Tata Motors - 2007-2008 Annual Report

 TATA MOTORS LIMITED

ANNUAL REPORT 2007-2008

DIRECTOR'S REPORT

TO THE MEMBERS OF TATA MOTORS LIMITED

The Directors present their Sixty-Third Annual Report and the Audited Statement of Accounts for the year ended March 31, 2008.

1. FINANCIAL RESULTS Financial Year (Rs. in crores) 2007-2008 2006-2007

(i) Gross Revenue 33093.93 31819.48

(ii) Net Revenue (excluding excise duty) 28730.82 27470.03

(iii) Total Expenditure 25638.50 24157.66

(iv) Operating Profit 3092.32 3312.37

(v) Other Income 483.18 245.19

(vi) Profit before Depreciation Interest and Tax 3575.50 3557.56

(vii) Interest and Discounting Charges

(a) Gross Interest and Discounting Charges 541.56 389.86

(b) Transfer to Capital Account/Interest Received (259.19) (76.79)

(c) Net Interest and Discounting Charges 282.37 313.07

(viii) Product Development Expenses 64.35 85.02 (ix) Depreciation 652.31 586.29 (x) Profit Before Tax 2576.47 2573.18 (xi) Tax Expense 547.55 659.72 (xii) Profit After Tax 2028.92 1913.46

(xiii) Balance Brought Forward from Previous Year 1013.83 776.76 (xiv) Amount Available for Appropriation 3042.75 2690.22 APPROPRIATIONS (a) General Reserve 1000.00 1000.00 (b) Dividend (including tax) 659.68 676.32 (c) Residual dividend paid for 2005-06(including tax) - 0.07

(d) Balance carried to Balance Sheet 1383.07 1013.83

Note: Figures for the previous year have been regrouped/reclassified where necessary

2. DIVIDEND

Considering the Company's financial performance and growth plans, the Directors have recommended payment of a dividend of Rs.15/- per share on 38,56,18,723 Ordinary Shares fully paid up for the Financial Year 2007-08 (previous year- Rs.15/- per share).

3. OPERATING RESULTS AND PROFITS

The year 2007-08 was a historic year for the Company marked with two significant events viz.,the unveiling of Tata Nano -the world's least expensive car and the signing of the definitive agreement with Ford Motor Company for purchase of Jaguar and Land Rover, which has since been completed on June 2,2008.

During the year, the Company recorded its highest ever sale of 5,85,649 vehicles and grew its turnover to Rs. 33,094 crores to remain as India's largest automobile company by revenue.The Company maintained its leadership position in the commercial vehicle segment and was among the top three players in the passenger vehicle segment,although it lost some market share.A number of new products were launched during the later half of the fiscal year which would help the Company regain its lost market share.

The Company's margins were under pressure during the year due to rising interest rates, constraints in availability of vehicle financing from outside sources and un precedented increase in prices of raw materials. The EBIDTA margin at 10.8% was lower than last year as increase in input costs could only be partially absorbed by the market.The Profit Before-Tax at Rs.2,576 crores was 0.1 % higher than last year, The Profit After Tax at Rs.2,029 crores,was 6.1 % higher than last year.

4. COMMERCIAL VEHICLES

The commercial vehicle industry (including exports) witnessed a moderation in growth in FY 07-08. The domestic market which accounts for nearly 90% of total commercial vehicle sales was impacted by reduction in economic activity, poor credit availability, hardening of interest rates and increase in fuel prices. It grew by 6.9% as compared to 33% growth in the previous year.

The Company reported a total sale of 3,52,785 commercial vehicles in the domestic and overseas markets representing a growth of 5.5% over last fiscal. However, the Company's market share in the domestic commercial vehicle market declined by 1.3% to 62.7% due to non availability of certain components/ parts in the earlier part of the year and constraints in the availability of vehicle finance from banks and NBFCs. Though in-house vehicle financing was strengthened, the Company was unable to fully offset the decrease in credit availability from outside sources.

In the M&HCV segment,the Company revamped its commercial vehicles portfolio and introduced a wide range of new products such as multi axle and heavy duty trucks, tractor trailers and fully built solutions like tip trailers,customised factory built load bodies etc.in the second half of the year. These introductions helped the Company to gain market share in the tractor trailer and multi axle vehicle sub-segments and the full potential of these new products would be realized going forward. The Company also developed new products for the M&HCV passenger carrier sub-segment and displayed in the Auto Expo 2008, a 28 seater bus and an air conditioned low floor bus developed through its joint venture - Tata Marcopolo Motors Limited.

In the LCV segment, the Company introduced two new products - Magic and Winger, which hold a strong potential to shape the future of commercial passenger transportation in India. Magic is expected to emerge as a safe and comfortable mode of public transport in urban and rural areas. Along-with the goods carrier version, Magic helped the Company to achieve a sale of over 1,00,000 vehicles on the Ace platform in a year for the first time since the inception of Ace. Winger, India's only maxi van offering could become the preferred mode for intra-city and long distance passenger transportation in coming years. The Company also unveiled the 1 Ton and CNG variant of Ace,Cargo Panel van,Xenon XT-a lifestyle pickup truck and Winger Executive office concept vehicle in the Auto Expo 2008 and commenced production of TATA Ace from its manufacturing facility at Uttarakhand. Though the Company's market share in the LCV segment declined by 1.1% to 64.3%, introduction of new products would help the Company to grow its market share in the coming years.

The Company showcased its new range of tactical and armoured vehicles for military and para-military forces in the Defence Expo 2008.These include TATA Light Specialist Vehicle,Light Armoured Troop Carrier, TATA 8x8 HMV and the armoured TATA Safari.

The Company's commercial vehicle exports grew by 11.8% to 39,850 vehicles. M&HCV exports accounting for 35% of the Company's total commercial vehicle exports grew by 13%. In March'08, the Company introduced TATA Xenon- 1 Ton pickup truck in Thailand through its subsidiary Tata Motors (Thailand) Ltd. This vehicle is assembled in Thailand and is distributed through a network of over 20 authorised dealers. The Company's non-vehicular business recorded a 32% growth in revenues mainly due to growth in the spare parts business. The Company's Commercial Vehicle Pune plant received Rajiv Gandhi National Quality Award for the year 2007.

5. PASSENGER VEHICLES

In a challenging year for the Company, sales declined by 5.4% after six consecutive years of growth. The Company recorded a sale of 2,32,864 vehicles (including 3,297 Fiat cars) in the domestic and overseas markets and continued to be amongst the top three players in the Indian passenger vehicle market with a market share of 14.2%.The market share declined from 16.6% in the previous year mainly on account of launch of several new introductions by competition (the Car Industry volumes, infact, declined by 4.4%, excluding new products introduced) and the delays in the introduction of the Company's new Indica, which is now due for launch later this year. The Company's passenger vehicle exports at 14,809 nos. declined by 16.9% over the previous year mainly due to softening of some key markets. However the year 2007-08 was a milestone year for the car business as the one millionth passenger car rolled off from the Indica platform in the ninth year since commencement of production.

The TATA Indica sales at 1,35,642 nos. declined marginally over the previous year due to the car being in the mature phase of its life cycle and new launches by competition. Despite its maturity, the Indica remained the second largest selling car in the industry. During the year, the Company expanded the Indica range by introducing a new variant of the current Indica with dual airbags and ABS (Anti lock Braking System) and adding a DICOR (Direct Injection Common Rail) diesel engine variant. The Company displayed the next generation Indica in the Auto Expo 2008 which received an exciting response.

