Tata Motors Ltd

Tata Motors Business: The Indian economy recorded a robust growth rate estimated at8.6% over 2009-10, driven by growth in the agricultural sector (5.4%), industrial sector(8.1%) and services sector (9.6%). The growth in the first half of the fiscal year washigher, which moderated in the second half. The year also witnessed inflationary trendsbeyond RBI targets and followed successive increases in CRR and other monetary policychanges by RBI to curb inflation, which progressively affected the business sentimentthrough the year. As a result, the second half of the fiscal year saw a drop in the Indexfor Industrial Production (IIP) as industrial activity was affected.

On the back of overall economic growth, the automotive industry recorded an increase of26% in current fiscal. Facilitated by economic growth, increase in personal disposableincomes, availability of finance and development of infrastructure, the commercial vehicleindustry growth moderated to 27% as compared to 40% in 2009-10 and the passenger vehicleindustry grew by 30% as compared to 25% in 2009-10, driven by increased level ofdisposable income.

From October 1, 2010, emission norms in India migrated to the Bharat Stage III for thenon-metro cities / towns, considering an imminent increase in prices, there was a spurt inbuying of vehicles (mainly commercial vehicles) in the first half of the year. The fuelprices, especially the petrol prices increased throughout the year, thereby affecting theconsumer sentiment to an extent. The year also witnessed a significant pressure oncommodity prices, leading to increase in costs and pressure on margins.

The Company's total domestic sales increased by 22.8% to 7,78,540 vehicles in2010-11.The commercial vehicle sales at 4,58,828 vehicles grew by 22.7% and the Companymaintained its leadership position in the domestic market despite new players entering thefield. The passenger vehicles volumes at 3,19,712 vehicles grew by 23.0% in the domesticmarket on the back of increased volumes of the Nano, launch of Aria and the launches ofnew variants of Indigo, Manza and Safari. The Company's exports increased by 70.3% to58,089 vehicles during the year with significant economic improvement in its majorinternational markets such as the Indian sub-continent, South Africa and the Middle East.

The industry performance in the domestic market during 2010-11 and the Company's shareis given below:-

Source: Society of Indian Automobile Manufacturers report and Company Analysis *including Magic and Winger sales; #including Fiat & Jaguar Land Rover branded cars

Industry Structure and Developments Commercial Vehicles

The domestic Commercial Vehicle market in 2010-11, recorded a robust growth of 27.3%which resulted in the highest ever sales of 7,42,091 vehicles in 2010-11. High growthrates continued through the first half of the fiscal year supported by sustained economicgrowth and impact of a lower base in the corresponding period last year. The demand forcommercial vehicles continued to be robust, driven by growth in the agricultural andindustrial sectors of the economy.

The domestic industry performance during 2010-11 and the Company's share is givenbelow:-

Source: Society of Indian Automobile Manufacturers report and Company Analysis *including Magic and Winger sales

The Company's commercial vehicle sales in the domestic and international markets, at5,09,072 vehicles, were 26.7% higher than the previous year. The Company recorded itshighest ever sales in the domestic commercial vehicle market. In the internationalbusiness it crossed the 50,000 mark for the first time in its history. A strong productportfolio, coupled with its continued leadership in market reach and penetration andextensive efforts toward finance enablement for customers, were the key growth drivers.The Company's market share in 2010-llat 61.8% was lower as compared to 64.1% in theprevious year, mainly due to inability of key suppliers to ramp-up production to meetmarket demand and new competition in the SCV segment where hitherto Ace was the onlyproduct.

The year also witnessed a recovery in the major international markets, leading to astrong growth in the exports of commercial vehicles. In particular, the M&HCV and SCVexports to the Indian subcontinent region showed a robust growth.

In the domestic market, the M&HCV segment grew by 26.7% on the back of stronggrowth in the Indian economy. The growth in the core sectors of the economy and revival inthe EXIM trade benefited the M&HCV segment. There was healthy freight availability inthe market, operations for transporters were profitable and construction and miningsectors continued to grow backed by infrastructure projects. The good monsoons alsoensured a growth in the agricultural sector and this aided the freight market.

The Company launched product variants tailored to specific market segments. It launchedthe Construck range of the Prima and upgraded its entire product range to comply with theBS III emission norms w.e.f. October 1, 2010. The Company also showcased and operated itsfirst CNG Hybrid city bus at these Games in Delhi.

The LCV segment recoded a growth of 19.9% through the year in 2010-11. While this waslargely aided by the growth in the small commercial vehicles, the rest of the segmentcomprising of the 4 and 7 tonne segments also grew handsomely. The Company improved itsperformance in the pickup segment.

The sales of the Tata Ace continued to increase in its fifth year of sales. The Companyhas launched a portfolio of variants on the popular Ace platform such as the Ace EX, SuperAce, Venture which have been well received in the market. Launch of products bycompetition in this segment resulted in a lower market share of 63.2% in the year 2010-11as compared to 64.7% during last year.

Passenger Vehicles

The year 2010-11 was a remarkable year for the passenger vehicle industry, recording agrowth of 29.8%, driven by increase in the disposable incomes, availability of finance anda positive consumer sentiment coupled with aggressive new model launches and pricing bymanufacturers.

The Industry performance and the Company's performance in the segments that it operatesin is given below:-

* including Fiat & Jaguar Land Rover branded cars # Total Industry Nos. includesales in other segments

During the year, the Company recorded its highest ever sales of 3,19,712 vehicles(including Fiat & Jaguar Land Rover) in the domestic market. The Company continued tobe amongst the top three players in the Indian passenger vehicle market with a marketshare of 13.0%. The Company launched a variety of new products and variants in the year.It launched the Indica eV2 and Indigo eCS variants in the market with segment leading fuelefficiencies. It also introduced the Venture - a multi purpose vehicle and the Aria -first Indian crossover in the UV segment.

In the International Business, while the recovery in its key export markets for thepassenger car business was slow; the sales increased to 7,845, a growth of 25.9% over theprevious year.

For the passenger car industry, the small car segment with sales of over 1.5 millionvehicles, continued to be the biggest segment of the market, recording a growth of 29.7%.The growth in this segment was mainly driven by the continued launch of new models. In arapidly expanding market, the Company's share in 2010-11 was 11.6%, lower than 13.3% in2009-10. The Company sold 70,431 Nano cars in 2010-11, a growth of 129% over 2009-10. Itinaugurated the Sanand plant for the production of the Nano in June 2011 and productionwas progressively ramped up through the year. The Company focused on expanding the reachfor the Nano through Special Nano Access Points and by ensuring availability of financefor all segments of customers through flexible / tailored finance schemes. The Companylaunched a refreshed version of the Indica Vista and a new variant, Indica eV2, with theCRAIL engine and a segment leading fuel efficiency of 25 kmpl.

The midsize segment with sales of 3,75,137 vehicles during 2010-11, grew by 30.3%.During the year with sales of 87,919 vehicles, the Indigo range, registered an increase of55.3%. With the launch of the Indigo eCS, the Company increased its market share in thissegment to 25.8% and is also repositioning its Indigo brand at the higher end of thesegment with the introduction of the Indigo Manza, Elan.

The UV market recorded a healthy growth of 19.5%, during the year, with sales of3,23,592 vehicles. The Company increased its market share in this segment to 13.2%, withsales of 42,741 vehicles. The Company improved its sales with launch of Aria, Venture anda refreshed version of Safari.

The Company sold 20,342 Fiat cars in 2010-11, with sale of 8,536 Lineas and 11,613Grande Puntos which represented a market share of 0.8% for the Fiat brand.

