Tata Motors Ltd (TTM) 2014 Q3 法說會逐字稿

Ladies and gentlemen, good day and welcome to the Tata Motors Q3 FY14 Earnings Conference Call, hosted by Motilal Oswal Securities Limited. (Operator Instructions) Please note that this conference is being recorded. I now hand the conference over to Mr. Jinesh Gandhi of Motilal Oswal Securities. Thank you and over to you sir.

Thanks, Inba. Good evening everyone. On behalf of Motilal Oswal Securities, I would like to welcome you to this 3Q FY14 post results conference call of Tata Motors. Tata Motors is represented by Mr. C. Ramakrishnan, CFO, and the Investor Relations team. We'd like to thank Mr. Ramakrishnan for taking time out for the call. I would now hand over the call to Mr. Ramakrishnan for his opening remarks, which would be followed by Q&A. Over to you, sir.

Thank you. Thank you for hosting this call. Good evening everybody or good morning, wherever you are joining from. Thanks for taking the time to join us on this results call for Q3 for this year. The financial performance in this Q3, as it has been in the last few quarters, has been a one of contrast. A continued underperformance in the India business and quarter-after-quarter very successful and very good performance at Jaguar Land Rover UK is a repeat in this quarter of the same phenomenon you have seen for some time now.

First of all, at a consolidated level, the net revenue for this quarter was about INR64,000 crores, up from INR46,000 crores in the same period last year. EBITDA margin, consolidated, was 16.5% compared to 13.3% a year ago. Profit after tax, INR4,800 crores compared to INR1,600 crores in the same quarter last year.

Similarly, for the nine months period, April to December, revenue came in at INR1,67,000 crores, up from 1,32,000 crores. EBITDA margin at 15.9% compared to 13.7% and profit after tax, INR10,000 crores compared to INR5,900 crores.

At a consolidated level, in terms of the balance sheet, the net automotive debt to equity was 0.19% -- 0.19:1. However, on a standalone basis, as I said earlier, the quarter has been quite depressed in terms of overall market scenario, volume, demand and costs. The financial results reflect this position. Net revenue came in at INR7,770 crores compared to INR10,600 crores of same quarter last year. EBITDA was minus at INR338 crores, compared to INR234 crores in the same period last year. The EBITDA percentage, therefore, was minus 4.3% compared to positive 2.2%.

Profit after tax, however, was INR1,251 crores positive in this quarter, compared to negative profit after tax of INR458 crores last year. But this quarter, profit after tax was impacted by two major items outside of the operations. One is the result of profit on sale of investments, which is in the course of divestment we have done in Tata Motors standalone, in favor of one of our subsidiary companies in Singapore, in restructuring the holdings in our overseas subsidiary companies into the Singapore company. I'll explain this in a moment. This resulted in certain profit on sale of investments. We're still in the process of completing it. Some part of it, a much smaller part of it will come in Q4. The second impact, positive impact, was also a reversal of tax provisions, considering the performance and the huge R&D expenditure tax credit we get. We had tax credit reverse -- a tax reversal of about INR600 crores in this quarter. Both this have contributed to profit after tax of INR1,251 crores outside of operations. Operational performance, itself, at PBT level would have been negative about INR1,000 crores plus.

Similarly for the nine months period, Tata Motors standalone revenue was INR25,700 crores compared to INR33,600 crores same period last year. EBITDA this year is breakeven at INR46 crores positive, compared to INR1,700 crores positive in the same period nine months last year. Profit after-tax after the impact that I mentioned earlier and also the dividend income we received in the earlier part of the year, profit after-tax was INR1,151 crores compared to INR614 crores same period last year.

Jaguar Land Rover, however, had an one more outstanding quarter in terms of performance. Net revenue GBP5.3 billion for this quarter compared to GBP3.8 billion last year. EBITDA was GBP955 million in the quarter, compared to GBP533 million in the same period last year, resulting in an EBITDA percentage of 17.9%, up from 14% a year-ago. Profit after tax was GBP619 million for the quarter compared to GBP296 million last year.

Nine months period, Jaguar Land Rover net revenue GBP14 billion, up from GBP10 billion. EBITDA percentage 17.5%, up from 14.4%. Profit after-tax GBP1.4 billion, up from GBP800 million for the nine months last year.