The TATA Indigo range witnessed the introduction of the Indigo XL Classic variant and the Indigo CS (Compact Sedan).The Indigo CS is a sub 4 meter sedan with a foot print and price point of a large hatchback but the appeal of a sedan and has been received very well in the market post its launch in the last quarter of the year. The TATA Indigo range with a total sale of 31,416 nos. continued as the highest selling brand in the entry mid size segment in its sixth year of launch, despite new launches from competition, although it continued to decline in a slow segment.

The new products to be launched in the Indica and Indigo range have been delayed,whilst the Indigo CS and the XL CIassic Variant were launched in the last quarter of the year the new Indica is being introduced i n FY 2008-09.

The TATA Safari a nd TATA Sumo recorded a sale of 47,700 nos. during the year. The Company expanded its Utility Vehicle range by launching a new 2.2L Safari DICOR, Sumo Victa DI and the Sumo Grande during the year. Safari, achieved its highest ever sale of 19,078 vehicles during the year.

The Company's sales of Fiat branded products increased by 148.3% to 3,297 vehicles aided by the launch of the face-lifted Palio and later the multi-jet diesel version in the last quarter. In October'07,the Company concluded its joint venture with Fiat for the manufacture of passenger cars,engines and transmission. The venture has planned a total investment of over Rs 4,000 crores. The Company took the lead in supporting the Magic India Discovery Drive initiative of Ferrari along-with other TATA companies and Fiat.

The Company continued to figure as the most trusted car company for the third year in succession in the Readers' Digest survey. The Indica and the Sumo continue to stand out among the' Most Trusted Brands' in the annual survey of the Economic Times Brand Equity. The Passenger Car Business Unit of the Company was conferred the' Handa Golden Key Award 2007'for the 'Best Value Engineering Organization' by the Indian National Value Engineering Society.

6. TATA NANO

The Company unveiled the TATA Nano, the world's least expensive car to an overwhelming response at the Auto Expo 2008 in New Delhi. Subsequently, the car was also unveiled at the Geneva Motor Show and received international acclaim. The development of the TATA Nano has given the Tata Group the 6t' rank in the Business Week-B&G 2008 listing of the world's 25 most innovative Companies. The construction of a manufacturing facility for the Tata Nano at Singur is in progress.

7. ACQUISITION OF JAGUAR AND LAND ROVER

On June 2, 2008,Tata Motors completed the acquisition of businesses of Jaguar and Land Rover (part of Premier Automotive Group of Ford Motor Co.) for US$ 2.3 billion (on a cash free, debt free basis). Both are iconic British brands purchased by Ford in 1989 and 2000 respectively. Out of the purchase consideration paid to Ford, Ford has contributed around US$ 600 million into the Jaguar Land Rover pension schemes (in UK).

Jaguar and Land Rover (JLR) are in the business of development, manufacture and sale of high end luxury cars and SUVs respectively. JLR has 3 manufacturing plants, 1 component manufacturing facility and 2 state of the art design and engineering centers in the UK,with 16,000 employees across the world, sales in more than 100 countries and have over 2,200 dealers. Their combined volume for the calendar year 2007 was around 288,000 vehicles. JLR achieved revenues of US$ 14.94 billion for the year ended December 31, 2007 with a PBIT (excluding special items) of US$ 650 million. For the quarter ended March 31, 2008, with the launch of the acclaimed XF model by Jaguar in January 2008, JLR business achieved revenues of US$ 4.15 billion (against revenues of US$ 3.54 billion for the corresponding period in 2007) and PBIT (excluding special items) of US$ 417 million (as against PBIT of US$ 289 million for the corresponding period in 2007).

Acquisition of JLR provides the Company with a strategic opportunity to acquire iconic brands with a great heritage and global presence, and increase the Company's business diversity across markets and product segments.

8. TATA MOTOR FINANCE - CUSTOMER FINANCING INITIATIVES

Tata Motors Finance Limited and the Vehicle financing division of the Company which operate under the brand name'Tata Motor finance (TMF)'financed 1,77,437 new vehicles,a growth of 7.3% over 1,65,376 in the previous year.

With disbursals of Rs.9,620 crores, a growth of 2.2% over Rs.9,415 crores in the previous year,TMF emerged as the second largest commercial vehicle financer in the domestic market.

During the year, TMF extended support to the Company's vehicle sales by financing 34% of the total domestic sales, compared to 31.4% in the previous year. Given this growth,TMF is on course to become a strong captive financing arm to support the vehicle sales business as well as to de-risk the cyclical revenue stream of the automotive business. The extensive network of TMF will also complement the dealer network of vehicles sales, thus widening the reach of the Company. In the Commercial vehicle financing, TMF achieved a market share of 34%, with total disbursements at Rs.6,300 crores, recording a 2.9% growth and financed 1,07,668 units, an increase of 7.6% over the previous year. In the Passenger Vehicle financing segment,TMF achieved a market share of 32.5%, with total disbursements at Rs.2,228 crores, recording a 7.8% growth and financed 69,769 units, an increase of 6.9% over the previous year. With a view to focus on its core business of financing of TATA commercial and passenger vehicles, the Construction Equipment financing activity together with loan portfolio was sold by the Company in September, 2007.

9. HUMAN RESOURCES & INDUSTRIAL RELATIONS

During the year, the Company entered into a three year wage settlement with its unions at Jamshedpur and Pune, Passenger Car Business.The negotiation for wage settlement at Lucknow plant is under-way and is expected to be signed shortly. Company's cordial industrial relations were maintained at all of the Company's plants and offices. There has been consistent improvement in productivity across all the plants.

The permanent employees' strength of the Company as on March 31, 2008 was 23,230, while that of the Company's subsidiaries was 9,972. Recruitments across all levels, extensive training and skill enhancement activities were carried out especially at the new locations, in line with the Company's expansion and growth plans.

The Company was given the award of India's Best Managed Company for 2007-08 in the automotive sector by Business Today based on a study conducted by Ernst and Young.

10. FINANCE

With significant increase in the Company's capital expenditure programmes and the growing business requirement, the overall borrowings of the Company stood at Rs.6,280.52 crores at a Debt: Equity ratio of 0.80:1.

During the year, the Company successfully raised US$ 490 million via the issue of Convertible Alternate Reference Securities which is an innovative convertible instrument and would enable the Company to offer the investors a right to convert these into differential voting shares and/or other qualifying securities.

The Company has managed the currency risks on exports amidst sharp appreciation of the Rupee in 07-08. Due to the appreciation of the rupee, the net foreign exchange gain on revaluation of foreign currency borrowings, deposits and loans given stood at Rs.137.61 crores for FY 07-08 as against Rs.65.21 crores in the previous year.

JLR is being acquired through special purpose vehicles incorporated in UK and Singapore and the acquisition cost is being financed upfront through a syndicated bridge loan facility of US$ 3 billion. The Company has issued a Corporate Guarantee in favour of its said UK SPV for this purpose. The repayment of the said facility is proposed to be undertaken through a long term funding plan involving, amongst others, a right issue of equity/equity related instrument to its shareholders, and issue of securities in the international market. The Company is undertaking a Postal Ballot to obtain the approval of the members to enable the Company to raise these resources, the details of which are included in the Corporate Governance Report.

Post the JLR announcement and subsequently, the Company's rating for foreign currency borrowings was revised by Standard & Poor from BB +/Stable to BB/Negative and by Moodys' from Bat to Bat. For borrowing in local currency the rating was revised from AA+/Stable to AA Negative/Stable by Crisil and from LAA+/Stable to LAA/Negative by ICRA.