The Company sold 889 Jaguar and Land Rover vehicles through its exclusive dealershipsin India in the second year of the introduction of the Jaguar Land Rover brands in Indiaand launched the Jaguar XJ and Jaguar XF Diesel in the market in this year. It focused onwidening its network across the country during 2010-11. The Company set up an assemblingactivity for the Land Rover - Freelander 2 at Pune which has since been operational fromMay this year.

Jaguar and Land Rover Business: During the year, external environment for JaguarLand Rover continued to improve compared to 2009-10, with favourable GDP growth in keymarkets driving increased demand for premium products. Jaguar Land Rover continued tobenefit from favourable exchange rates, particularly the US$ and the Euro throughout theyear.

The financial results of Jaguar Land Rover have showed continuous improvement resultingin a reported profit before tax of 1,126 million for the year. In addition to this, thelast quarter results represented the sixth successive quarter of positive profit aftertax. The substantial improvement in the operations, EBITDA, net income and cash andgeneral liquidity position, was attributable to an increase in wholesale volumes and animprovement in product mix associated with the introduction of the new Jaguar XJ and thecessation of the Jaguar X-Type and the continued strength of the Range Rover and RangeRover Sport. Jaguar Land Rover business experienced an improvement in market mix, inparticular the strengthening of business in China, which was supported by the launch of anNational Sales Company in China in mid-2010. Further, performance was also assisted by thepositive impact of the strengthening of the US dollar against the Pound Sterling and theEuro, which has positively affected revenues (a portion of which comprises wholesalevolumes in US dollars) against the backdrop of a largely Pound Sterling and Euro costbase. The improvement in results of operations in 2010-11 was also partially attributableto further cost-efficiency improvements in material costs and manufacturing costs,supported by increased production volume levels. Jaguar Land Rover continue to benefitfrom cost efficiencies and effective cash management initiatives adopted in response tothe challenging operating conditions in 2008 and 2009, including the alignment ofproduction with demand, active management of working capital through extension of the termof trade payables and acceleration of the term of trade receivables while reducinginventories and scaling down the cost base across the business.

Jaguar Land Rover PLC generated record revenue and earnings during 2010-11. This wasprimarily driven by increased demand for both brands as well as a strong product andmarket mix, particularly in China and Russia as well as favourable exchange rates. Grouprevenues increased by 51% over the last fiscal.

For 2010-11, the Material Cost of sale as a percentage of revenue has improved over thelast fiscal by 5.3%, Employee costs for 2010-11 increased by 6.3%, reflecting an increasein permanent and agency heads, primarily in Product Development and the latest two yearwage rate agreement that was signed in November 2010. Other expense for 2010-11 increasedby 34%, mainly volume driven. These costs include manufacturing and launch costs, freightand distribution costs, warranty costs, product development expenses, selling and fixedmarketing expenses. Some of these were attributable to spend on the Range Rover Evoquethat should be in the market in June 2011 as well as XJ which was launched in May 2010.Expenditure capitalised for 2010-11 increased reflecting the increased spend on futuremodel development for both brands.

Wholesale volumes at 2,43,621 vehicles in 2010-11 reflected a growth of 26% as comparedto 2009-10. At a brand level, wholesale

Retail volumes in the UK totaled 58,134, a 2% increase on the prior period, whilst theNorth American retails were up 21% to 50,280. Retails in key growth markets sawsignificant increases with China retail volumes ending the reporting period at 28,893 andRussia 11,689 up on prior reporting period by 70% and 32% respectively. There was moderategrowth in Europe of 6% resulting in retail volumes of 53,711 and across all other marketsthe retail volume of 38,198 represented 16% growth on the prior reporting period.

Jaguar's 11MY XJ went on sale in first quarter of 2010-11, bringing the 'new' Jaguarline-up to full strength for the first time. This combination of XF, XK and new XJreceived significant media coverage and helped mark the 75th anniversary of the Jaguarbrand. The XJ was made available internationally as a standard or long wheelbase vehiclewith GENIII 5.0-litre petrol and 3.0-litre diesel engines.

The Jaguar C-X75 concept car was showcased at the Paris Motorshow in September 2010, tomark the brand's 75th anniversary. This dominated all media outlets at the show. Itrevealed next-generation powertrain technology in the form of electric motors and a BladonJets-developed turbine generator. The design also received great praise, lighting the wayfor Jaguars of the future. In the latter half of the year, a decision of the buildproduction versions of the C-X75 in association with Williams F1 was taken. Thishigh-performance hybrid supercar will stay true to the initial concept design study.Project C-X75 features an equally innovative powertrain to the micro gas turbinetechnology presented in the original concept car. The road-going supercar will use astate-of-the-art, small-capacity turbocharged internal combustion engine with powerfulelectronic motors at each axle providing four-wheel drive.

In March 2011, the Jaguar XKR-S, a more powerful version of the XKR, was revealed atthe Geneva Motor Show. Aimed at driving enthusiasts, it adopts a more powerful version ofthe 5.0-litre V8.

2011 marks the Jaguar E-Type's 50th anniversary. 2010 marked the 40th Anniversary ofRange Rover with a number of activities designed to celebrate the iconic brand, includingan exclusive celebration at Kensington Palace. Another historic milestone during theanniversary year was the production of the Millionth Range Rover at Land Rover's Solihullplant which was donated to the UK charity 'Help for Heroes'.

In July 2010, Land Rover held the international media Ride and Drive in Portugal forthe revised 11MY Range Rover. A new, class-leading V8 diesel engine, new 8-speedtransmission, two significant Terrain Response upgrades and subtle external stylingenhancements are amongst the features on the new 2011 Range Rover, which went on sale inthe UK in September 2010.

The LR-TDV8 4.4-litre with parallel sequential turbocharging replaces the outstandingLR-TDV8 3.6-litre and is unique to the Range Rover. The all-new LR-TDV8 combines superiorpower and massive torque with unparalleled levels of refinement. Despite the extraperformance, this V8 engine is cleaner too, delivering even lower fuel consumption and CO₂emissions than its predecessor. The combined cycle fuel consumption of the new LR-TDV84.4-litre is 30.1mpg, making this the first Range Rover ever to better 30mpg.

Freelander 2 eD4 was launched (mainly Europe/UK), Land Rover's most fuel efficientvehicle to date, achieving 47.2 MPG and 158 g/ km CO₂. It is Land Rover's first2WD vehicle, offering customers who prefer this option access to the Land Rover brand. ItsCO₂ and 2WD credentials also make this an important fleet vehicle; allowing thebrand access to many more corporate / company fleets. At the end of March, the 2,50,000thFreelander 2 was produced at Land Rover's Halewood plant in Merseyside, UK, a productionmilestone for Land Rover's biggest selling model.

2010-11 saw the formal introduction of the Range Rover Evoque, the smallest and mostfuel efficient Range Rover ever. The new model was first shown in July 2010 at KensingtonPalace before making its motorshow debut at Paris and Los Angles. Supported by the HelloEvoque campaign, the new Range Rover has been well received by media and customers alike.European pricing for the Range Rover Evoque was announced at the Geneva Motor Show.Pricing for other markets including the USA and UK was announced over the following monthsand received significant media coverage. The entry level price of under 30,000 waswelcomed, along with the range of personalisation options available.

Land Rover's on going commitment to building vehicles that are more fuel andemissions-efficient reaches another milestone at the 2011 Geneva Motor Show with the firstpresentation of Range_e. This development model is equipped with an advanced plug-inhybrid diesel-electric powertrain that Land Rover expects to make available in futureproduction models, following the scheduled launch of its diesel-electric hybrid in 2013.