In Tata Motors Standalone, the net debt to equity ratio stands at 0.80:1.00 and at Jaguar Land Rover level, the net debt is negative and therefore the net debt to equity is minus 0.15:1.00.

I am not running through the detailed presentation page by page. You will have access to it in the website. Just in terms of highlights on the India business, on the business side, the commercial vehicles volume was about 86,000 numbers for the quarter, down from 1,01,000 numbers in the previous quarter, that is Q2 of this year, and down from 1,38,000 numbers in the same quarter of last year. Market share overall in commercial vehicles stood at 55.8% across all segments.

Passenger vehicles, the volumes came down from 35,000 one quarter ago, that is Q2 of this year, from 35,000 in this quarter, down to 34,800, marginal reduction. But significantly reduced from 53,000 cars we sold in the same quarter last year. Overall, market share in passenger vehicles stood at 6% for the nine months period. Mainly driven both in CV and PV, but more particularly in CV, but the overall slowdown in economic activities, slowdown in infrastructure spending, tight financing environment for vehicle buyers, and also under-utilization of fleet and weak operating economies with freight rate is not going up and interest rates and other running costs like diesel, fuel, et cetera going up, poor operating economies for the operator have contributed to this. And, overall, competition, intense competition, in both CV and PV have also tended to push up or continued to push up the overall marketing costs, including variable marketing expenses.

Several initiatives underway from the Company point of view in terms of product launches, add-on services, value-add services launched for the customers, new range of products, both in commercial vehicles and passenger vehicles. Just to give an example, in passenger vehicles, we launched the CNG versions of Nano and Indica and Indigo, branded Nano emax, Indica emax, et cetera. We are also making some strides and have put some milestones in our international business map by launching Tata Xenon in Australia and Tata ARIA in South Africa.

Jaguar Land Rover, wholesale volumes and retail volumes for the quarter were 1,16,000 and 1,12,000 respectively. The EBITDA numbers and the profit numbers I have already mentioned. These have been contributed by volume increase, wholesale volume increase, richer product mix with the launch of new products continuing to having great pull and momentum in the market, and a richer geographic mix.

Free cash flow for the quarter three was GBP234 million, post capital expenditure and product development spend of about GBP788 million for the quarter. And for the nine months period, free cash flow was GBP323 million positive after product development and CapEx for the nine months of GBP2 billion.

As for the balance sheet is concerned, JLR continues to have very strong liquidity on the balance sheet. Cash and liquid resources on the balance of about $3.2 billion and what I had mentioned earlier, undrawn long-term committed bank lines of credit, which is completely unutilized, of about $1.3 billion.

In terms of some of the financial performance or market highlights, in December, Jaguar Land Rover issued new bonds of GBP700 million -- $700 million at 4.125%, which matures in 2018. Subsequent to the end of the quarter, in January 2014, Jaguar Land Rover issued further new bond of GBP400 million at 5%, which is due in 2022. In parallel to the second issue of bonds, we have also launched a buyback tender offer for one of our old bonds issued about three years ago, which was having a cost of about 7.75% to 8%, depending on dollar or pound and we expect to close this buyback offer in the next couple of months.

We also entered into an arrangement with government authorities in Brazil to open a new manufacturing facility in Brazil, which I had touched upon as an initiative from JLR in some of the earlier calls and [other] interactions. In terms of overall mix of sales across different regions for Jaguar Land Rover, China grew in this quarter to 24.8%, up from 21.1% a year-ago in third quarter. North America in this year third quarter was 19.1%. Europe was 19.7%. Overseas -- other overseas markets, 17.6% and APAC, Asia Pacific (technical difficulty) China about 4.9%. UK at 13.9%.

Looking ahead, we continue to see the India business impacted by the overall economic environment, which continues to be weak and a matter of concern. We believe the demand will be subdued surely for rest of this financial year and maybe well into the next financial year. Even after the macroeconomic performance starts recovering and we see some investment flows and infrastructure spending etcetera being stepped up, in terms of the current situation of underutilization of capacity in the truck and other commercial vehicle operators, by the time we see demand having a positive impact in our industry, I think it will be another two quarters of lag at least.

Competitive intensity will continue to remain high. From the Company point of view, we'll continue to focus on newer products and expanding the range, Prima Range, Ultra trucks range, SCVs and pickups and we'll continue to focus on value-added services at several service offerings for our customers.

