Tata Motors credit practices are under attack by former chairman Cyrus Mistry.
Mistry alleged that the auto major and its financing arm, Tata Motors Finance have resorted to lending without ‘adequate risk assessment’ leading to non -performing assets of Rs 4,000 crore.
As things stand, Tata Motors, which has been making huge losses in the domestic market, appears to be taking a hit on the bottom line from its aggressive efforts to push more volumes in the market. The company’s allowance for doubtful debt has more than doubled from Rs 622 crore to Rs 1,377 crore in last three years, its latest annual report shows. “The overdue amounts are monitored and the company takes steps to recover the same,” a Tata Motors spokesperson said.
The rising allowance for doubtful debt shows an inability to recover all the credit that it gives to its buyers. Mistry’s office alleged in a statement on Tuesday that the “easy finance artificially bolstered the market share figures and as soon as this was reigned in, we saw a steep drop in the volumes of small commercial vehicles (SCVs) and the Nano”. It said the SCVs volumes fell by more than 50 per cent. The company has a 47.5 per cent share in the medium and heavy commercial vehicle segment while its share in light commercial vehicle segment is 38 per cent.
Tata Motors’ trade receivables which stood at Rs 10,574 crore as of March 2014, has increased to Rs 14,075 crore in March 2017. Standalone revenue increased from Rs 34,288 crore to Rs 49,100 crore during the same period. To give a comparison with an industry peer in commercial vehicle space, let us look at the trade receivable in Ashok Leyland, a profit making firm. The Hinduja Group company had a trade receivable of Rs 860 crore as of March 2017 on a revenue of Rs 21,331 crore. Interestingly, Ashok Leyland managed to bring down the receivable to by Rs 391 crore last year even as revenue increased from Rs 19,992 crore. The company's allowance for doubtful debt stood at just Rs 48 crore. A low receivable to revenue ratio means lower credit risk.
Tata Motors said the rising trade receivable is in line with the increase in revenue. “These are Tata Motors consolidated trade receivables and consist of a large number of various types of customers, spread across geographical areas. Ongoing credit evaluation is performed on the financial condition of these trade receivables and where appropriate, allowance for losses is provided. These allowances do impact the bottom-line,” the spokesperson said. Tata Motors reported a standalone loss of Rs 2,480 crore in FY17 and a loss of Rs 467 crore in Q1 of FY18.