Tata Daewoo Commercial Vehicles (TDCV) Business: 2010-11 was a very challengingyear for TDCV, where as in the first half of the year, domestic sales were severelyimpacted due to financial crisis of TDCV's main distributor and the second half of theyear recorded lower exports.The impact was accentuated due to appreciating KoreanWon.These factors had an adverse impact on its profitability. TDCV registered net revenuesof KRW 7,26,859 million (?2,881 crores), and recorded a Profit after Tax of KRW 18,430million (?73 crores) in 2010-11. TDCV launched its wholly owned Sales and DistributionCompany to act as its sole distributor in the domestic market. Total market for heavycommercial vehicles in Korea increased by 17.3% with vehicles sales at 12,860 units in2010-11, compared to 10,964 units in the previous year. TDCV's share was 2,848 vehicles in2010-11 with a market share of 22.1%, as compared to 3,080 units and market share of 28.1%for the same period in the previous year. In the medium duty truck segment total marketincreased to 11,926 units in the year under review, an increase of 24.5% compared to 9,582units in the previous year. TDCV's share was 2,895 units in 2010-11 with a market share of24.3% compared to 2,273 units in 2009-10 and a market share of 23.7%, an increase of 60basis points in total market share. TDCV exported 2,957 Completely Built Units (CBU)during the year as compared to 3,562 CBU in the previous year, a decline of 17.0%. TDCVhas major presence in countries like Algeria which showed signs of fatigue in Dump / Mixersegment. The Gulf Cooperation Council (GCC) block which is one of the Company's majorexports market had been worst effected during the global financial crisis and did notfully recover even in 2010-11.

Tata Motors Finance Ltd (TMFL) Business: 2010-11 was a year of consolidation andgrowth for TMFL which is engaged in the business of vehicle financing. Many facets ofTMFL's operations, particularly the management of non-performing assets, collectionefficiencies as well as overall disbursements have shown significant improvements /increases, resulting in a substantially improved financial performance for the year. TMFLregistered net revenues of ?1,367 crores and reported a Profit After Tax of 127 croresin2010-11.

TMFL's main areas of focus continued to be on improving the quality of businesssourced, managing overall costs and increased attention on collections management. This isbeen done through managing customer-wise outstanding. TMFL has widened the profile ofcustomers it manages to improve the portfolio mix. This strategy, along with the upgrading/ improvements on the 'Risk Scored Pricing Model' has ensured that TMFL realizes anappropriate price for higher risk products/markets. TMFL is confident that, on this robustplatform, it can now further its growth across all customer segments in the coming years.

Total disbursements by TMFL were 7,908 crores as against 6,697 crores in the previousyear. TMFL financed 1,60,781 vehicles during the year as compared to 1,44,806 vehicles inthe previous year. Disbursals for new commercial vehicles were ?6,041 crores (94,446units) as compared to 5,123 crores (96,593 units). The Passenger Car business grewsignificantly with the disbursements on the Nano vehicles and passenger car disbursementsfor the year were at 1,867 crores (66,335 units) as compared to 1,454 crores (48,213units) in the previous year.

Tata Technologies (TTL) Business: TTL, a key strategic partner in several of theinformation technology initiatives for the Tata Motors Group, recorded an overall revenuegrowth of 16.7% in revenue from sale of products and services, from ?1,070 crores in2009-10 to ?1,249 crores in 2010-11. Due to stringent cost control, focus on operatingefficiencies and offshoring, the operating profit registered an increase of 48.3% overlast year, while profit before taxes grew at a rate of 42.8% on a year-on-year basis.Profit after taxes grew by 52.8% during the same period.

During this period, services revenue increased by 12.1% and product sales increased by29.6% over last year to reach figures of ?882 crores and ?367 crores, respectively. Theservices revenue comprises Engineering Automation Group [EAG], Enterprise Solutions Group[ESG] and Product Lifecycle Management [PLM]. EAG addresses the engineering and designneeds of manufacturers through services for all stages of the product development andmanufacturing process. ESG addresses the Information Technology needs of manufacturersincluding business solutions, strategic consulting, ERP implementation, systemsintegration, IT networking and infrastructure solutions and program management. PLMaddresses the product development technology solution requirements of manufacturersincluding end-to-end implementation of PLM technology, best practices and PLM consulting.PLM also includes the Company's proprietary applications iGETIT and iCHECKIT.

Comments on Financial Performance on a Consolidated basis

The sales net of excise duty on a consolidated basis, have recorded a growth of 33.1%in the year 2010-11 to ^1,23,133.30 crores. The increase is mainly attributable to growthin revenue both at Tata Motors and Jaguar Land Rover business on the background of robustgrowth in automotive volumes. The automotive operation is the most significant segment,accounting for 99.3% and 96.9% for fiscal 2011 and 2010 respectively, of its totalrevenues. For fiscal 2011, revenue from automotive operations before inter segmenteliminations was ?1,22,243.65 crores as compared to ?89,615.07 crores for fiscal 2010. (Areference may be made to review of performance of TML and Jaguar Land Rover businessdiscussed above).

The following table sets forth selected consolidated financial information for theCompany, including as a percentage of turnover net of excise duty, for the year endedMarch 31, 2011 and 2010:-

Material Cost (including change in stock and processing charges)

The material cost has come down from 67.4% to 65.1% of net sales. The reduction ismainly attributable to Jaguar Land Rover operations which improved product mix, betterprice realization and continuous cost reduction initiatives. The raw material cost as a %to revenue has gone up during 2010-11, mainly due to input cost not fully absorbed throughpricing and marginally adverse price mix.

Employee Cost

While the employee cost has increased by ?590.90 crores in absolute terms, as a % tonet revenue it has come down from 9.5% to 7.6% in the current year. The increase in theCompany's employee cost and other subsidiaries (excluding Jaguar Land Rover business)mainly relates to increase cost on account of normal yearly increases, performancepayments, impact of wage revisions and on account of increased volumes. The increase inJaguar Land Rover business mainly relates to higher pension costs, primarily due tovolumes and two year wage settlement.

Manufacturing and Other Expenses

During the year manufacturing and other expenses increased to ?21,571.05 crores from?17,357.36 crores for 2009-10. While the increases are mainly due to volumes, in terms ofrevenue, it has come down from 18.8% to 17.5% in the current year. The increase in stores,spare parts and tools consumed is due to higher level of production. The publicityexpenses have increased mainly on account of new product introductions (Nano, Prima, NewJaguar XJ). The incentives / commission relates to the Company's business, where theincrease is mainly volume driven.

The works operation and other expenses during the current year have come down to 9.1%from 9.9% of net revenue. There has been reduction in provision towards residual risk onvehicles sold by Jaguar Land Rover business. As may be seen from the above table, despiteincrease in volumes, the group has been in a position to contain costs at all levels.

Expenditure transferred to capital and other accounts represents amounts allocatedout of employee cost and other expenses towards the amounts capitalized mainly for productdevelopment. Expenditure transferred to capital and other accounts increased to ?5,741.25crores from ?4,578.42 crores of 2009-10. The increase represents mainly new productdevelopment plans at the Company's and Jaguar Land Rover, currently underway.

Other Income decreased to 89.61 crores from 1,793.12 crores in 2009-10, mainly dueto higher profit on sale of investments in previous year. The other income for 2009-10included profit on sale of controlling stake in Telcon was 1,057.92 crores. The profit(net) on account of sale of other investments was 17.35 crores in 2010-11 as compared to693.62 crores for 2009-10.