Even though small compared to the total industry volume, we expect the promise in the government budget of last year should translate to some effective demand and decent numbers in terms of JNNURM buses for next year. The total order size from the government undertakings is likely to be between 10,000 to 15,000 buses and hopefully, we should start converting into orders and supplies next year. Commercial vehicles, we'll continue to focus on expanding our international footprint.

Passenger vehicles, our four pillars in terms of transforming the passenger vehicles business, which includes intense product focus and launching more exciting and newer products regularly, some of which you have already witnessed, focus on world-class manufacturing quality and practices, enriching the overall customer purchase experience and improving the quality of service at our dealer workshop. This will continue to be our main pillars of growth into the future.

Recent launches, we expect, will drive growth compared to what we have seen in the recent past. Both Nano Twist and Vista Vtech have received good response. Many of you may have seen also in the Auto Expo, we unveiled some of our newer products coming up, which is Tata BOLT and Tata ZEST. We also recently launched the new petrol engine family next-generation engine and we will continue to expand opportunities in the international market, like the examples that I talked about a little while earlier in Australia, South Africa and [Brazil].

Jaguar Land Rover, we expect the sales momentum and the performance momentum to continue with the momentum maintained for many of the newer launches, like the Range Rover Sport, Jaguar XF Sportbrake and Jaguar F-TYPE. We're successfully launching the new F-TYPE coupe and other new derivatives. We will continue our focus, our investment in new products and new technologies to meet the growth for the future, and [parallelly] invest in building manufacturing capacity in UK, as well as in the engine manufacturing facility that we had talked about earlier.

Free cash flow after investment -- the investment this year is likely to end up at about GBP2.75 billion, in line with the indication that we had shared with your earlier. After this investment of GBP2.75 billion, we expect the Company will be free cash flow positive. We are just stronger than what we had expected in the beginning of the year, driven by the underlying, significantly better business performance.

For the next year, we expect our capital spending to continue. In fact, could increase to in the region of GBP3.5 billion to GBP3.75 billion, reflecting our more ambitious plan that we are undertaking in terms of newer products, technologies and capacities.

With this introduction, I will stop here. Between Vijay Somaiya and my colleagues here and myself, we will try and take your questions. Over to you (technical difficulty) for the questions.

(Operator Instructions) Binay Singh, Morgan Stanley.

Good evening sir. Firstly sir, congratulations for the fine set of numbers. My question is on the JLR margin side, like if you see, this quarter as I understand the currency was adverse and would have hit margin by around 150 basis point, 160 basis point. Despite that, you have posted a very strong margin, mainly on account of better production. Going back to the Evoque experience, how should we look at the model cycle of Range Rover and Range Rover Sport, because in Evoque we had one or two quarters of very strong high-derivative sales happening and then very sharply it went down in the following quarter? How would you see the experience of Range Rover, Range Rover Sport in terms of the derivatives that we are selling now versus what we expect to sell a year down the line a bit different?

In any product for any manufacturer, I think for the first, depending on how successful the launch is and how exciting the product is in terms of the consumer response, there will be a curve, where for the first two, three, four quarters, the mix is likely to be richer for two reasons, the consumers also would like to experience the product in its full content and features and so on and also the manufacturer, because the high demand, waiting period, et cetera has an ability to allocate production to more enriched product offerings, variant offerings. And also in terms of geographical distribution, in terms of global business like JLR, that's a phenomenon you will see in most manufacturers and most brands across the world. I would expect Range Rover and Range Rover Sport also will go through the same experience, which is likely to be richer for the next couple of quarters, after which it will level off or come marginally down in favor of lower content and lower features. It's a very natural curve.

And could you also talk a little bit about the momentum that we are seeing now in both the models --

The momentum has so far been good and we expect it will continue for some more time. I don't want to predict whether one quarter, two quarters, et cetera, but considering that both Range Rover, Range Rover Sport, et cetera still have a very long waiting period. By the way, one is not too happy about the length of the waiting period, which can stretch to about four to six months also in some of the markets, but that apart, considering the waiting period, I think the momentum is likely to continue for some more time. The length of this momentum is depending on how exciting and how successful the launch has been. In our case, I think the momentum is likely to be longer than average.