11. INFORMATION TECHNOLOGY AND RESEARCH AND DEVELOPMENT INITIATIVES

The Company continued to strengthen the IT capabilities in all areas of its business which were used extensively in design, manufacuturing and customer interface functions. The Company used Digital Product Development, Digital Manufacturing Solutions and better integration with vendors in order to improve significantly its product development processes and capabilities. During the year the ERP system SAP was also deployed in some of its subsidiaries and the Fiat joint venture. Significant improvements and use of analytics were also incorporated in the Company's CRM/Dealer Management Systems.

The Company continued to pursue research and development initiatives in product development, environmental technology and vehicle safety areas. The Company widened the scope of its research and development activity from inhouse product and technology development to managing research and development process across various internal and external agencies, including its research and development centres in Korea, Spain and the United Kingdom, as well as at various aggregate parts suppliers and outsourcing partners. The Company's reasearch and development initiatives include developing vehicles running on alternative fuels, including CNG, LPG and bio-diesel and pursuing alternative fuel options such as ethanol blending and development of vehicles fuelled by hydrogen. The Company is also pursuing various initiatives in engine management systems,vehicle network architecture, vehicle tracking and telematics.

12. SUBSIDIARY AND ASSOCIATE COMPANIES

SUBSIDIARY COMPANIES

For the Financial Year ended March 31, 2008, the Company's subsidiaries, on an aggregate basis, have significantly improved on their financial performance. A brief profile of the subsidiary companies and their main financial parameters for 2007-08, are provided in the Annexure hereto. Brief details of the Company's existing subsidiaries are given below. In respect of foreign subsidiary companies, figures in Rupees are converted from applicable respective foreign currencies at appropriate rates at the year end.

Concorde Motors (India) Limited (CMIL), a 100% subsidiary of the Company engaged in sales and service of TATA and FIAT passenger cars recorded a turnover of Rs.625.20 crores (Previous year: Rs.623.27 crores) and Profit After Tax of Rs.5.33 crores (Previous year: Rs.11.76 crores).CMIL has declared a dividend of Rs. 2.50 per share for the FY 2007-08 (previous year Rs. 7.50 per share) and Rs. 7/- per share for the FY 2007-08 on the 7% Cumulative Redeemable Preference Shares.

HV Transmissions Limited (HVTL) and HV Axles Limited (HVAL),85% subsidiary companies of the Company, are engaged in the business of manufacture of gear boxes and axles for Heavy & Medium commercial vehicles (M&HCV), with production facilities and infrastructure based at Jamshedpur. Major capacity expansion and modernisation initiatives have been undertaken at HVTL and HVAL to meet the growing demand for gear boxes and axles for M&HCVs over the years. Both HVTL and HVAL have manufactured new variants of gear boxes and axles during the year for application in the Company's new products.

HVTL recorded a turnover of Rs.191.98 crores (an increase of 9.39%), a PAT of Rs.47.44 crores (an increase of 5.53%) and has declared a dividend of Rs.5/- per share for the FY 2007-08 (previous year Rs. 5/- per share). HVAL recorded a turnover of Rs. 203.24 crores (an increase of 3.34%), a PAT of Rs.63.41 crores (an increase of 9.52%) and has declared a dividend of Rs. 5/- per share for the FY 2007-08 (previous year Rs. 5/- per share).

During the year, the Company divested 15% of its stake in HVTL and HVAL to Tata Capital Limited for an aggregate consideration of Rs. 164.25 crores and also sold the Intellectual Property Rights (IPR) for technology/design to HVTL and HVAL, which will facilitate these companies in pursuing their strategic growth through further development of technology and products for the Company and other customers in a focused manner.

Sheba Properties Limited is a 100% owned investment Company. The income of the Company was Rs. 21.37 crores (Previous Year: Rs.19.97 crores) and Profit After Tax was Rs.16.22 crores (Previous Year: Rs.13.50 crores).

TAIL Manufacturing Solutions Limited (TAL) is a 100% subsidiary of the Company engaged in the business of Machine tools, Equipments, Material handling systems and Fluid power solutions. During the year, it has ventured into the Aerospace business by signing an agreement with Boeing Corporation, USA for manufacturing structural components for Boeing's 787 Dreamliner airplane program at a state of-the-art manufacturing facility being set-up in Nagpur, India. In one of its key achievement of the year, TAL has signed sales and service agreement with HELLER, Germany, a global renowned manufacturer of high-end Machining centers. During the year TAL recorded a turnover of Rs.220.58 crores (Previous Year: Rs.143.94 crores) and a Profit after Tax of Rs.12.02 crores (Previous Year: Rs.8.31 crores), a growth of 45%. TAL has wiped out its accumulated losses during the year and carried forward a profit of Rs.1.05 crores.

Tata Daewoo Commercial Vehicle Company Limited(TDCV), Korea, a 100% subsidiary of the Company is the second largest manufacturer of heavy and medium commercial vehicles in Korea. During the year under review,TDCV registered further growth both in the domestic market and exports. In volume terms, sales of 11,899 units in FY 07-08 were higher by 38% compared to that of 8,588 units in FY 06-07.This enabled TDCV to improve its market share from 24.3% to 32.3% in the HCV segment and from 28.2% to 34.8% in the MCV segment.TDCV exported 3,000 units of HCVs in FY 08 (2,715 units previous year) and continued to be the largest exporter from Korea in this segment.

TDCV recorded a turnover of Rs.2,865.02 crores which was higher by 45% compared to Rs.2,248.81 crores for the previous year.The Profit before Tax at Rs. 212.03 crores registered an increase of 81 % compared to Rs.133.31 crores. After providing for tax, the profit was Rs.153.11 crores against Rs.97.46 crores in the previous year, an increase of 78%. In March 2008, TDCV paid an interim dividend at 20% on common shares. This was followed by a final dividend at 80% on common shares for FY 2007-08.

Tata Marcopolo Motors Ltd. (TMML) is engaged in the business of manufacture and sale of fully built buses and coaches in which the Company has a 51% holding with the balance 49% being held by Marcopolo S. A., Brazil. The Company started its commercial production from November 2007 and has sold 190 low entry CNG buses. TMML recorded a net turnover of Rs.6.57 crores and loss after tax is Rs.3.83 crores.

Tata Motors (SA) Proprietary Limited (TMSA), a joint venture company was incorporated during the year in which the Company holds 60% with the balance 40% being held by the Tata Africa Holdings (SA) (Pte.) Limited.TMSA has been formed for manufacturing and assembly operations of the Company's Light and Heavy Commercial Vehicles and Passenger Cars in South Africa.TMSA is yet to start operations.

Tata Motors (Thailand) Limited (TMTL) is a 70:30 joint venture between the Company and Thonburi Automotive Assembly Plant Co., for manufacture, assembly and marketing pickup trucks. The joint venture enables the Company to address the ASEAN and Thailand markets, the later being the second largest pickup market in the world after the USA. While TMTL has begun setting up operations in the FY 2007-08, the manufacturing of vehicles began only during March '08 with revenues from sales and other income at Thai Baht 7 million (equivalent to Rs.0.90 crore) for the period ended March 31, 2008.