Profit before Interest, Exceptional items and Tax has increased from 10,407.28crores in 2009-10 to ?17,869.58 crores in 2010-11. The increase reflects significantturnaround during the year in the operations of Jaguar Land Rover business.

Depreciation and Amortization (including product development expenditure): During2010-11, the expenditure has increased by 28.1% to 5,618 crores from 4,385.33 crores in2009-10. The increase in depreciation and amortization expenses of 1,232.67 croresrepresent impact on account of capitalization (mainly towards capacity and new products)at the Company's including the effect of assets installed in the earlier years for whichfull effect has come in the current year. Further, there has been an increase inamortization of product development cost consequent to commencement of commercialproduction of new products mainly Prima, Nano, New XJ and other products. The increase isalso attributable to product development expenditure written off during the year of 962.49crores as compared to 498.20 crores in 2009-10.

Net interest cost

Net interest cost decreased by 8.7% to ?2,045.42 crores from ?2,239.71 crores of2009-10. The Company has been successful in containing the costs through borrowings atlower rates and by substituting part of the borrowings through issue of equity. (Pleaserefer to details given below of Gross debt). On the background of significant improvementin operations the net interest cost at Jaguar Land Rover was ?153.32 crores in 2010-11 ascompared to ?328.83 crores in 2009-10.

Exceptional Items

The Exceptional items - others for 2009-10, include (a) employee separation cost of191.12 crores of Jaguar and Land Rover; (b) unamortised debt issue cost of 105.04 croreswritten off on prepayment of bridge loan for acquisition of Jaguar Land Rover business;and (c) provision for a product liability case at Jaguar Land Rover.

Consolidated Profit Before Tax (PBT) has increased to ?10,437.17 crores in 2010-11as compared to ?3,522.64 crores in 2009-10, representing a positive swing of ?6,914.53crores. The entire increase is attributable to a remarkable improvement in the performanceof Jaguar Land Rover business.

Tax expense has increased to ?1,216.38 crores in 2010-11 from ?1,005.75 crores in2009-10. The tax expense as a % to PBT was 11.7% in 2010-11 as compared to 28.6% in2009-10. The reduction in tax expense is mainly due to set-off of past tax losses atJaguar Land Rover and benefits of R & D expenses at TML, which are eligible forweighted deduction. The tax expense is not comparable with the profit before tax, since itis consolidated on a line-by-line addition for each subsidiary company and no tax effectis recorded in respect of consolidation adjustments.

Consolidated Profit After Tax (PAT) of the Group increased to ?9,273.62 crores ascompared to ?2,571.06 crores in 2009-10.

Fixed Assets

Net Fixed Assets including Capital Work in Progress increased to 43,493.12 crores as atMarch 31, 2011, as compared to 38,506.33 crores as at March 31, 2010. The gross fixedassets have increased by 10,453.07 crores. The increase mainly represents productdevelopment projects, both at the Company and Jaguar Land Rover and establishment of newfacility for Nano and other capacity / new product plan of the Company.

Investments increased to 2,544.26 crores as at March 31, 2011 as compared to2,219.12 crores as at March 31, 2010. The movement (net) of 325.14 crores representsincrease due to investments in shares by the Company and 101.35 crores by way of share ofundistributed profit on associates.

Net Current Assets

Net Current Assets increased to 4,051.10 crores as at March 31, 2011 from 724.81 croresas at March 31, 2010. The increase in current assets represents - (a) Increase ininventory by 2,758.48 crores, due to volumes (b) Cash and bank balances increased by2,204.61 crores due to surplus cash at Jaguar Land Rover business and unutilized proceedsof QIP issue of 505.00 crores; and (c) Loans and advances increased by 3,940.54 crores,which represents - (i) increase in vehicle financing activity to support the demand; (ii)net increase in receivable on account of Minimum Alternative Tax credit entitlement infuture years; and (iii) increase in excise duty / VAT and other dues from the Government.

Current liabilities have increased due to increase in sundry creditors, reflecting thevolume related changes more particularly in the last quarter. The increase in provisionsrepresents mainly pension provisions at Jaguar Land Rover in view of change in actuarialassumptions.

Gross debt (total of secured and unsecured loans) has reduced to 32,791.41 croresas at March 31, 2011 as compared to ?35,108.36 crores as at March 31, 2010.

Net debt (gross debt reduced by available cash and bank balances and mutual fundinvestments) stood at 21,479.90 crores as at March 31, 2011 as compared to 27,086.49crores as at March 31, 2010. The significant reduction in debt mainly relate improvementin operations, fund raising through Qualified Institutional Placement issue of 3,249.80crores (net of issue expenses) and conversion of Foreign Currency Convertible Notes of1,490.25 crores. Debt equity ratio is 1.71 as at March 31, 2011 as compared to 4.28 as atMarch 31, 2010.

Cash Flow

The following table sets forth selected items from consolidated cash flow statement:

The cash generated from operations before working capital changes and beforeconsidering deployment in the vehicle financing business was 16,679.75 crores as comparedto 7,625.49 crores in the previous year. After considering the impact of working capitalchanges and inflows on account of securitization of financing loan portfolio (net ofdeployment), the net cash generated from operations was 11,240.15 crores as compared to8,997.13 crores in the previous year. The following factors contributed to change inworking capital:

• Increase in trade and other payables by 1,447.95 crores due to increase inmanufacturing activity. which was partially offset by:

• Increase in trade and other receivables amounting 731.52 crores due to increasein sales volumes.

• Increase in inventories amounting 2,410.68 crores representing highervolumes/activity.

• Increase in vehicle / loans and hire purchase receivables by 2,354.15 crores.

The net cash outflow from investing activity reduced during the current year to7,065.65 crores from 7,533.05 crores for the last year.

• Net cash used for purchase of fixed assets was 8,112.77 crores during the yearas against 8,453.24 crores for the last year. The capital expenditure relates mainly tocapacity expansion of our product facilities and product development costs for proposed /new product launches as well as on quality and reliability improvement projects.

• During the year 2009-10, the Company sold 20% stake in Telcon, resulting in cashinflow of 1,159.50 crores.

• Net cash inflow from sale / redemption of other investments is 7.44 crores in2010-11 as compared to 958.56 crores in 2009-10. During 2009-10, the Company has sold partof its investment in Tata Steel.

• During the year, the Company had invested 32.14 crores net, in mutual funds forparking of surplus cash, against of 979.55 crores in the last year.

The net change in financing activity was outflow of 1,401.29 crores against net inflow2,841.74 crores for last year.

• In October 2010, the Company raised 3,249.80 crores (net) by way of issue ofshares through QIP (against 1,794.19 crores during the year 2009-10 by way of issue ofGDS).

• The net change in other borrowings during the year was a reduction by 1,167.68crores as compared to increase of 4,197.96 crores during the last year.

• The cash outflow on account of dividend increased to 1,019.53 crores from 349.57crores.

• The net cash outflow on account of interest reduced to 2,469.07 crores from2,855.34 crores.

Financial Performance as a measure of Operational Performance (on a standalone basis)

Supported by its strong and distinct product offerings in both the commercial vehicleand passenger vehicle range, the Company's revenues have grown by 34.9% in 2010-11. Theoperating margin decreased mainly due to increase in raw material cost and fixed marketingexpenses. The Profit after tax of 1,812 crores was lower by 19% as compared to 2,240crores in 2009-10 (during 2009-10, the Company recorded a profit of 1,802 crores on saleof investments which was partly set-off by a loss of 851 crores on redemption ofpreference shares in a subsidiary company).