Great, sir. Congratulations, sir. I'll come back in the queue.

Chirag Shah, Axis Capital.

Thanks for the opportunity. Sir, I have a question on the capacity at JLR, if you can help us understand, on a daily basis, what is generally the production run rate that you can do, because we have been seeing your guidance getting upped every time. So can you throw some light what is your capacity in terms of -- and assuming demand remains very strong, what is the best you can produce as of date and how the roadmap is going ahead?

Before we get to the numbers, as we are increasing the guidance every time we talk, you should be happy about it I suppose.

Yes. So is it that you're adding capacity or you add because number of holidays -- do you reduce number of holidays that are there by paying overtime and that is how you're increasing capacity? So can you just help us understand on per day basis how much you have the capacity?

I think I had mentioned even earlier that in the current location that we are in, in UK, between the three factories, we had started with maybe a couple of years ago, I'd given an indication that we can go up to about 500,000 to 550,000 in the three locations that we have in UK. Reaching that number will be a function of investment and manufacturing facilities, because in capacity, you've to deal with both technical capacity for the investment on the ground in terms of plant, machinery, welding capabilities, paint shop throughput capacity, etcetera. That's one part of it. And the second part of it is also manning and people. To some extent, people and manning, you can add by contract work force, you can add by some of the measures that you talked about, working on holidays and opening up a third shift or a fourth shift, etcetera, overlapping shifts and so on.

So it's a little difficult question to answer, but in substance, I would say around -- between 450,000 to 500,000 should be possible at this current location and theoretically it can go up to 550,000, 600,000 in UK over a period of time. And in addition, in that period of time, you'll also have the benefit of China capacity coming in, which is another 1,30,000, which will provide some relief or better utilization for UK capacity for rest of the world.

Would it be right to assume that by end FY15, your average volume could be in the range of 520 to 550? That is the kind of capacity you would have at the existing UK locations, given the strong demand that you have? Because from 450, if you're highlighting only 500,000 units, that indicates hardly a 10% growth. Given the volume momentum you are having, there could be a much higher demand. So I was wondering how much you can stretch it further, can you go at up to 540 kind of a number before the China entity starts shipping it?

I want to stop short of trying to predict a number for next year, because many times when I respond to a capacity question, later on it is quoted back to me saying that this is the volume you forecasted, what happened, etcetera, etcetera. So just wanted --

I'm -- given that demand remains strong, I understand that demand you cannot forecast, but how is your internal capacity lineup? Are you [guide up] to meet up to -- go up to this kind of number or no? There is a technical capacity restriction beyond which you cannot expand, at least till end FY15. So I wanted to understand up to what level you can expand the capacity for next 12 months?

Just give us a minute.

Sure sir.

Just commenting on the -- we're just checking on some of the timing of some of these capacity investments. That's also an important factor.

Fair point, sir.

By end of FY15, as of March 31, 2015, I think capacity in the region of about 500,000 should be theoretically be possible. But some of this capacity -- capability from about 450 to 500 can come during the course of the year or maybe even towards the third quarter or fourth quarter of the year. So it may not be available for the full year. So the answer can be interpreted in many, many ways. That's why I want to be little conscious in what I'm saying. But yes, by end of the year, theoretically on that day, I think the capacity of 500 thereabouts should be possible.

And sir, second question was pertaining to other expenditures in JLR. We have seen a sharp reduction over there. So, is there any specific thing or it's normal business operations, if you can just share some light?

It is normal business operations, Chirag. It is also a function of fixed marketing expenses, how many Auto Shows you --

It's a timing issue.

So if you look at the launches which were there, not many launches in last --

Fair point.

And hence the other expenses are almost flat.

Fair point. Fair point. Thank you very much. Thank you very much. I'll come back for more questions.

Jamshed Dadabhoy, Citigroup.

Yeah, thanks for the opportunity. Sir, first question, could you please explain this sale of assets in the parent's books and the tax reversal that has happened?