Tata Motors European Technical Centre Pic. (TMETC), a 100% subsidiary of the Company is engaged in the business of design engineering and development of products for the automotive industry. Working synergistically with the Company TMETC provides it with design engineering support and development services, complementing and strengthening the Company's skill sets and providing European standards of delivery to the Company's passenger vehicles. During the year ended March 31, 2008,TMETC earned gross revenues of Rs.127.95 crores (2006-07: Rs.60.34 crores) and an operating profit of Rs.11.43 crores (2006-07: Rs. 7.08 crores).

Tata Motors Finance Limited (TMFL), a wholly owned subsidiary of the Company, is registered with RBI under Section 45-IA of the RBI Act 1934, as a Non- Banking Finance Company and has been classified as an 'Asset Finance Company'.The name of TMFL was changed from 'TML Financial Services Limited' to 'Tata Motors Finance Limited'with effect from August 28, 2007.Total Income at Rs.836.95 crores during the year under review was 423% higher than in 2006-07 and Profit Before Tax at Rs. 50.26 crores was 150% more than the previous period. As commencement of the operations started from September 1, 2006, these figures are not comparable. With a view to focus on its core business of financing of Tata Commercial and Passenger Vehicles,TMFL transfered its activities pertaining to construction equipment financing and small and medium enterprises financing.

Tata Motors Insurance Broking & Advisory Services Limited (TMIBASL), [formerly known as Tata Motors Insurance Services Limited], a 100% subsidiary of the Company, proposes to undertake the business of direct insurance broking. TMIBASL has received a License from the Insurance Regulatory and Development Authority (IRDA) to act as a Direct Broker under the IRDA Act on May 13, 2008. In compliance with the regulations of the IRDA, its name was changed to 'Tata Motors Insurance Broking & Advisory Services Ltd.' on April 30, 2008. Pending the issue of license by the IRDA and other formalities relating thereto, no business activity was carried out during the period from October 2005 to March 2008. For the year under review,TMIBASL earned revenues of Rs.0.10 crore (2006-07: Rs.0.08 crore) and recorded a Loss of Rs.0.04 crore (2006-07: loss of Rs.0.16 crore).

Tata Technologies Limited (TTL), in which the Company has a 81.71% holding, provides through its operating companies, INCAT and Tata Technologies iKS, specialized Engineering & Design Services (E&D), Product Lifecycle Management (PLM) and product-centric IT services to leading global manufacturers. It responds to customers' needs through its 13 subsidiary companies in three continents and through its three offshore development centers. Its customers are among the world's premier automotive, aerospace and consumer durable manufacturers. The year marks an important milestone in the growth history of the Company with consolidated revenues crossing the Rs.1000 crores threshold.

INCAT is the world's leading independent provider of E&D, Product & Information Lifecycle Management, Enterprise Solutions and Plant Automation. INCAT's services include product design, analysis and production engineering, Knowledge Based Engineering, PLM, Enterprise Resource Planning and Customer Relationship Management systems. INCAT also distributes, implements and supports PLM products from leading solution providers in the world such as Dassault Systems, UGS and Autodesk. With a combined global workforce of more than 3,000 employees, INCAT has operations in the United States (Novi, Michigan), Germany (Stuttgart) and India (Pune).

Tata Technologies KS is a global leader in engineering knowledge transformation technology. For over 15 years, iKS has enabled engineering knowledge transformation through'i get it; which is the only web application in the world offering 1,00,000 hours of engineering knowledge for AutoCAD, INVENTOR, Solid Works, Solid Edge, UG/NX, Teamcenter, COSMOS Works, and CATIA on a single delivery platform application.

TTL had 13 subsidiary companies as at March 31, 2008. A few companies out of these subsidiaries are being wound-up, liquidated or merged as also various restructuring initiatives are being taken with the objective of bringing in operating efficiencies by sharpening focus on its services and product business, fixing territorial responsibility for top and bottom line growth and establishing a global delivery centre supporting the overall business. The consolidated revenue for the TTL Group was Rs. 1100 crores, an increase of 15% against Rs. 957 crores in the previous year. The profit before tax was Rs. 51 crores as against Rs.25 crores in the previous year, recording a growth of 104%.The profit after tax was Rs.30 crores against Rs.16.28 crores in the previous year.

Telco Construction Equipment Company Limited (Telcon) is engaged in the business of development, manufacture and sale of construction equipment and allied services in which the Company has a 60% holding with the balance 40% being held by Hitachi Construction Machinery Company Limited, Japan. With the increase in economic activity especially in the infrastructure sector, Telcon recorded its best performance to date having sold 7,698 machines (5,360 machines in 2006-07) with a gross revenue of Rs. 2,735 crores (Previous Year: Rs.1,828 crores), a Profit After Tax of Rs.324 crores (Previous Year: Rs.184 crores),an increase of 76% and declared an interim dividend of Rs.5/- per share and a final dividend of Rs. 3/- per share (PreviousYear: Final dividend of Rs.4/- per share). In April 2008,Telcon acquired two Spanish Companies, namely Serviplem S.A and Comoplesa Lebrero S.A by acquiring 79% and 60% shares of the respective companies.

TML Distribution Company Limited (TDCL), a 100% subsidiary of the Company incorporated on March 28, 2008 would be engaged in the business of dealing and providing logistics support for distribution of the Company's products throughout the Country.TDCL is yet to start operations.

ASSOCIATE COMPANIES

As on March 31, 2008, the Company had the following major associate companies:

Automobile Corporation of Goa Limited (ACGL) in which the Company has a 37.79% shareholding, was incorporated in 1980, jointly with EDC Limited (a Government of Goa enterprise). ACGL is a listed company engaged in manufacturing sheet metal components, assemblies and bus coaches and is the largest supplier of buses (mainly for exports) to the Company.

Fiat India Automobiles Private Limited (FIAPL), is a Joint Venture with Fiat Auto S.p.A., Italy, to manufacture Fiat and Tata cars and powertrains at Ranjangaon. The new facility was inaugurated on April 2, 2008 and is one more step towards confirming the strong motivation and understanding between the partners towards developing new opportunities in India and abroad.

Hispano Carrocera S.A.(HC),a well-known Spanish bus manufacturing company in which the Company had acquired a 21 % stake in March 2005 was another major step in the Company's plans for globalization. Hispano has two manufacturing units, one in Spain which caters to the European market and the other one in Casablanca which caters to the Moroccan and other North African markets. HC is present in both the city bus and coach market segment in both the geographies. HC reported a production of 375 buses during the fiscal year 2007 on a consolidated basis.

Nita Co. Ltd., Bangladesh, in which the Company holds 40% equity, is engaged in the assembly of TATA vehicles for the Bangladesh market.

Tata AutoComp Systems Limited (TACO) is a holding company for promoting domestic and foreign joint ventures in auto components and systems and is also engaged in engineering services, supply chain management and after market operations for the auto industry. The Company's shareholding in TACO is 50%.

Tata Cummins Limited (TCL), in which the Company has a 50% shareholding, with Cummins Engine Co. Inc., USA holding the balance. TCL is engaged in the manufacture and sale of high horse power engines used in the Company's range of M/HCVs.

Tata Precision Industries Pte. Ltd., Singapore, in which the Company has a 49.99% shareholding is engaged in the manufacture and sale of high precision tooling and equipment for the computer and electronics industry.