Turnover net of excise duty: Turnover net of excise duties increased by 34.9% to48,040.46 crores from 35,593.05 crores in 200910. The total number of vehicles sold duringthe year increased by 25.3% to 8,36,629 vehicles from 6,67,971 vehicles. The domesticvolumes increased by 22.8% to 7,78,540 vehicles from 6,33,862 vehicles in 2009-10, whileexport volumes showed improvement and increased by 70.3% to 58,089 vehicles from 34,109vehicles in 2009-10. Gross turnover from sale of vehicles, including export and otherincentives, increased by 37.0% to 47,507.65 crores from ?34,677.40 crores in 2009-10. Saleof spare parts for vehicles increased by 24.9% to 2,827.10 crores from 2,263.54 crores in2009-10.

Material (including change in stock and processing charges):

Net Raw Material consumption including processing charges increased by 40.1% to35,743.45 crores from 25,512.10 crores of2009- 10, primarily due to increase in vehiclevolumes. Material cost as a % of net turnover increased to 74.4% from 71.7% for 2009-10,mainly due to increase in input prices. Despite a steep increase in commodity pricesduring the year, the Company was able to contain the material cost through vigorous costreduction programs.

Employee Cost: The employee cost increased by 24.9% to 2,294.02 crores from1,836.13 crores in 2009-10, due to normal yearly increases in the form of increments,promotions, wage agreement and increase in head count. However, as a % of the netturnover, the employee cost is reduced from 5.2% to 4.8%. The Company continues to focuson measures to manage employee cost on a long term basis.

Manufacturing and Other Expenses: The Company continues to drive initiatives tocontain costs to offset the volume effect and inflation. Thus, the manufacturing and otherexpenses, expressed as a percentage to net turnover were lower at 10.9% in2010- 11 ascompared to 11.4% in 2009-10. In absolute terms the expenses have increased to 5,231.68crores in 2010-11 from 4,066.54 crores in 2009-10. This increase is primarily due tohigher volumes and increase in fixed marketing expenses to promote the new products.

Other Income is significantly lower at 183.26 crores during the current year ascompared to 1,853.45 crores in 2009-10. In 2009-10, other income included profit of1,801.12 crores on sale of its investments.

Profit before Exceptional Item, Depreciation, Interest and Tax decreased by 17.9%to 4,954.57 crores from 6,031.73 crores in 2009-10. The decrease is mainly due to lowerother income as explained above and a lower operating margin.

Depreciation and amortization (including product development expenses) increased by24.5% to 1,466.94 crores from 1,177.90 crores in 2009-10. The increase reflects, impact onaccount of additions to fixed assets towards plant and facilities for expansion and newproducts introduction, mainly production facility at Sanand and new product introductions.Further, there has been increase in amortization relating to capitalization of productdevelopment cost for products launched in recent years.

Net interest cost marginally increased to 1,143.99 crores from 1,103.84 crores in2009-10. The borrowings have decreased consequent to substitution of funds raised by issueof shares through Qualified Institutional Placement (QIP). Despite increase in capex andworking capital during the year, the Company managed to restrict the borrowing costthrough infusion of equity funds and reduction in borrowing rates.

Exceptional Items: During 2009-10, TML Holdings Pte. Ltd., Singapore, a whollyowned subsidiary, had redeemed preference shares of the face value of US$ 195.1 million ata discount of US$ 189.2 million. Consequent to the redemption, the Company recognized aloss of ?850.86 crores.

Profit Before Tax (PBT) of the Company of 2,196.52 crores represented 4.5% of netrevenues in 2010-11 as compared to PBT of 2,829.54 crores representing 7.9% of netrevenues in 2009-10. PBT in 2009-10, included profit on sale of investment of 1,801.12crores, which was partly netted off by loss on redemption of preference shares in a whollyowned subsidiary of ?850.86 crores.

Tax expenses decreased to 384.70 crores from 589.46 crores in 2009-10. Theeffective tax rate for 2010-11 is 17.5% of PBT as compared to 20.8% for 2009-10. Thereduction is due to increase in tax benefits during the year.

Profit After Tax (PAT) of the Company decreased by 19.1% to 1,811.82 crores from2,240.08 crores in 2009-10. Basic Earnings Per Share (EPS) decreased to 30.28 as comparedto 42.37 in the previous year for Ordinary Shares and 30.78 as compared to 42.87 for 'A'Ordinary Shares in the previous year. The lower EPS reflects the lower PAT over a higherequity base in 2010-11 as compared to 2009-10.

Balance Sheet Fixed Assets

The gross fixed assets including Capital Work in Progress increased to 25,941.88 croresas at March 31, 2011 as compared to 23,648.96 crores as at March 31, 2010. Afterconsidering the depreciation, the net block at 17,475.63 crores as at March 31, 2011,reflected an increase of 1,039.59 crores. Additions during the year are 2,292.92 crores(net), which included, Nano plant at Sanand, product development cost mainly for WingerAmbulance, Aria and other regulatory projects and other capex towards capacity for the newproducts, balancing equipments etc.

Investments increased marginally to 22,624.21 crores as at March 31, 2011, ascompared to 22,336.90 crores as at March 31, 2010.

Net Current Assets

Net current assets increased to (2,164.63) crores as at March 31, 2011 from (5,865.98)crores as at March 31, 2010. The increase is due to Current assets (a) increasedinventories on account of volumes and strategic inventory; and (b) increased receivable inrespect of sales to various State Transport Undertakings wherein payments are receivedafter 60 to 90 days of billing. Current liabilities are lower due to decrease in tenurefrom 89 days to 75 days in respect of acceptances and reduction in redemption premium dueto conversion of Foreign Currency Convertible Notes (FCCN).

Gross debt (total of secured and unsecured loans) decreased to 15,898.75 crores asat March 31, 2011 as compared to 16,594.54 crores as at March 31, 2010. During the year,the holders of FCCNs of US$ 327.06 million and JPY 30 million exercised their option toconvert their FCCNs to shares.

Net debt (gross debt reduced by available cash and bank balances and mutual fundinvestments) stood at 13,838.90 crores as at March 31, 2011 as compared to 14,930.96crores as at March 31, 2010.

Cash Flow

The net cash inflow from operations before adjustments for working capital changes andvehicle financing activity increased to 4,656.71 crores during the year from 4,168.78crores. However, there was a net increase in working capital of 3,012.70 crores anddecrease of 366.41 crores vehicle financing activity, which adversely impacted cash flowfrom operations by 5,396.90 crores. During the year, there has been an increase in theinventory of raw material and finished goods mainly on account of volumes and productionimbalances due to supplier constraints. The receivables have gone up mainly on account ofpast dues from State Transport Undertakings. After considering the tax payments, the netcash from operating activity was 1,505.56 crores for 2010-11 as against 6,400.18 croresfor the last year.

The net cash outflow from investing activity reduced during the current year to2,521.88 crores from 11,848.29 crores for the last year. During the last year, the Companysold 10,751.91 crores in subsidiary companies (mainly related to acquisition of JaguarLand Rover business) and joint ventures. The investment in fixed assets (net) was 2,381.65cores during the year as against 2,310.17 crores for the last year. During the year, theCompany sold 437.28 crores in mutual funds for parking of surplus cash (during the lastyear, there was a net investment of 519.43 crores). During 2009-10, the Company soldshares/redeemed part of investments in subsidiaries and sold other investment resulting incash inflow of 2144.31 crores

The net change in cash inflow on account of financing activity was 1,648.42 croresagainst 5,534.34 crores for last year. During the year, the Company raised 3,249.80 crores(net) by way of issue of shares through Qualified Institutional Placement against 1,794.19crores during the year 2009-10 by way of issue of GDS. The net change in other borrowingsduring the year was a reduction by 595.76 crores as compared to increase of 5,474.53crores during the last year. The cash outflow on account of dividend increased to 990.21crores from 344.90 crores. The net cash outflow on account of interest reduced to 1,206.93crores from 1,389.48 crores. Thus, the cash outflow from financing activity hassignificantly reduced consequent to lower outflow on account of investing activity.