Number one, if you recall, when we acquired Jaguar Land Rover, we had created a holding company structure in Singapore, which in turn was holding the Jaguar Land Rover Company. What had happened was whatever acquisitions or companies we started in overseas prior to that were all held directly in the parent Tata Motors Limited in India. This included TDCV, Korea, which we acquired directly in Tata Motors. It included the company we started in Thailand for manufacturing operations, again, directly held in Tata Motors India and couple of other places like Indonesia, South Africa assembly company, et cetera. So it was creating a structure where one subsidiary company, namely Jaguar, is held through Singapore and others were directly in India. We wanted to correct that and bring everyone under the same umbrella and Singapore is a holding company also, offered a greater flexibility in terms of managing the affairs, capitalizing or fund flows, et cetera. So we have brought all the other companies like TDCV, Korea, South Africa, Indonesia and Thailand under the Singapore holding company, which in any case was holding Jaguar Land Rover from inception. So that is the divestment we have made.

As far as Tata Motors Standalone is concerned, there is a divestment we have technically made into our Singapore holding company. The Singapore company has raised, independently, without any parental guarantee or anything, the Singapore company has raised funding on its balance sheet, which has been used to acquire these companies from Tata Motors. One part of this, which is the major part of it, is about 80%, 85% of the total value, Tata Daewoo Commercial Vehicles Korea, the transfer has taken place already and the others are in the process of happening as we speak. And those are really -- balance maybe 10%, 15% of the value, which will happen in the fourth quarter. With this, at the end of this exercise, all overseas manufacturing operating companies of Tata Motors will be held through Singapore. This, from a Tata Motors point of view, has created a sale of investment, so therefore a profit on sale of investments. Good part of it in this quarter and a much smaller part of it in the fourth quarter.

The second part of your question, which is the tax credit is arising out of the tax provisions we had created earlier. The actual performance has been much worse than what we had anticipated and create -- when you create tax provisions in the accounts, you create tax provisions based on the annual full tax expectation, not tax for that particular quarter, it is based on part of the taxation for the full year. So our expectations at the beginning of the year and also the continuing tax credit we get in terms of weighted deduction for our R&D expenditure, which because of the business performance being what it is, gets carried over. The tax provision had to be reversed, which has also happened in the third quarter.

So doesn't this have like a time period of like five years or seven years, something you can carry it forward?

No, this is a provision reversal. What you are referring to is the MAT payment, which even if there is a taxable loss, because of depreciation or R&D tax credit or whatever, if in the books they are showing a certain profit, you will have to pay a minimum alternate tax of certain percentage, that has a carryover limitation of about 10 years.

Just to clarify on the restructuring, the divestment of Singapore companies, that is impacting in terms of profit only in the standalone. In consolidation, it gets eliminated anyway. The consolidated results do not reflect that profit.

Understand sir. Second question pertains to actually JLR, now --

Third question.

Okay fine, third question. So given that the pound has strengthened, and -- against the dollar, how do we think about competitiveness of JLR over the next two, three years and in your forecast of projections, what outlook have you all factored in on the pound/dollar rate?

At the beginning of the year, this fiscal year, about nine months ago, when we had prepared our budgets, et cetera, our budgeting has been on a more conservative basis at about 1.65 to a dollar -- $1.65 to GBP1 and the actual rate so far has been more favorable to us than this budget assumed rate. As we speak now, the actual in the market is hovering close to towards that, between 1.61, 1.62, 1.63, touching 1.64, in that range. So, it's not outside of our expectations at the beginning of the year, but yes, it's coming close to our -- what we thought was a conservative assumption at the beginning of the year. As we prepare our plans for next year, I think we'll have to factor this trend very clearly in our plans.

Yes, over a period of time, it is not favorable for JLR. We would definitely, from a bottom line performance point of view, we would definitely prefer a stronger dollar, which helps our export earnings. This is something which I have highlighted time to time, our sensitivity to foreign exchange.

In terms of immediate competitiveness in the next one or two years etcetera, at least for the next one years, it's not much of a concern, because we also have run a huge hedge book, where our receivables, or our dollar inflows in the immediate future, at least for the next three months, six months are fairly well covered. On a rolling basis, current quarter plus one quarter, that's next quarter we cover nearly 70%, 80% of our dollar inflows. One quarter later, [and] plus two quarters, we cover maybe a lesser percentage etcetera and that coverage goes down at we go into the future. But yes, as an underlying business, as we have cautioned you earlier, it is indeed sensitive to exchange fluctuations, exchange movement of dollar-pound, in particular.

Okay.

Excuse me, Mr. Dadabhoy --

I'm done, I'm done.

