprises of exports and domestic sales of
Tata branded passenger and commercial vehicles, reported Rs. 40 crore of
pre-tax loss. Which was a profit of Rs. 1,464 crore in first quarter of FY 2018-
19. The net automotive debt of the company rose to Rs. 46,500 crore as on
June 30, 2019 due to negative free cash flow.
 DATA AND METHODOLOGY

DATA

 Analysis of Income Statement for the Financial Years ending 2020, 2019 and
2018

Analysis of Income Statement

Year Year Year % of % of % of
ended ended ended Revenue Revenue Revenue
March 31, March 31, March 31, % change % change from from from
2020 (in 2019 (in 2018 (in in 2020 in 2019 Operation Operation Operation
Crores) Crores) Crores) over 2019 over 2018 s (2020) s (2019) s (2018)
Income
Total revenue from operations 43,928.17 69,202.76 58,689.81 -36.52% 17.91% 100.00% 100.00% 100.00%
Other Income 1,383.05 2,554.66 2,492.48 -45.86% 2.49% 3.15% 3.69% 4.25%
Total Income 45,311.22 71,757.42 61,182.29 -36.86% 17.28% 103.15% 103.69% 104.25%

Expenses
Cost of materials consumed 26,171.85 43,748.77 37,080.45 -40.18% 17.98% 59.58% 63.22% 63.18%
Purchases of products for sale 5,679.98 6,722.32 4,762.41 -15.51% 41.15% 12.93% 9.71% 8.11%
Changes in inventories of stock-in-trade 722.68 144.69 842.05 399.47% -82.82% 1.65% 0.21% 1.43%
Employee benefits expense 4,384.31 4,273.10 3,966.73 2.60% 7.72% 9.98% 6.17% 6.76%
Finance costs 1,973.00 1,793.57 1,744.43 10.00% 2.82% 4.49% 2.59% 2.97%
Foreign exchange loss (net) 239 215.22 17.14 11.05% 1155.66% 0.54% 0.31% 0.03%
Depreciation and amortisation expense 3,375.29 3,098.64 3,101.89 8.93% -0.10% 7.68% 4.48% 5.29%
Product development/Engineering expenses 830.24 571.76 474.98 45.21% 20.38% 1.89% 0.83% 0.81%
Other expenses 7,720.75 9,680.46 9,234.27 -20.24% 4.83% 17.58% 13.99% 15.73%
Amount transferred to capital and other accounts -1,169.46 -1,093.11 -855.08 6.98% 27.84% -2.66% -1.58% -1.46%
Total Expenses 49,927.64 69,155.42 61,162.55 -27.80% 13.07% 113.66% 99.93% 104.21%

Profit/(loss) before exceptional items and tax -4,616.42 2,602.00 19.74 -277.42% 13081.36% -10.51% 3.76% 0.03%
Profit/(loss) before tax -7,127.34 2,398.93 -946.92 -397.10% -353.34% -16.22% 3.47% -1.61%

Tax expense (net)

(a) Current tax 33.05 294.66 92.63 -88.78% 218.10% 0.08% 0.43% 0.16%
(b) Deferred tax 129.24 83.67 -4.7 54.46% -1880.21% 0.29% 0.12% -0.01%
Total tax expense 162.29 378.33 87.93 -57.10% 330.26% 0.37% 0.55% 0.15%

Profit/(loss) for the year from continuing operations -7,289.63 2,020.60 -1,034.85 -460.77% -295.26% -16.59% 2.92% -1.76%

Other comprehensive income/(loss) for the year, net of taxes -378.72 -23.43 43.22 1516.39% -154.21% -0.86% -0.03% 0.07%

Total comprehensive income/(loss) for the year -7,668.35 1,997.17 -991.63 -483.96% -301.40% -17.46% 2.89% -1.69%
  Analysis of Expenses for the Financial Years ending 2020, 2019 and 2018