13. In accordance with the Statement of Accounting Standard on Consolidated Financial Statements (AS 21), Accounting Standard on Accounting for Investments in Associates (AS 23) and Accounting Standard on Accounting for Joint Ventures (AS 27), issued by the Institute of Chartered Accountants of India (ICAI), the above mentioned subsidiaries, associates and Joint Venture have been considered in the Consolidated Financial Statements of the Company. As may be seen from the consolidated statements, the consolidated revenue (net of excise) was Rs. 35,651.48 crores, an increase of 10.2% as against Rs.32,361.20 crores in the previous year. The Profit Before-Tax was Rs.3,086.29 crores as against Rs. 3,088.00 crores in the previous year. The consolidated Profit After Tax, after considering an amount of Rs. 851.54 crores (Previous Year: Rs.883.21 crores) towards current and deferred tax, adjustment for share of minority interest and profit in associate companies, was Rs.2,167.70 crores as against Rs.2,169.99 crores in the previous year.

14. On an application made by the Company under Section 212(8) of the Companies Act 1956, the Central Government exempted the Company from attaching a copy of the Balance Sheet and the Profit and Loss Account of the subsidiary companies and other documents from being attached to the Annual Report of the Company. Accordingly, the said documents are not being attached with the Balance Sheet of the Company. A gist of the financial performance of the subsidiary companies is contained in the report. The Annual Accounts of the subsidiary companies are open for inspection by any member/investor and the Company will make available these documents/details upon request by any Member of the Company or to any investor of its subsidiary companies who may be interested in obtaining the same. Further, the annual accounts of the subsidiary companies will also be kept for inspection by any investor at Registered Office of the Company and at the Head Offices of the subsidiary company concerned.

15. ENERGY, TECHNOLOGY & FOREIGN EXCHANGE

Details of energy conservation and research and development activities undertaken by the Company along with the information in accordance with the provisions of Section 217(1)(e) of the Companies Act, 1956, read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988, are given as an Annexure to the Directors' Report.

16. DIRECTORS

Mr. Praveen P Kadle, who was the Executive Director (Finance & Corporate Affairs) of the Company, relinquished office on September 18, 2007, in view of his appointment as the Managing Director of Tata Capital Limited,a company promoted byTata Sons Limited in the financial services space. Mr. Kadle joined the Company as Sr. Vice President (Finance & Corporate Affairs) in October 1996 and was inducted on the Board of the Company in October 2001. Mr. Kadle was also a Member of various Board Committees of the Company as also a representative of the Company on the Boards of some of the subsidiaries, associates and joint ventures. The Directors place on record their appreciation of the significant contributions made by Mr. Kadle during his tenure as Executive Director (Finance & Corporate Affairs), the strategic direction he provided in the management of financial, IT and other Corporate matters and his role in the turnaround and growth of the Company.

In accordance with the provisions of the Companies Act, 1956 and the Articles of Association of the Company, Mr. Ratan N Tata and Mr. R Gopalakrishnan are liable to retire by rotation and are eligible for reappointment.

Dr. R A Mashelkar was appointed as an Additional Director, effective August 28, 2007. In accordance with the provisions of the Companies Act, 1956, Dr. Mashelkar, in his capacity as an Additional Director, will cease to hold office at the forthcoming Annual General Meeting and is eligible for appointment.

Attention of the Members is invited to the relevant items in the Notice of the Annual General Meeting and the Explanatory Statement thereto.

17. CORPORATE GOVERNANCE

A separate section on Corporate Governance forming part of the Directors' Report and the certificate from the Company's auditors confirming compliance of Corporate Governance norms as stipulated in Clause 49 of the Listing Agreement with the Indian Stock Exchanges is included in the Annual Report.

18. PARTICULARS OF EMPLOYEES

Information in accordance with sub-section (2A) of Section 217 of the Companies Act, 1956, read with the Companies (Particulars of Employees) Rules, 1975, and forming part of the Directors' Report for the year ended March 31, 2008, is also given as an Annexure to this Report.

19. AUDIT

Messrs Deloitte Haskins & Sells (DHS),who are the Statutory Auditors of the Company hold office until the ensuing Annual General Meeting. It is proposed to re-appoint them to examine and audit the accounts of the Company for the Financial Year 2008-09. DHS have, under Section 224(1) of the Companies Act, 1956, furnished a certificate of their eligibility for re-appointment.

Cost Audit

As per the requirement of the Central Government and pursuant to Section 233B of the Companies Act, 1956, the Company carries out an audit of cost accounts relating to motor vehicles every year. Subject to the approval of the Central Government, the Company has appointed M/s Mani & Co. to audit the cost accounts relating to motor vehicles for the Financial Year 2008-09.

20. DIRECTORS' RESPONSIBILITY STATEMENT

Pursuant to Section 217 (2AA) of the Companies Act, 1956, the Directors, based on the representation received from the Operating Management, confirm that:-

- In the preparation of the annual accounts, the applicable accounting standards have been followed and that there are no material departures therefrom;

- They have, in the selection of the accounting policies, consulted the Statutory Auditors and have applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profit of the Company for that period;

- They have taken proper and sufficient care, to the best of their knowledge and ability, for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; - They have prepared the annual accounts on a going concern basis.

21. ACKNOWLEDGEMENTS

The Directors wish to convey their appreciation to all of the Company's employees for their enormous personal efforts as well as their collective contribution to the Company's record performance. The Directors would also like to thank the employee unions, shareholders, customers, dealers, suppliers, bankers and all the other business associates for the continuous support given by them to the Company and their confidence in its management.

On behalf of the Board of Directors

RATA N TATA Chairman

Mumbai,June 3, 2008

ANNEXURE TO THE DIRECTORS' REPORT (Additional information given in terms of Notification 1029 of 31-12-1988 issued by the Department of Company Affairs)

A. Conservation of Energy

The Company has always been conscious of the need for conservation of energy and has been steadily making progress towards this end. Energy conservation measures have been implemented at all the Plants and offices of the Company and special efforts are being put on undertaking specific Energy Conservation Projects like installation of various Energy Efficient Pumps, Blowers, LED lamps, Wind Ventilators, Natural Draft Cooling Towers, etc. These changes have resulted in cost savings for the Company, aggregating approximately to Rs.23.38 crores. The Company's Jamshedpur Plant was awarded National Energy Management Award by CII and declared 'Energy Efficient Unit 2007'The Jamshedpur Plant has also won a Trophy & Certificate for Outstanding Performance by CII - ER Energy Conservation (ENCON) Award 2007-08 contest. The Company's endeavour for tapping wind energy has also made significant contributions. The Company undertook a CDM Wind Power project of capacity 20.58 MW which was successfully registered with UNFCCC in September, 2007 resulting in issue of 1.67 lacs Carbon Emission Reductions (CERs), which were later auctioned for Rs 14.45 crores.

B. Technology Absorption

The Company has continued its endeavor to absorb best of the technologies for its product range to meet the requirements of globally competitive markets. All of the Company's vehicles and engines are compliant with prevalent regulatory norms in India as also in the countries to which the vehicles are exported. The Company has also undertaken programmes for development of vehicles which would run on alternate fuels like CNG, LPG, bio-diesel, electric traction etc.

Major technology absorption projects undertaken in the last year include the following:-

Technology for Technology Provider Status

Development of body panels IAV Germany Completed

Vehicle Styling TRILIX, Italy In process

Vehicle NVH LMS International, Belgium In process

Transmission technology TOROTRACK, UK In process

Engine Development FEV,Germany In process

In keeping with the requirement of technological upgradation of its Engines'development facility the Company has added facilities such as Transient Dynamometers with state of the art low emission measurement facility for full flow and partial flow measurement, engine port flow characterization equipment, combustion analysers etc. For crash and safety test set up, the Company has installed a pendulum impact test facility and a Hydraulic sled decelerator. The Company has set up a HVAC Bench Test Facility for evaluating cooling and heating performance, power consumption by AC compressor and measuring performance of automotive HVAC (Heating Ventilation and Air Conditioning) system. The Company has developed and is in the implementation phase of the following new technology for its passenger cars and commercial vehicles: a) CAN based in vehicle networking system b) Transponder & encrypted technology based anti-theft system. The Company has gained significant advantage in rapid proto typing by deploying Nylon Vacuum Casting Facility. During the year the Company has filed 175 patent applications. 11 patents were granted to the Company for application filed in earlier years.