Rakesh Jhunjhunwala, Rare Enterprises.

Congratulations on a fine result. Sir, I want to ask you that next year you're going to invest GBP3.5 billion, right? And after that what would be the capacity that will be available for you as a Group? This includes the investment in Brazil also? So, therefore, [your coverage will be 650] or more or less?

As I said, in the next one or two years, I think capacity in UK will touch somewhere between 500 to 550, around 550. We'll also have the capacity created in China, which is about 130,000. Compared to all this, Brazil is relatively small. While Brazil investments are included in these numbers, Brazil capacity will be relatively small. I think if I remember right, it's about 25,000 annually.

That means you're planning for effective capacity of around 7,00,000?

Sorry, there is a bit of an echoing at your end. Are you on speaker phone at your end?

Hello?

Can you repeat that question?

Sir, that will effectively, in a period of 18 to 24 months, or a period of 15 months, you'll have a capacity of about nearby 6,50,000 to 7,00,000?

Yes, about 700 plus.

700 plus. And sir, how you're allocating it between Jaguar and Land Rover?

Can I hold this? We will come back to you before the call --

Sir, I have another question. Sir, is your margins -- better margins also reflecting the fact that you're utilizing the same plants for higher production?

Obviously, in our industry, high operating leverage adds very healthily to the bottom line.

Sir but I have -- because I have not seen any analyst report which highlights this. No realization of the fact that higher utilization [with same] manufacturing should give you much higher margins.

Yes sir, it does. The industry functions on -- significantly on high operating leverage.

And sir, you're seeing very good demand at the ground level?

Yes, we continue to have for JLR very good market pull for all our products, particularly the more recently launched one. Evoque continues to have a good run. Range Rover, Range Rover Sports continue to have long weeks of queuing and waiting in the -- from the consumers.

So sir, what are you doing to correct it? Are you trying to raise capacity fast?

We have to balance it. Just capacity increase by itself may not address fully the issue. We also run neck to neck in terms of our engine availability. So some part of the capacity issue also will have to be solved by better availability of engines, partly from our own plant, which will come on stream by end of this calendar year. I think I had spoken, sir, if you remember, I had spoken about our investing in our own engines, smaller engines, four cylinder two liter engines that first of the vehicles with the engine will come by end of this calendar year and the engine manufacturing plant also will ramp up its capacity over a period of next three, four --

And sir, will it be reasonable to assume that post FY15, your capital expenditure will then fall off very -- in a major way?

Not necessarily, because post FY15 -- next year, our capital expenditure, we have given an indication will be -- likely to be in the region of about 3.50 to 3.75.

So, major part will be for the new plants, no?

No, no, let me just come back to this. Major part of this will be for almost -- nearly 50% or higher will be for new products introduction, new variants, new platform vehicles coming up. And some part of it is also going into creating this manufacturing capacity, engine plant, investment in China, et cetera, Brazil and so on. More important than the absolute number, I think, it's important to look at it as a percentage to revenue. Right now we are running at least 200 basis points, 300 basis points, 2-to-3-percentage basis points higher in terms of capital spending compared to our revenue, compared to our competition. I think this higher level, maybe around 15%, 16% of turnover will continue to be there for the next two, three years. And over time I think it will fall off more nearer to the segment competition, which is more like 10%, 12%.

Right. That means your big investment plans?

Yes, we have shared with your from time to time the type of platform and new product and new segment that we are not present today, the type of plants that we have, both on the Jaguar brand and for Land Rover, Range Rover brands.

So but you are not afraid that you are going into too many segments, your brand may be affected?

It is a question of which segments you are talking about. Both Jaguar and Range Rover vehicles will maintain their product appeal and the brand and the value they stand for. Then, we are not getting into massive volume segments or lower level segments. Evoque is an example. We have maintained the values that Range Rover brand always have carried and we have come out with a slightly smaller Range Rover, which was the Evoque and you have seen what type of response. I think it's a question of which segments you carefully choose and how you present the vehicles in that segment.

We are launching the Mercedes C-Class or BMW 3-Series equivalent vehicle in Jaguar brand that will come up later this year, towards the end of this calendar year. That again is a premium luxury segment, but the low end of the luxury segment. Below that we have no plans of entering mass or volume segments.