Analysis of Expenses
Year Year Year
ended ended ended
March 31, March 31, March 31, % of total % of total % of total
2020 (in 2019 (in 2018 (in expenses expenses expenses
Crores) Crores) Crores) (2020) (2019) (2018)
Expenses
Cost of materials consumed 26,171.85 43,748.77 37,080.45 52.42% 63.26% 60.63%
Purchases of products for sale 5,679.98 6,722.32 4,762.41 11.38% 9.72% 7.79%
Changes in inventories of stock-in-trade 722.68 144.69 842.05 1.45% 0.21% 1.38%
Employee benefits expense 4,384.31 4,273.10 3,966.73 8.78% 6.18% 6.49%
Finance costs 1,973.00 1,793.57 1,744.43 3.95% 2.59% 2.85%
Foreign exchange loss (net) 239 215.22 17.14 0.48% 0.31% 0.03%
Depreciation and amortisation expense 3,375.29 3,098.64 3,101.89 6.76% 4.48% 5.07%
Product development/Engineering expenses 830.24 571.76 474.98 1.66% 0.83% 0.78%
Other expenses 7,720.75 9,680.46 9,234.27 15.46% 14.00% 15.10%
Amount transferred to capital and other accounts -1,169.46 -1,093.11 -855.08 -2.34% -1.58% -1.40%
Total Expenses 49,927.64 69,155.42 61,162.55 100.00% 100.00% 100.00%

Classification of some of the costs given in the financial statements as variable and
fixed:

COST CLASSIFICATION
Cost of material consumed Variable cost
Purchases of stock in trade Variable cost
Changes in inventories of finished goods (Opening Variable cost
stock minus Closing Stock)
Excise duty Fixed cost
Salaries and wages Fixed cost
Contribution to Provident and other funds Fixed cost
Staff welfare expenses Fixed cost
Finance cost Fixed cost
Depreciation and amortization expense Fixed cost
Power and fuel Fixed cost
Rent Fixed cost
Insurance Fixed cost
Repair & Maintenance Variable cost
Advertising Fixed cost
Printing and stationery Variable cost
Postage, telephone Variable cost
 METHODOLOGY

We have done the secondary research and based on our understanding from this
and previous courses, we have done analysis of the income statement and classified
various cost heads under fixed cost and variable cost. The data helped us
understand the several types of costs which are incurred by the company and also
the automobile industry in general.

We started this project by going through various websites and research papers in the
automobile domain, which helped us in taking an overview of the industry and
proceeding accordingly.

Other sources like the Annual Report of Tata Motors for the fiscal year 2017-18,
2018-19, 2019-20 issued by the company, various news articles have been made
use of in the collection of requisite data.
 EMPIRICAL ANALYSIS

The comparative analysis of the income statement for the company for the fiscal
years 2017-18, 2018-19 and 2019-20 is as follows:

 Revenue from Operations

The revenue from operations for financial year 2019-2020 has decreased by
36.86% where as in the previous year it was up by 17.28%. The major reason
for decrease was the poor demand, in fact the industry witnessed the worst
half-yearly performance in that year. In this financial year also, due to COVID
industry witnessed poor demand in first quarter due to lockdown but gradually
start recovering in the next quarters.

 Total Expenses
The expenses decreased drastically in FY 2019-2020 by 27.80%, where as in
the previous year it got increased by 13.07%. Though decrease in expenses
is a good sign for company, but here it got decreased due to poor demand.
Therefore, we can say one needs to take into account the external factors
also before making a decision just based on numbers.

 Net Profit
For Tata Motors it’s showing the downtrend, it decreased drastically in both
the FY 2019-2020 and FY 2018-2019 by 483.96% and 301.40% respectively.
One of the major reasons for decline in net profit is the drastic increase
inventories of stock-in-trade by 399.47%, accompanied by poor demand in the
automobile sector.

 Cost of Materials Consumed

Expenditure on material consumed form the major part of the automobile
company. In case of Tata Motors, it lies between the ranges of 59-64% of the
company revenues over the last three years. Though it has been decreasing
year on year but it’s not the true interpretation, as we discussed earlier here
external factors (such as poor demand, etc.) are influencing this cost.