Technology imported during the last five years:

Technology for Imported from Year of Import Status

Design and Development Stile Bertone, Italy 2002-03 }of modular cabs for }commercial vehicles } }Design and Development Institute of Development in 2003-04 }of Passenger vehicles Automotive Engineering } S.p.A, Italy } }Direct Inject Common AVL List GmbH, Austria; 2004-05 }Rail Euro IV Engines Delphi }for passenger vehicles Diesel System, France } }Design & Development Institute of Development in 2004-05 } Underof passenger vehicles Automotive Engineering } S.p.A, Italy } Imple }Safety and NVH MIRA Ltd,UK 2004-05 } mentationIntegration in }Passenger Vehicles } }Design and development Ricardo UK Ltd, UK 2006-07 }of New Generation }Engine } }Design & Development AVL List GmbH,Austria; 2007-08 }of new generation Delphi Diesel System,France }engine for ICV/MCV } }Design and Development M/s Torotrak (Holding) 2007-08 }of Infinitely Variable Limited,UK }Transmission based on }Full Toroidal Traction- }Drive Variators'for }various vehicle }platforms. } }Design and Development, Wagon SAS, France 2007-08 }of 'Flush Sliding }Window/Plug in Window' }

The Company spent Rs. 1,195.97 crores on Research and Development activities including expenditure on capital assets purchased for Research and Development which was 4.2% of the net turnover.

C. Foreign Exchange Earnings and Outgo Rs. in crores Earnings in foreign exchange 2844.12

Expenditure in foreign currency (including dividend remittance) 3244.42

MANAGEMENT DISCUSSION AND ANALYSIS

1. Business Overview

The Indian economy remained in high growth phase but witnessed moderation in GDP growth to 90/ in FY 07-08 as compared to over 9% growth achieved in the previous two years. The commercial vehicle industry which grew by over 33% in FY 06-07 was impacted by moderation in economic growth as wet as substantial reduction in vehicle financing and posted a 8.1% growth this fiscal. The passenger vehicle industry also witnessed a slowdown but managed to grow by 11.1 % by increasing discounts on mature products, launching new models and due to reduction in excise duty announced by the government in Budget during February'08.Vehicle exports also grew,albeit at a slightly lower rate of 11.9% as compared to 14.8% witnessed in the previous year.

The Company recorded a sale of 5,85,649 vehicles, a growth of 0.9% over last year. Introduction of a new range of products and impressive performance of TATA Ace helped the Company to grow by 5.5% in commercial vehicles. In passenger vehicles, the Company witnessed a 5.4% decline due to ageing of some products and increase in the intensity of competition in the car segment. The Company's vehicle exports grew by 2.2% to 54,659 vehicles during the year.

The industry performance during FY 07-08 and the Company's share is given below:-

Category A B C D E F G H

Commercial Vehicles* 558977 517327 8.1% 352785 334238 5.5% 63.2% 64.7%

Passenger Vehicles 1750347 1575235 11.1% 232864 246042 -5.4% 13.3% 15.6%

Total 2309324 2092562 10.4% 585649 580280 0.9% 25.4% 27.8%

A = Total Industry Sales (Nos.) 2007-08B = Total Industry Sales (Nos.) 2006-07C = Total Industry Sales (Nos.) Growth D = Total Company Sales (Nos.) 2007-08E = Total Company Sales (Nos.) 2006-07F = Total Company Sales (Nos.) Growth G = Company Market Share (%) 2007-08H = Company Market Share (%) 2006-07

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

2. Industry Structure and Developments

a. Commercial Vehicles

The domestic commercial vehicle industry grew by 6.9% as compared to over 33% growth achieved in the last fiscal.The commercial vehicle sales were impacted by slowdown in economic growth, poor credit availability for purchasing vehicles, hardening of interest rates and increase in fuel prices.

The industry performance during FY 07-08 and the Company's share is given below:-

Domestic Industry Sales (Nos.) Company Sales (Nos.) Company Market Share (%)Category 2007-08 2006-07 Growth 2007-08 2006-07 Growth 2007-08 2006-07

M&HCV 2,70,994 2,75,556 -1.7% 1,65,619 1,72,842 -4.2% 61.3% 62.9%

LCV* 2,28,984 1,92,234 19.1% 1,47,316 1,25,744 17.2% 64.3% 65.4%

Total CV 4,99,978 4,67,790 6.9% 3,12,935 2,98,586 4.8% 62.7% 64.0%

* including Magic & Winger sales Source: Society of Indian Automobile Manufacturers report and CompanyAnalysis

The Company achieved an all time high commercial vehicle sale of 3,12,935 Vehicles,an increase of 4.8% over the previous year.

The M&HCV segment witnessed contraction due to adverse economic trend, lack of financing as mentioned above and due to depletion of one time demand created last year by strict enforcement of overloading restrictions. The Company, being the largest player in this segment, was impacted by these factors and constraints in supply of certain components/parts in the earlier part of the year Strengthening of in-house vehicle financing by the Company could not fully offset the decrease in credit availability from outside sources. The Company launched many new M&HCV products during the year which would enable the Company to improve its position going forward. In the LCV segment the continuing strong performance of the TATA Ace, launch of 1Ton and CNG versions in the goods carrier segment and introduction of two new passenger carrier products - Magic and Winger helped the Company to grow its sales by 17.2%.

The Company is enhancing its production capabilities at its 3 existing plants and is setting up capacities at Uttarakhand for Ace as also through joint ventures with international partners-Marcopolo SA, Brazil (new plant at Dharwad) and Thornburi (plant atThailand).The sales and service network set-up, which is the largest in India today, is also been expanded in line with product requirements.

b. Passenger Vehicles

Amidst moderation in economic growth, a high interest rate regime and tightening of the liquidity position, the domestic passenger vehicle industry was able to grow by 11.3% to an all time high of over 1.5 million vehicles,albeit at a lower growth rate than 21% of the last fiscal.The Industry's growth rate in fact fell to single digit in the last four months of the fiscal. Growth was primarily driven by new launches and discounts on existing volume models. Along with two wheelers, entry level cars (price point below Rs 3 lacs) declined by 2%.The luxury segment however doubled in size to over 5,000 vehicles and was immune to the slowing market conditions. Of over 90 models in the industry the top 10 constitute 65% of the industry sales.

The industry performance during FY 07-08 and the Company's share is given below:-

Domestic A B C D E F G H Category

Small car (Mini +Compact) 928690 832172 11.6% 138916 146018 -4.9% 15.0 17.5

Entry Midsize car 97033 88056 10.2% 31439 34310 -8.4% 32.4 39.0

Utility Vehicle/SUV 237724 216960 9.6% 47700 47892 -0.4% 20.1 22.1

Total Passenger Vehicles# 1531929 1376783 11.3% 218055 228220 -4.5% 14.2 16.6

A = Total Industry Sales (Nos.) 2007-08B = Total Industry Sales (Nos.) 2006-07C = Total Industry Sales (Nos.) Growth D = Total Company Sales (Nos.) 2007-08E = Total Company Sales (Nos.) 2006-07F = Total Company Sales (Nos.) Growth G = Company Market Share (%) 2007-08H = Company Market Share (%) 2006-07

# including all segments * including Fiat branded cars

Source: Society of Indian Automobile Manufacturers report and Company Analysis

After six years of consecutive growth, the Company's passenger vehicle sales decreased marginally by 4.5% to 2,18,055 vehicles (including 3,297 Fiat branded vehicles) and the Company had a 14.2% share in the passenger vehicle market between TATA and Fiat branded vehicles.