Road development: Continued focus on development of road infrastructure is expectedto have a positive thrust to automobile sales in the country. The near completion of theGolden Quadrilateral road project, the development under the North South East West roadcorridor project and other phases under the National Highway Development Programme,continue to provide a boost to growth of automobile sales. Additionally, the developmentunder the Pradhan Mantri Gram Sadak Yojana (PMGSY), to construct and upgrade rural roadnetworks is expected to result in higher rural penetration of vehicle sales. Improvementin road infrastructure will facilitate faster transportation of goods and passengers, andwould in turn create a demand for safer, reliable and faster vehicles. With its wide rangeof goods and passenger transportation vehicles ranging from 0.75 Ton load carrier to largehaulage tractors (49T) for goods movement, buses and coaches for public transportation andpassenger cars and utility vehicles for personal transportation, the Company is poised togain significantly from the initiatives on infrastructure development and the improvedroad infrastructure.

Population Dividend and increase in income levels: With more than half of India'spopulation less than 25 years of age, India has the youngest population in the world.India has a large work force with 64% of the population in the working age group of 19-64years and is poised to be the largest contributor to the global workforce over the nextfew decades. With a significantly high proportion of youth population, India has a largeconsumer base for goods and services. Steady increase in working population and rise indisposable income will provide a demand impetus to automobile industry, both in terms ofpersonal transportation as well as goods movement.

Growing consumer culture: In India, with the continuous rise in disposable income,the demand for a better lifestyle continues to enhance consumption levels and rapid growthin several segments like lifestyle product, cellular phones and cable and satellitetelevision. This growing consumerism is expected to lead to an increase in car penetrationfrom the current levels of 8 per thousand towards the 500+ levels witnessed in thedeveloped countries. The Company, with its broad based portfolio is expected to benefitfrom improved enviroment.

Rural market growth: There has been continuing shift in rural spending in terms ofits growth and it is less dependent on farm income. Income remittances from migrant ruralpopulation, increase in land prices and increase in non-farm activities such as tradingand agro-processing are boosting non-farm income. The increase in prices of agriculturalproduce / products, and access to finance and institutional credit has brought greaterwealth to rural households. Policy measures such as the National Rural EmploymentGuarantee Scheme (NREGS), which guarantees 100 days of employment to one member of everyrural household, and increased government spending in rural areas, have helped to reducerural under-employment and raised rural income levels. It is estimated that compared with48% of motorcycles sales in the rural areas, only 11% of cars/UVs sales are todaycontributed by the rural market, which indicates a potential growth opportunity in thismarket. The Company has offered affordable transport solutions and distribution channelsto leverage the opportunities presented by this market.

International Business: India continues to be a competitive source both in terms ofquality and cost for the automotive industry globally, both for vehicles and components.India's manufacturing base continues to benefit from these scale economies coupled withtechnology/quality improvements. The Company's product portfolio in commercial vehiclesand passenger cars and wide distribution channels enables the Company to take advantage ofvarious opportunities in international business. The Company has also set up and isfurther exploring the setting up of manufacturing footprint overseas, which would combinethese advantages with local operations and sourcing in these markets.

Hardening of interest rates and other inflationary trends: RBI continues with itsmonetary policy measures to curb inflation. RBI has stepped up policy rates 7 times duringfiscal 2010-11 and again in May 2011, resulting in hardening of the repo rate by 225 bpsto 7.25% and reverse repo by 275 bps to 6.75%. During the year, rising interest rates havecompelled the banks to increase base rate, impacting borrowing costs for corporate sector,which has negative impact on the expansion of output and capacity expansion especially inthe manufacturing sector. It will impact cooling down of demand side of the economy willaffect the growth of EMI driven products and also impact profit margins of the corporatesector. Further hardening of consumer interest rates could have an adverse impact on theautomotive industry, mainly in terms of interest cost on automotive loans. Inflation couldalso have a negative impact on growth and consequently on automobile sales in the domesticmarket.

Fuel Prices: The Brent crude prices surged from an average of US$ 75 a barrelduring May - September 2010, to US$ 123 a barrel in April 2011. The Government has partlyderegulated petrol prices and diesel / cooking gas continues to be subsidized. The fuelprice continues to impact inflation and Government finances. Further, higher fuel pricesforce the consumers to think of alternative transportation solutions or defer purchases.The Company's product programmes encompass initiatives to improve fuel efficiency of itsproducts and investing in programmes for development of alternative solutions. The KiritParikh Committee recommendations that the retail prices of petrol and diesel to be marketdetermined and that an additional excise duty of ?80,000 per car to be levied on dieselcars if implemented, could adversely impact demand.

Input Costs: Input costs on account of commodities like steel, non-ferrous,precious metals, rubber and petroleum products have risen over the year and resulted inhigher input costs. While the Company continues to pursue cost reduction initiatives,rises in commodity prices and other costs resulting from inflationary pressures, couldimpact the Company's profitability to the extent that the same are not absorbed by themarket through price increases and/or could have a negative impact on the demand. Inaddition, because of intense price competition and the high level of fixed costs, theCompany may not be able to adequately address changes in commodity prices even if they areforeseeable.

Environmental and other Government Regulations: Stringent emission norms and safetyregulations could bring new complexities and cost increases for automotive industry,impacting the Company's business. WTO, Free Trade Agreements and other similar policiescould make the market more competitive for local manufacturers.

In the international markets, most of the countries have stricter norms of regulationsrelated to emission, safety, noise, technology etc. These factors may impact demand of theCompany's products in international markets. The Company competes with internationalplayers, established in those markets which have a global brand image, larger financialcapability and multiple product platforms.

To comply with current and future environmental norms, the Company may have to incuradditional capital expenditure and R&D expenditure to upgrade products andmanufacturing facilities, which would have an impact on the Company's cost of productionand the results of operations and may be difficult to pass through to its customers. Ifthe Company is unable to develop commercially viable technologies within the time framesset by the new standards, the Company could face significant civil penalties or be forcedto restrict product offerings drastically to remain in compliance. Moreover, meetinggovernment mandated safety standards is difficult and costly because crash worthinessstandards tend to conflict with the need to reduce vehicle weight in order to meetemissions and fuel economy standards.

Global Competition: India being the second fastest growing economy in the world,continues to be an attractive destination for the global automotive players. The globalautomotive manufacturers present in India have been expanding their product portfolio andenhancing their capacities in India. To counter the threat of growing global competition,the Company continues to intensify its drive to improve quality and product offering,while maintaining its low cost product development/sourcing advantage.

Further, the global automotive industry, including the premium passenger car segment,is highly competitive and competition is likely to further intensify in view of thecontinuing globalisation and consolidation in the worldwide automotive industry. There isa strong trend among market participants in the premium automotive industry towardsintensifying efforts to retain their competitive position in established markets whilealso developing a presence in more profitable and fast growing emerging markets, such asChina. A range of factors affect the competitive environment, including, among otherthings, quality and features of vehicles, innovation, development time, ability to controlcosts, pricing, reliability, safety, fuel economy, environmental impact and perceptionthereof, customer service and financing terms.