 Other Expenses
Other expenses majorly consists of processing charges, freight charges, port
charges and work operation forming 14-15% of the total expenses. The
company was able to reduce its other expenses in financial 2019-20 as these
expenses fell by 20.24% over the previous year.
The analysis of the few of the major expenses stated in the income statement for the
company for the fiscal years 2017-18, 2018-19 and 2019-20 is as follows:

 Cost of Materials Consumed

These are the single largest expense of any automobile company. For Tata
Motors these have increased from 37080.45 crores in 2018 to 43748.77
crores in 2019 and then decreased to 26171.85 crores in 2020. Expenditure
on account of the cost of material consumed forms more than half of the total
expenditure, as we analysed from the financial statements of the company.
Increase from 2018 to 2019 is a decent amount of increase and can be
attributed to the increase in the demand. But in the next year we witnessed
poor demand due to which cost of material reduced. In the current fiscal year,
we can say first quarter was a washout due to COVID but in the next quarter
Tata Motors reported great numbers. It could be due to pent-up demand and
festive season also, but it’s hard to comment whether it would sustain in
coming quarters or not.

 Changes in Inventories for Stock-in-trade

These have increased drastically by approximately 400% in 2020 over 2019. This
increase might be due to transition from BS 4 to BS 6 norms, for which companies
had to prepare. Companies were required to comply with these stringent norms from
1st April 2020.

 Finance Costs
The costs are incurred on account of interest payments which were majorly
due to lease/rent charges. These costs increased by a 10% in 2020 over
2019. Upon going through the notes to accounts in the annual report, we
realised that such an increase has been on the account of finance cost on
interest which was 5970.80 crores in 2019 and was 7680.29 crores in 2020.

 Depreciation and Amortisation Expenses

These expenses entail the depreciation and amortisation charged on the
assets of the company. Although it accounted for 4.5-6.5% of total
expenditure in 2018, 2019 and 2020.In 2020 it increased by 8.93%, while in
previous year it showed a mere decrease of 0.10%. To analyse it, we read the
notes to accounts and came to know that the decrease was mainly due to
reporting of impairment losses in Q3 of financial year 2018-2019, along with
Favourable foreign currency translation from GBP to Indian rupees of
326 crores pertaining to Jaguar Land Rover.

 Employee Benefit Expenses

This particular expense comprises of salaries, wages and bonus; contribution
to provident fund and staff welfare expenses. These expenses form
approximately 8.78% of the expenses of Tata Motors and have seen a
constant increase over the years. Tata group takes care of their employees a
lot, therefore a lot of factors come into account like health care costs, salary
increases, etc.
 SUSTAINABILITY MEASURES BY THE COMPANY

The Tata Motors Group believes that the development of long-term value for its
company is closely linked to sustainable success (covering the Environment, Social
and Governance aspects). To resolve the different issues of sustainability, they
follow a 'multi-capital' approach that allows them to consider the company's
dependencies and impacts on different resources and relationships. Their focus
areas based on ESG parameters are:
 Environment
a. Reduction in GHG emissions and consumption of energy
b. Monitoring the activities of water procurement and reducing water use
in plants and around the supply chain
c. Proper utilisation of resources

 Social
a. Engaging with the supplier and distributor network and raising
awareness of ESG aspects, criteria of health and safety, and technical
factors
b. Diversity and inclusivity in workspace
c. Supporting through providing training in rural and skill development

 Governance
a. Keeping check through appropriate monitoring systems
b. Introduction of supportive policies
c. Ensuring good governance is in place to deliver the core principles of
JLR, since this is the basis on which it operates and controls the
organisation and offers a sustainable profitability framework