The number of models in the Small car segment nearly doubled with several new launches to a play of 14 models and grew by 11.6%. It continues to hold over 60% of share of the industry. All incumbent models which saw no product intervention registered decline in volume and market share, including the Indica, whose sales declined by 6.3%.The segment benefited from a reduction in excise duty by the Government from 16% to 12%. Indica's market share at 14.6% was augmented by an increase in Fiat Palio's share to 0.4% in the segment. The Company's position weakened on account of delay in the actual launching of its new hatchback which is due to be introduced in the current financial year.

The Entry mid size segment which had seen decline for two years grew by 10.2%,aided by new launches by competition. The Indigo range held on to a 32.4% of the market and continued in a leadership position despite a decline in sales of 8.4%, which has been arrested in the last quarter.

The Utility Vehicle segment witnessed a 9.6% growth to 2,37,724 vehicles this year. The Company's Utility Vehicle sales were flat at 47,700 vehicles and could have been higher but for constraints of initial production ramp up of the Sumo Grande. The Company ended with a 20.1% market share in the year. Safari sales grew by 20.6% to an all time high of 19,078 nos. during the year due to an encouraging response to the new Indigo CS.

The Company unveiled TATA Nano - the world's least expensive car to the Indian and the International Audience in 2008.The production facility at Singur, West Bengal is under construction and is expected to commence commercial production in the last quarter of 2008. The Company will introduce several products from its own portfolio as well as from the Fiat stable in the coming years to address the market demand and consolidate its position.

3. Opportunities and Threats

a) Opportunities

Road development: Continued improvement in road infrastructure in coming years is expected to have a positive effect on automobile sales. The Golden Quadrilateral road project was 97% complete as on March increase in price of input materials could have a negative impact on the demand in the domestic market and/or could severely impact the Company's profitability to the extent that the same are not absorbed by the market through price realisation.

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

Global Competition: India continues to be an attractive destination for the global automotive players. The global automotive manufacturers present in India have been expanding their product portfolio and enhancing their production capacities. To counter the threat of growing global competition, the Company has planned to bridge the quality gap between its products and foreign offerings while maintaining its low cost product development/sourcing advantage.

Growing consumer awareness: Growing awareness amongst consumers is driving up expectations from automobile companies in terms of providing world class features and technology for which adequate price realization is not always possible.

Growth in Mass Transit Systems: The domestic passenger vehicle demand could be impacted by the growth of road and rail based mass transit systems. However, the Company would benefit from the road based mass transit system due to its wide range of commercial passenger carriers.

4. Outlook

Fiscal 2007-08, the first year of 11 t' Five Year Plan saw a marginal fall in GDP growth rate of 9%. In view of the slow down in economy, increase in inflation, poor credit availability, hardening of interest rates, rise in prices of input materials, proposed increase in fuel prices and volatility in foreign exchange rates, the commercial and passenger vehicle industry has a challenging year ahead, with pressure on volumes and margins.

In this background, the Company has initiated various marketing activities to improve its market share in various segments. In commercial vehicles, the Company has planned growth by introducing new products in M&HCV and LCV segments. A wide range of products were introduced in the latter half of FY07-08 and more would be introduced in the coming year. ln passenger vehicles the Company introduced new products in a few segments in FY 07-08 and has planned to introduce the next generation Indica and the Nano in this year. The Company has also planned to further strengthen the in-house vehicle financing to make up for the lack of finance from external sources. The Company has also planned various cost reduction measures to offset, at least partially, the increase in price of input materials.

5. Financial Performance as a measure of Operational Performance

In a challenging environment, the Company has been able to marginally grow its revenues and profits. Whilst the Company's profit after tax improved to Rs.2,028.92 crores from Rs.1,913.46crores in the previous year, the margins were under pressure mainly due to the rising input costs and lower volume growth. The following table sets forth the breakup of the Company's expenses as part of the net revenue.

Percentage of turnover March 31,2008 March 31,2007

Turnover net of excise duty 100 100

Expenditure:Material (including change in stock and processing charges) 73.4 72.3 Employee Cost 5.4 5.0 Manufacturing and other expenses (net) 10.5 10.7

Total Expenditure 89.2 87.9

Other Income 1.7 0.9

Profit before Depreciation, Interest and Tax 12.4 13.0

Depreciation (including product development expenditure) 2.5 2.4

Interest and Discounting Charges (Net) 1.0 1.1

Profit before Tax 9.0 9.4

Turnover, net of excise duties increased by 4.6% to another record high of Rs. 28,730.82 crores from Rs.27,470.03 crores in FY 2006-07.The total number of vehicles sold during the year increased by 0.9% to 585,649 units from 580,280 units in FY 2006-07.The domestic volumes increased by 0.8% to 530,990 units from 526,806 units in FY 2006-07,while export volumes increased by 2.22% to 54,659 units in FY 2007-08 from 53,474 units in FY 2006-07.

Net Raw Material consumption inclusive of processing charges increased by 6.2%to Rs.21,082.10 crores in FY 2007-08,from Rs.19,849.04 crores in FY 2006-07. Material Cost as a % of net turnover has increased to 73.4% from 72.3% for the last year. This was largely a result of increase in prices of steel, aluminum, nickel, copper and natural rubber. However, the Company managed to lower the impact through its on going cost reduction programme with initiatives like global sourcing, vendor rationalization and value engineering.

Employee Cost increased by 12.9% during the year to Rs. 1,544.57 crores from Rs. 1,368.09 crores registered in the previous year mainly inline with trends in industry and economy. The manpower increased marginally to 23,230 from 22,349 with increases also in flexible manpower.

Manufacturing and Other Expenses increased by 2.4% to Rs. 3,011.83 crores in FY 2007-08 from Rs.2,940.53 crores in FY 2006-07.These were 10.5% of net turnover for the year as compared to 10.7% for the previous year.

Profit before depreciation, interest and tax increased by 0.5% to Rs.3,575.50 crores from Rs.3,557.56 crores in FY 2006-07.The margin decreased to 12.4% from 13% in FY 2006-07.

Depreciation (including product development expenditure) for 2007-08 increased by 6.8% to Rs. 716.66 crores from Rs.671.31 crores in FY 2006-07 on account of increase in fixed assets. It represents 2.5% of net turnover as compared to 2.4% for FY 2006-07.

Net interest cost decreased to Rs. 282.37 crores in FY 2007-08 from Rs.313.07 crores in FY 2006-07. Despite increase in interest rates and increase in capital expenditure,the reduction was mainly on account of significant reduction in the Company's vehicle financing portfolio (on account of securitisation), better working capital management, interest earnings and larger capitalisation of interest in line with the increase in capital expenditure.

Profit Before Tax (PBT) of the Company increased by 0.13% to Rs. 2,576.47 crores from Rs. 2,573.18 crores in FY 2006-07.