To counter the threat of growing global competition, the Company continues to intensifyits drive to improve quality and product offering while maintaining its low cost productdevelopment/sourcing advantage.

Exchange Rates: The Company's operations are subject to risk arising fromfluctuations in exchange rates with reference to countries in which it operates. Theserisks primarily relate to fluctuations of Pound to US Dollar, Japanese Yen, Renminbi,Russian Ruble and Euro, and fluctuations of Indian Rupee against Pound, US Dollar andEuro.

The Company imports capital equipment, raw materials and components and also sellsvehicles in various countries. These transactions are denominated in foreign currencies,primarily the U.S. Dollar and Euro. Moreover, the Company has outstanding foreign currencydenominated debt and hence it is sensitive to fluctuations in foreign currency exchangerates. It has experienced and expects to continue to experience foreign exchange lossesand gains on obligations denominated in foreign currencies in respect of its borrowingsand foreign currency assets and liabilities due to currency fluctuations. Although theCompany engages in currency hedging as per its policy, in order to decrease its foreignexchange exposure, the weakening of rupee against the dollar or other major foreigncurrencies may have an adverse effect on its cost of borrowing and consequently mayincrease its financing costs, which could have a significant adverse impact on the resultsof operations

New Project Execution: Intensifying competition, reducing product life cycles andbreadth of the Company's product portfolio, necessitates the Company to continuouslyinvest in new products, upgrades and capacity enhancement programme. Though the Companyemploys sophisticated techniques and processes to forecast the demand of new products yetthe same is subject to margin of error. Timely introduction of new products, theiracceptance in the market place and managing the complexity of operations across variousmanufacturing locations, would be the key to sustain competitiveness.

Deterioration in global economic conditions: The impact of the recent globalfinancial crisis continues to be a cause of concern despite concerted efforts to containthe adverse impact of these events on global recovery.

The Indian automotive industry is affected substantially by the general economicconditions in India and around the world. The demand for automobiles in the Indian marketis influenced by factors including the growth rate of the Indian economy, easyavailability of credit, and increase in disposable income among Indian consumers, interestrates, freight rates and fuel prices. During the global financial crisis, the Reserve Bankof India (RBI) had eased its monetary policy stance to stimulate economic activity.Subsequently, as the Indian economy started recovering from the downturn, inflationpressures increased substantially and despite several interest rate hikes, inflationcontinues to be high. The trends of higher inflation, muted industrial growth and risinginterest rates are expected to pose downside risks to overall growth. The automotiveindustry in general is cyclical and economic slowdowns in the past have affected themanufacturing sector including the automotive and related industries. Deterioration in keyeconomic factors such as growth rate, interest rates and inflation as well as reducedavailability of financing for vehicles at competitive rates may adversely affect ourautomotive sales in India and results of operations.

Jaguar and Land Rover business has significant presence in the UK, North America andContinental Europe and has operations in many major countries across the globe. TheCompany also has automotive operations in South Korea, Spain and Thailand. The globaleconomic downtown significantly impacted the global automotive markets, particularly inthe United States and Europe, where Jaguar Land Rover business have significant salesexposure. The Company's strategy, which includes new product launches and expansion intogrowing markets such as China, Russia and Brazil, may not be sufficient to mitigate thedecrease in demand for its products in established markets and this could have asignificant adverse impact on the financial performance. In response to the recenteconomic slowdown, the Company further intensified efforts to review and realign coststructure such as reducing manpower costs and other fixed costs.

Further, Jaguar Land Rover business is exploring opportunities to reduce breakevenlevels through increased sourcing of materials from low cost countries, reduction innumber of suppliers, reduction in number of platforms, reduction in engineering changecosts, increased use of off-shoring and several other initiatives. Although consumersentiments have improved in many developed markets since late 2009, if industry demandsoftens because of a major debt crisis, negative economic growth in key markets or otherfactors, the results of operations and financial condition could be substantially andadversely affected.

Increase in costs, or disruption in the supply, of vehicle parts from naturaldisasters: The recent earthquake and tsunami in Japan and their aftermath have createdsignificant economic uncertainty in that country, the effects of which are largely not yetassessable. Since the earthquake, the Company has observed a significant drop incommercial activity in Japan, and it believes that the economic activity in the countrymay be generally disrupted for a substantial period of time. Some of the Jaguar LandRover's vehicles use raw materials, pre-products and vehicle parts that are sourced fromJapan, including microchips. The recent natural disasters in that country have caused someJapanese suppliers to halt, delay or reduce production, which could reduce or disrupt thesupply of such raw materials, pre-products and vehicle parts and / or an increase in theircost. Substantial increases in the costs or a significant delay or sustained interruptionin the supply of key inputs sourced from Japan could adversely affect the Jaguar LandRover's ability to maintain the current and expected levels of production.

Changes in tax, tariff or fiscal policies: Imposition of any additional taxes andlevies designed to limit the use of automobiles could adversely affect the demand for theCompany's vehicles and the results of operations. Changes in corporate and other taxationpolicies as well as changes in export and other incentives given by various governments orimport or tariff policies could also adversely affect the Company's results of operations.Such government actions may be unpredictable and beyond the Company's control, and anyadverse changes in government policy could have a material adverse effect on its businessprospects, results of operations and financial condition.

Political instability, wars, terrorism, multinational conflicts, natural disasters,fuel shortages / prices, epidemics, labour strikes:

The Company's products are exported to a number of geographical markets and the Companyplans to expand international operations further in the future. Consequently, the Companyis subject to various risks associated with conducting the business both within andoutside the domestic market and the operations may be subject to political instability,wars, terrorism, regional and / or multinational conflicts, natural disasters, fuelshortages, epidemics and labour strikes. In addition, conducting business internationally,especially in emerging markets, exposes the Company to additional risks, including adversechanges in economic and government policies, unpredictable shifts in regulation,inconsistent application of existing laws and regulations, unclear regulatory and taxationsystems and divergent commercial and employment practices and procedures.

Product liability, warranty and recall: The Company is subject to risks and costsassociated with product liability, warranties and recalls in connection with performance,compliance or safety related issues affecting its vehicles. The Company spendsconsiderable resources in connection with product recalls and these resources typicallyinclude the cost of the part being replaced and the labour required to remove and replacethe defective part. In addition, product recalls can cause consumers to question thesafety or reliability of the Company's vehicles and harm its reputation. Any harm to thereputation of any one of the Company's models can result in a substantial loss ofcustomers.

Furthermore, the Company may also be subject to class actions or other large scaleproduct liability or other lawsuits in various jurisdictions in which it has a significantpresence. The use of shared components in vehicle production increases this risk becauseindividual components are deployed in a number of different models across brands. Anycosts incurred or lost sales caused by product liability, warranties and recalls couldmaterially adversely affect the business.

Jaguar Land Rover Pension obligations: The Company provides post-retirement andpension benefits to its employees, some of which are defined benefit plans. The pensionliabilities are generally funded and the pension plan assets are particularly significant.As part of its Strategic Business Review process, the Company closed the Jaguar Land Roverdefined benefit pension plan to new joiners as at April 19, 2010. All new employees in theoperations from April 19, 2010 have joined a new defined contribution pension plan.

Lower return on pension fund assets, changes in market conditions, changes in interestrates, changes in inflation rates and adverse changes in other critical actuarialassumptions, may impact its pension liabilities and consequently increase fundingrequirements, which will adversely affect the Company's financial condition and results ofoperations.