In India, Tata Motors is driving all its sustainability initiatives under the guidance of
the Safety, Health and Sustainability (SHS) Board Committee. The Tata Code of
Conduct, which includes the concepts of Reduce, Recycle, Recover and Refurbish,
universally governs all its operations. The business-level Safety, Health and
Environment (SHE) Councils, assisted by the plant-level SHE Apex Committee, are
responsible for reviewing the performance every month. The implementation of
energy, climate, and occupational health and safety management programmes is the
responsibility of all TML plants.
On the solid foundations of a long-standing dedication to the environment and
community, JLR's Destination Zero mission for zero pollution, zero accidents and
zero congestion is centred. The industrial revolution today is driven by waste
reduction, decarbonisation, air quality improvement, automation enhancement and
technological advancement. To help create a healthier community and a cleaner
world, JLR aims to use capital wisely and thus drive profitable and sustainable
growth.
The following tables gives an overview of the budget projected/allotted for individual
CSR activities and the actual expenditure for FY 2019-20:

 Total budget allocation was 22.93 crores, whereas the cumulative spend up
was of 22.91 crores.
 Expenditure on projects for promoting education, which is one of the most
important factors to lead a good life, was maximum, i.e., 9.59 crores. It was
approximately 42% of the whole spend up.
  After going through the management commentary, we found out that the
company would focus more on rural development projects in future. This time
it was only approximately 1.5% of the whole spend up.

Some of the forward-looking R&D programs that the Company is concentrating on

are:
 Indigenous Li-Ion battery packs development for hybrid and electric buses
and electric cars
 The development of electrically driven oil pump, fan, thermostat, fan,
turbocharger for various engine platforms which will improve fuel efficiency
and the overall performance of the vehicle
 Robust control system for electric and hybrid buses and electric cars
 The development of Indigenous fuel cell systems and accessories
 For electric buses, electrification of vehicle accessories.
 Increased drain intervals of oil for gear box and axle in line with
implementation for engines
 The development of high efficiency inverters and motors
 SUMMARY AND CONCLUSION

After analysing above the annual report of Tata Motors in terms of the costs incurred
by the company, following are the major costs that are incurred in any major
automobile company:
 Raw Materials Cost
 Labour Costs
 Employee Benefit Expenses
 Finance Costs
 Depreciation and Amortization Costs

There’s high percentage of expenses in automobile industry, companies one of the

major focus is to reduce them. In fact Tata Motors suffered a huge loss of 7668.35
crores in FY 2020 whereas in FY 2019 it had a profit of1997.17 crores, it was majorly
due to poor demand in the second half of the year. The company has recently
launched some good models which are in demand. In the current fiscal year, we can
say first quarter was a washout due to COVID but in the next quarter Tata Motors
reported great numbers. It could be due to pent-up demand and festive season also,
but it’s hard to comment whether it would sustain in coming quarters or not.
Automobile companies do focus on Kaizen costing principle to focus on cost
reduction so that they can make more profits.

The Tata Group has brought together a diverse range of companies to capitalise on
the demand for electric vehicles, creating the entire in-house ecosystem. India could
be pioneer in shared mobility by 2030, creating opportunities for electric and
autonomous vehicles. To minimise emissions, the emphasis is moving to electric
vehicles. Therefore, TML do have first mover advantage, as companies have started
focusing on EVs a lot. Under FAME India scheme government incentives are also
provided to manufacturers investing in the production of electric vehicles and their
parts, electric motors and lithium-ion batteries.
 REFERENCES

 https://www.tatamotors.com/wp-content/uploads/2020/08/03045333/annual-
report-2019-2020.pdf
 https://www.tatamotors.com/wp-content/uploads/2020/06/17104550/annual-
csr-report-2019-20.pdf
 https://www.statista.com/statistics/1074106/india-tata-motors-sales-volume/
 https://www.ibef.org/industry/india-automobiles.aspx
 https://www.fortuneindia.com/enterprise/how-tata-motors-is-slowly-getting-its-
mojo-back
 https://www.fortuneindia.com/macro/what-tax-cuts-mean-for-auto-
sector/103591
 https://www.fortuneindia.com/venture/tata-motors-next-target-is-the-personal-
ev-space/104146