Profit After Tax (PAT) increased by 6.03% to Rs. 2,028.92 crores from Rs.1,913.46 crores in FY 2006-07. This was mainly on account of a lower tax provision owing to the increase in spend on Research and Development and income from capital gains, which is subject to a lower tax rate. Basic Earning Per Share (EPS) increased by 5.79% to Rs.52.64 as compared to Rs.49.76 last year.

Balance Sheet size of the Company increased to Rs. 15,095.74 crores in FY 2007-08 from Rs. 11,665.72 crores in FY 2006-07.This increase is attributed to significant capital expenditure incurred by the Company on new products and programmes and strategic investments. As on March 31, 2008, the Ordinary Share Capital of the Company stood at Rs.385.54 crores as compared to Rs.385.41 crores as on March 31,2007.

Gross debt (total of secured and unsecured loans) increased to Rs.6,280.52 crores as on March 31, 2008 as compared to Rs.4,009.14 crores as on March 31, 2007 as a consequence of higher capital expenditure and investments.

Net debt (gross debt reduced by available cash and bank balances and in mutual fund investments) stood at Rs.3,616.99 crores as on March 31,2008 as compared to Rs.3,545.99 crores as on March 31,2007.

Fixed Assets including Capital Work in Progress increased to Rs. 10,452.27 crores in FY 2007-08 from Rs.6,394.58 crores in FY 2006-07.

Investments increased to Rs.4,910.27 crores in FY 2007-08 from Rs.2,477.00 crores in FY 2006-07. During the year, the Company continued to make additional long term and strategic investments. The Company further invested Rs.600 crores in its 100% subsidiary Tata Motors Finance Limited to further strengthen the vehicle financing activities. The Company also invested Rs. 601.59 crores in Fiat India Automobiles Private Limited for manufacturing Fiat and Tata cars and Fiat power trains. The Company invested Rs.179.50 crores in the rights issue of securities of Tata Steel Limited. The amount invested in various mutual funds as at March 31, 2008 was Rs. 790.79 crores as against Rs. 51.99 crores as at March 31, 2007 representing surplus cash parked for future use.

Net Current Assets decreased to (Rs.272.85 crores) as at March 31, 2008 from Rs. 2,784.05 crores as at March 31, 2007.The Current assets, loans and advances have decreased by Rs.128.27 crores as compared as at March 31, 2007.The increase in Sundry debtors and Cash and Bank balances,due to higher year end sale and parking of short funds pending utilization, respectively, has been offset by reduction in finance receivables. The Current liabilities have increased by Rs.2,928.63 crores due to higher volumes at the year end, change in the credit period and increase in the provision for premium for redemption of securities issued during the year.

The cash generated from operations before working capital changes and before considering the deployment in the vehicle financing business was Rs.2,760.15 crores as compared to Rs.3,152.53 crores in the previous year. After considering the impact of working capital changes and inflows on account of securitisation of financing loan portfolio (net of deployment), the net cash generated from operations was Rs.6,174.50 crores as compared to Rs.2,210.13 crores in the previous year.

6. Risks and concerns

Interest rates and credit availability: Consumer interest rates witnessed an upward movement in the second half of FY 07-08. Further tightening of the liquidity position, non-availability of vehicle finance and firming up of interest rates would affect vehicle demand, which could impact the Company's revenues and profits.

Exchange rates: The Company's exports constitute 9.8% of the turnover and imports constitute 4.6% of material consumption. Further the Company has large foreign currency borrowings in the form of foreign currency convertible securities. Movements in exchange rates and volatility in the foreign exchange markets could significantly impact profits.

Freight Rates: Moderation in industrial activity, slowdown in freight movement and increase in fuel price would adversely impact vehicle operators margins to the extent not recovered through increase in freight rates. This would have an adverse impact on commercial vehicle demand.

Railways: Railways renewed focus on cementand steel movement and container movement and planned nationwide rail freight corridor connecting major cities could impact the demand of commercial vehicles for goods transportation. However, it is expected that with the growth in road infrastructure and increase in vehicle penetration and with product offerings suitable for different applications, road transport would continue to have a dominant role and offer flexible, speedy and point-to-point service.

Domestic market:The commercial vehicle industry due to its strong linkages with the economy would be impacted by slowdown in economic growth. The Company has strengthened its less cyclical businesses like passenger carriers, small and light trucks and passenger cars as well as its spare parts and other service offerings to counter moderation in demand. The increasing trend of offering price discounts in the market could also affect the Company's margins.

Overseas markets: In the overseas markets, many of which have stricter norms of vehicle regulations related to emission, safety, noise, technology, etc., the Company competes with international players which have global brand image, larger financial capability and multiple product platforms. These factors may impact the demand of the Company's products in overseas markets.

Manufacturing: The Company manufactures its products at multiple locations and its operations could be affected by disruption in its supply chain due to any natural calamities and work stoppages at its suppliers end due to load shedding, labour problems, etc.

New Competition: Intensity of competition has increased in almost all the segments of the Indian automotive market due to entry of new players and expansion plans of existing ones. The Company is aware of the increasing competition and is taking measures to remain competitive in the market place.

New projects: The Company is undertaking a variety of new projects ranging from the launch of a small car to the development of a new truck model. These projects are in various stages of execution. Though the Company employs sophisticated techniques and processes to forecast the demand of new products, yet the same is subject to margin of error. Timely introduction of new products, their acceptability in the market place and managing complexity of operations across various manufacturing locations would be the key to sustain competitiveness.

7. Internal Control Systems and their adequacy

The Company has in place adequate system of internal control. lt has documented procedures covering all financial and operating functions. These controls have been designed to provide a reasonable assurance with regard to maintaining of proper accounting controls, monitoring of operations, protecting assets from unauthorized use or losses, compliances with regulations and for ensuring reliability of financial reporting. The Company has continued its efforts to align all its processes and controls with global best practices 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 term business plans; Preparation and monitoring of annual budgets for all operating and service functions;

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

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

Bi-monthly meeting of the management committee at apex level to review operations and plans in key business areas;

A well established multi disciplinary Internal Audit team, which reviews and reports to management and the Audit Committee about the compliance with internal controls and 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, significant audit findings, adequacy of internal controls, compliance with Accounting Standards as well as reasons for changes in accounting policies and practices, if any;

A comprehensive information security policy and continuous upgrades to IT system;

Documenting major business processes and testing thereof including financial closing, computer controls and entity level controls as part of compliance with Sarbanes-Oxley Act;

Anti-fraud programme.

The Board takes responsibility for the total process of risk management in the organisation. The Audit Committee reviews reports covering operational, financial and other business risk areas. Through an Enterprise Risk Management programme,each Business Unit addresses opportunities and the attendant risks through an institutionalized approach that is aligned to the Company's objectives. This is also facilitated by internal audit. The business risks is managed through cross functional involvement and intense communication across businesses. Results of the risk assessment and residual risks are presented to the senior management.

8. Material Developments in Human Resources/Industrial Relations

A cordial industrial relations environment prevailed at a II the manufacturing units of the Company during the year. The Company entered into a three year wage settlement with its Unions at Jamshedpur and Passenger Car Business, Pune. The permanent employees strength of the Company as on March 31, 2008 was 23,230.

CAUTIONARY STATEMENT

Statements in the Management Discussion and Analysis describing the Company's objectives, projections, estimates, expectations may be 'forward-looking statements' within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or implied. Important factors that could make a difference to the Company's operations include, among others, economic conditions affecting demand/ supply and price conditions in the domestic and overseas markets in which the Company operates, changes in the Government regulations, tax laws and other statutes and incidental factors.