One last question, sir. Do you expect that your debt may not increase even after this kind of capital expenditure?

In the Jaguar Land Rover?

Yeah.

Jaguar Land Rover, yes, there will be some shortfall in funding and free cash flows maybe from time to time in some of the years. I think we have significantly strengthened the balance sheet position in Jaguar Land Rover by raising money in the last two, three years continuously. All of them have been five-year, eight-year, ten-year instruments. As we speak now, Jaguar Land Rover is sitting on GBP3 billion of cash in its balance sheet, solid cash in the balance sheet, and we also have another GBP1 billion of committed lines of credit, five year lines of credit from banks which we have not utilized at all. So we are talking about liquidity pool available in JLR, both cash and available credit, of nearly GBP4 billion.

As business continues, we hope to perform the way it has performed so far. I think funding this expenditure should not be a challenge.

Sir congratulations to you and your team, an unbelievable result. And you make Indians proud. We can say we can now run international companies well.

Thank you very much, very kind of you to say that. Thank you for all your support.

Robin Zhu, Bernstein.

Hi there, thank you for taking the time to take my question. My question is as follows. First of all, congrats on a very strong set of results. One of the investors concerns coming into this quarter had been foreign exchange headwinds, particularly in your emerging markets like Brazil, Russia, which are obviously very significant for the Company. Currency fell in both countries, but you don't seem to show much evidence of FX headwinds in your results. Could you just comment on how much overall effect FX had on your results and specifically to Brazil and Russia, how you managed the currency in those markets? Thank you.

Robin, Somaiya here. As you are aware, in JLR, we have currency impacts of both above EBITDA and below EBITDA. Above EBITDA is the actual weighted average realization for the quarter. At the EBITDA level, because of the pound, GBP adverse movement, and a favorable movement for the pound euro, the net impact on EBITDA was negative GBP116 million, which is there. Below EBITDA, there was a gain on account of hedges and revaluation of loans, which was again of GBP92 million. These are the impacts at a broad level, above EBITDA and below EBITDA.

Okay. And so, is it fair to say that if currency hadn't gone against you, then the EBITDA margin would have been substantially higher than what -- than even the spectacular result that you posted?

Yes, please, if you remove the impact of GBP116 million, your margins on a net business would have been higher to that percentage.

And specifically to Brazil and Russia, my understanding is that these currencies are tremendously difficult to hedge. I'm just wondering how the Company can -- you are able to manage your exposure in these markets?

Robin, can we come back to you after the call and discuss that on Brazil and Russia hedging?

Okay. No problem.

Pramod Kumar, IDFC Securities.

Yes, thanks a lot sir and congratulations on a excellent set of number. My first question pertain to the consolidated FCF and the second one is on the Baby Jaguar. Given the fact that you stated that with the good performance of Ranger Rover, Range Rover Sport, your margins have naturally been favorably impacted. So how should one look at Baby Jaguar directionally, given the competition intensity and the price point at which it comes? So those will be my two questions sir.

Sorry, what was the first question? The second one was regarding the smaller --

Yes. The first one was on consolidated free cash flow sir. Because you talked about JLR free cash flow, but what would it be on a consolidated level?

JLR free cash flow positive for this quarter, has been on the order of about GBP300 million for the quarter -- for nine months. Your question is about the nine months, right?

No sir, I'm talking about the consolidated free cash flow, including the standalone, the overall business?

No, I understand. I'm just taking it in parts.

Okay, sorry.

In Tata Motors, of course, free cash flow is negative. If you remove the Singapore fund raising and the restructurings that we've done that has contributed to some extent. In Tata Motors, we've also had the benefit of dividend inflow from Jaguar Land Rover in the earlier part of the year. If you either aggregate or disaggregate, [currently] the free cash flow positive in JLR has been of the order of GBP323 million, close to about INR3,000 crores plus for the nine months period. In Tata Motors standalone, the free cash flow negative, without taking into account the dividend and the restructuring fund raising that we have done would be of that magnitude. So at a consolidated level, there will be a marginal free cash flow negative.

Okay. And sir, my second question on the Baby Jaguar and the impact on profitability [it has]?