Automobile financing business: The Company is subject to risks associated with itsautomobile financing business. Any defaults by the customers or inability to repayinstalments as due, could adversely affect the business, results of operations and cashflows. In addition, any downgrades in the Company's credit ratings may increase theborrowing costs and restrict the access to the debt markets. Over time, and particularlyin the event of any credit rating downgrades, market volatility, market disruption,regulatory changes or otherwise, the Company may need to reduce the amount of financingreceivables it originates, which could adversely affect the ability to support the sale ofvehicles.

Underperformance of distribution channels and supply chains: The Company's productsare sold and serviced through a network of authorized dealers and service centers acrossthe domestic market, and a network of distributors and local dealers in internationalmarkets. The Company monitor the performance of its dealers and distributors and providethem with support to enable them to perform to the expectations. Any under performance bythe dealers or distributors could adversely affect our sales and results of operations.The Company relies on third parties to supply the raw materials, parts and components usedin the manufacture of our products. Furthermore, for some of these parts and components,the Company are dependent on a single source. The Company's ability to procure supplies ina cost effective and timely manner is subject to various factors, some of which are notwithin its control. While the Company manages supply chain as part of its vendormanagement process, any significant problems with supply chain in the future could affectresults of operations in an adverse manner.

Adverse economic conditions, decline in automobile demand, lack of access to sufficientfinancing arrangements could have a negative financial impact on the suppliers anddistributors in turn impairing timely availability of components to the Company, whileimpairments to the financial condition of distributors may impact the performance in somemarkets. In addition, if one or more of the other global automotive manufacturers were tobecome insolvent, this would have an adverse impact on the supply chains and may furtheraffect results of operations in an adverse manner.

In respect of Jaguar Land Rover business, as part of a separation agreement from Ford,the Company has entered into supply agreements with Ford and certain other third partiesfor critical components. Any disruption of such transitional services could have amaterial adverse impact on operations and financial condition.

Labour unrest: All of the Company's permanent employees, other than officers andmanagers, in India and most of the permanent employees in South Korea and the UnitedKingdom, including certain officers and managers, in relation to automotive business, aremembers of labour unions and are covered by wage agreements, where applicable with thoselabour unions.

In general, the Company considers labour relations with all of employees to be good.However, in the future the Company may be subject to labour unrest, which may delay ordisrupt the operations in the affected regions, including the acquisition of raw materialsand parts, the manufacture, sales and distribution of products and the provision ofservices. If work stoppages or lock-outs at the facilities or at the facilities of themajor vendors occur or continue for a long period of time, the business, financialcondition and results of operations may be adversely affected.

Outlook

As per RBI Monetary Policy statement in May 2011, the global recovery is likely tosustain in 2011(calendar year) and global growth is expected to moderate to 4.4% ascompared to 5% in 2010. Real GDP growth estimated at 8.6% during 2010-11, is likely tomoderate at 8% during 2011-12. The moderation is expected on the background of higher oiland commodity prices and the automotive industry will have similar moderation moreparticularly due to higher interest rate on vehicle loans. Key markets for Jaguar LandRover such as China, Russia and Middle East are expected to grow, while UK, USA, Rest ofEurope are expected to grow moderately.

Rising commodity prices among other factors are likely to drive up input costs therebyputting margins under pressure. The competition, in both commercial and passenger vehiclesegments, is expected to intensify going forward.

On the above background, the Company will continue to focus on retaining its advantageof market reach and penetration. The Company will continue to introduce new products,variants and fuel efficient products. These will offer superior value to the customers andimprove the Company's market position. Aggressive cost reduction will be accentuated bythe Company to offset the increase in input costs and at the same time review pricingactions.

The Company will also aggressively pursue opportunities in the International markets asa part of its internationalization drive including evaluation of possible overseasmanufacturing.

The Company will aggressively market its products in the domestic and export markets.The Company will continue its actions on increasing the reach and penetration for the Nanothrough expansion of channels and campaigns. It will also continue to work with host offinanciers to ensure the availability of finance for all the customer segments.

Jaguar Land Rover will continue to focus on profitable volume growth, managing costs,improving efficiencies to sustain the growth momentum and continuous sustainableinvestments in technology and products. It will also focus on increasing its presence inthe growth markets such as China, Russia, India and Brazil along with launching newproducts and variants.

Internal Control Systems and their adequacy

The Company has in place an adequate system of internal controls. It has documentedprocedures covering all financial and operating functions. These controls have beendesigned to provide a reasonable assurance with regard to maintaining of proper accountingcontrols, monitoring of operations, protecting assets from unauthorized use or losses,compliances with regulations and for ensuring reliability of financial reporting. TheCompany has continued its efforts to align all its processes and controls with global bestpractices in these areas as well.

Some significant features of the internal control systems are:

• Corporate policies on accounting and major processes;

• Well-defined processes for formulating and reviewing annual and long termbusiness plans;

• Preparation and monitoring of annual budgets for all operating and servicefunctions;

• State-of-the-art ERP, Supplier Relations Management and Customer RelationsManagement, connect its different locations, dealers and vendors for efficient andseamless information exchange;

• An on-going program for reinforcement of the Tata Code of Conduct. The Codecovers integrity of financial reporting, ethical conduct, regulatory compliance, conflictof interests review and reporting of concerns. All employees of the Company are regularlyexposed to communications under this program;

• Bi-monthly meeting of the Management Committee at apex level to reviewoperations and plans in key business areas;

• A well established multi-disciplinary Internal Audit team, which reviews andreports to management and the Audit Committee about the compliance with internal controlsand the efficiency and effectiveness of operations and the key process risks;

• Audit Committee of the Board of Directors, comprising independent directors,which is functional since August 1988, regularly reviews the audit plans, significantaudit findings, adequacy of internal controls, compliance with Accounting Standards aswell as reasons for changes in accounting policies and practices, if any;

• A comprehensive information security policy and continuous upgrades to ITsystem;

• Documenting major business processes and testing thereof including financialclosing, computer controls and entity level controls as part of compliance withSarbanes-Oxley Act;

• Anti-fraud programme.

The Board takes responsibility for the total process of risk management in theorganisation. The Audit Committee reviews reports covering operational, financial andother business risk areas. Through an Enterprise Risk Management programme, each BusinessUnit addresses opportunities and the attendant risks through an institutionalized approachthat is aligned to the Company's objectives. This is also facilitated by internal audit.The business risk is managed through cross functional involvement and intensecommunication across businesses. Results of the risk assessment and residual risks arepresented to the senior management.

Material Developments in Human Resources/Industrial Relations

A cordial industrial relations environment prevailed at all the manufacturing units ofthe Company during the year. The permanent employees' strength of the Company (standalone)was 26,214 and of the Tata Motors' Group (consolidated) was 53,151 as on March 31, 2011.The Company entered into a three year wage settlement with its Union at Jamshedpur throughamicable process of negotiations. Jaguar Land Rover signed a landmark settlement deal withthe Unions which would lead to the creation of new jobs in the next decade, including1,500 jobs at its Halewood facility, Liverpool in 2011.

CAUTIONARY STATEMENT

Statements in the Management Discussion and Analysis describing the Company'sobjective, projections, estimates, expectations may be "forward-lookingstatements" within the meaning of applicable securities laws and regulations. Actualresults could differ materially from those expressed or implied. Important factors thatcould make a difference to the Company's operations include, among others, economicconditions affecting demand /supply and price conditions in the domestic and overseasmarkets in which the Company operates, changes in the Government regulations, tax laws andother statutes and incidental factors.