LUCKY DRIVE: After seven straight quarter losses, Ratan Tata's dream car rakes in profits

June 5 was a day of stark contrasts for the Tatas. Ratan Tata's telecom dream hung on the edge as the Government threatened to put a spanner in the group's plan to consolidate its telecom businesses through VSNL. On the other hand, "baby" Indica-the Made in India small-big car-was finally driving its parent, Telco, to profits after seven straight quarter losses.

Yet, there were hardly any celebration. Ever since it was described as the "Kohinoor of India" at its launch in January 1998 and registered 1,15,000 fully paid-up bookings worth Rs 3,000 crore in less than 10 days, the car had been dismissed as an audacious attempt by an Indian company-a truckmaker at that-to produce a car that could compete with the global players. And for making a Rs 500 crore dent in the balance sheet for 2000-1 of the country's largest truckmaker. But the Tatas saw it differently.

"The vision to be a passenger carmaker as well as a truckmaker has been validated." V. Sumantran, executive director, Telco's passenger car unit

"Indica was the final statement, it was the mass-market passenger car," says Rajiv Dube, vice-president of Telco's passenger car unit. "We started with vehicles for a niche market to learn the ropes first." The launch was a frenzied affair. Thousands of people jostled to catch a glimpse of Tata's baby when it was unveiled at the 1998 Auto Expo in Delhi. With the exterior of a Zen, interior space of an Ambassador, running cost of a Maruti 800 and an entry-level price tag of Rs 2.60 lakh for a 1400 cc diesel engine, there was a deluge when bookings opened. But in the first year (March 2000) Telco managed to deliver only 57,000 cars against the target of 60,000, thereby losing its customers to rival companies.

The rough ride had just begun. In October 1999, a J.D. Power quality survey put Indica close to the bottom of the heap with a score of 396 problems per vehicle as against 324 for the Zen (the lower the score the better). "We had hardly been around but our critics started to pan us," says Dube. Then came the slump. Following a sales tax rationalisation in parts of the country, automakers started slashing prices and introducing stripped down versions to push sales. "We were answerable to the public shareholders and reducing the price did not make commercial sense," says Dube.

The result: by December 2000, Indica sales dipped to 2,200 cars per month. In the year ending March 2001, Telco faced a net loss of Rs 500 crore. Critics blamed it all on the Indica.

Telco, it appears, learnt from its mistakes. By October 2000 J.D. Power's scorecard for Indica read 390, a marginal improvement from the previous year's listing. Then in February 2001, the company introduced the improved V2 model with better suspension and wider tyres, among other additional features. Although Telco officials claim Indica was selling even before the V2 was launched, the improved version proved the trigger. By October 2001, the Power ratings also improved considerably to 273-in the case of Zen it was 161 for 2000 and 146 for 2001.

The company was also reaching out to its customers, even meeting them individually to assess the faults. It claims to have a database of 1,30,000 out of its 1,75,000 customers till May 2002. Costs too were cut. Indica has achieved cash break-even at 53,000 cars (2001-2) helped by Rs 1,179 crore write-off of deferred revenue expenditure.

From July 2001, there was a reversal in fortunes. The following nine months saw Indica ahead of the pack. But for the fiscal year 2001-2, it trailed Santro with a 23 per cent market share in the segment. "It is a vindication of the company's faith in getting into new areas of business," says V. Sumantran, executive director, Telco's passenger car unit. Adds Hormazd Sorabjee, editor, Autocar India: "Its potential as a car for India was never in doubt but the execution was initially below par. Quality is a moving target and they have improved further in the new V2, but they need to keep improving."

The losses were pared to Rs 54 crore in 2001-2 but, more importantly, the company registered fourth-quarter net profits of Rs 162 crore. The Indica, however, is not the only reason for the turnaround just as it wasn't the only cause for Telco's slide. Markets greeted the turnaround. Telco's share price zoomed from a low of Rs 58.60 on June 6, 2001 to Rs 159.50 on June 13, 2002. But Indica's rivals are yet to take the turnaround seriously. "If you are selling 5,000-7,000 cars per month consistently then it is a turnaround," says Vijay Chandorikar, director (commercial), Fiat India. "While they have done well in diesel where they have a monopoly, their petrol model is still lagging. The real test for them will come when we launch Palio diesel early next year."

Given Telco's experience in making diesel engines for trucks, the Indica became the first-and so far the only-diesel engine-powered car in its segment. More than 80 per cent of all Indicas sold are diesel models. It is surprising that the Indica has also become extremely popular as a taxi. A greater thrust is now being placed on exports. "China could be a great market for the Indica," says Sorabjee.

In the first three years after its launch, the Indica's journey was a bumpy ride on a dirt track. It appears that the car has finally touched the expressway and, if it keeps remodelling, is set for a cruise along a smooth speedway.