Okay, I would not call it Baby Jaguar. The smaller Jaguar, yes, as vehicle gets smaller and we get into more competitive segments, it is definitely a competitive segment. The individual margin on the product will be somewhat lower compared to our traditional product. Jaguar margins have always been lower than the Ranger Rover margins and smaller Jaguar, the margin is likely to be at the lowest. But if you look at the -- earlier in the call, there was a question about operating leverage and volumes impact on that. If you look at the total market for that segment, which is still a premium segment, even if we talk about somewhere around 5% market share, we're still talking about Jaguar volumes on a standalone basis increasing three to four times compared to what they have been operating in the last two, three years. So, I think the equation will balance itself out and hopefully it should contribute well to the overall bottom line.

Excellent sir. Thanks a lot and best of luck. Thank you.

Kapil Singh, Nomura.

Good evening sir. Congratulations on a excellent set of numbers. Sir, I just wanted to check, there were some comments regarding the China capacity getting delayed. So if you can just give some color on that and whether it affects your overall production plan as well?

Not really. It's a -- technically, it's a shift by one quarter maybe. We said towards the end of this calendar year, maybe into the early part of next calendar year.

And sir, how much do we plan to utilize that capacity in the first year? I mean, will it be full-scale production or will it be doing assembly of CKDs etcetera as well?

It can't be full-scale production to start with in any case and capacity utilization normally doesn't become 100% on day one. So it will be a ramp-up over the next three to four quarters.

Okay. Sir, I asked because you know typically we see that if the utilization is below 50%, 60%, then in the first year there is a loss. So is that something in that -- I mean how do you look at it, will the first year be around 50% utilization or --

It's difficult to answer something like this on a call, let me come at it slightly differently. In phase one, the full capacity in China will be about 130,000 cars, which in the second phase we will increase it about 150,000, 160,000. So just now we are restricting our discussion to this 130,000. It will obviously happen -- the capacity itself, 130,000, will come over a three-year period from start-up. So the setting up of the full capacity in terms of availability of 130,000 vehicles to be produced will be reached over a three-year period, and you do it in different stages. At each stage, when you start the production, on day one -- let's say in stage one, you start with 10,000 20,000, 30,000 capacity, 40,000 capacity, you can't achieve that fully. You will take about two to three quarters to ramp up to that level. Then it goes into the next phase of expansion and reach 130,000 over a three-year period. You do it both in a modular fashion and also in a ramp-up fashion in terms of various operations and so on.

Yes, in the initial period, there will be set-up costs, there will be lower productivity in terms of -- if you could do X number of vehicles, given a full shift availability in UK, and JV manufacturing in China for the first time, can they achieve the same numbers per shift on day one? It can't. There will be set-up costs, there will be perhaps rework or lower productivity and efficiency to start with, it will build over a time.

And we are also talking about a whole lot of supply chain logistics here in terms of UK supplies and local China procurement. So there will be under-recovery of some of the investment costs in the initial phase, first two, three quarters, or maybe first year, year and a half, but not very significant, it will be at the JV level, not at Jaguar Land Rover level.

That's very helpful sir. And sir, just a small question on -- sir, what is the debt that we have on the Singapore subsidiary and when we report this net automotive debt, do we include that debt as well?

Net automotive debt consolidated when we reported, we have obviously included the Singapore subsidiary debt also.

Okay. And how much is that?

As of now, the debt at Singapore holding company is close to $900 million. We have raised it in two tranches, Sing dollar and US dollar, last year and this year. So two tranches in May and -- earlier part of this fiscal year and more recently now.

350 million Sing dollar in May and $500 million in November.

Okay. And that will be serviced out of the dividend that it receives from JLR?

And Korea, et cetera.

Okay, that's very helpful. Thank you.

Sahil Kedia, Barclays.

Sir, just wanted to clarify one point. This quarter or on a sequential basis, we have not seen the share of China go up as much in JLR. On the other hand, we've seen the share of Range Rover and Range Rover Sport go up quite sharply. So just wanted to understand that the improvement in margin that we have seen, is it purely a function of product mix, high utilization or are there some cost benefit -- I mean, certain cost reduction, et cetera that are also taking place, given that both the new Range Rover and the Range Rover Sport are on the same platform, if you can just help us understand kind of what is leading to the improved margins?

More than cost reduction or cost factors, I think it has been more on the realization mix and higher content, richer product mix. When I talked about richer geographical mix, I was referring to comparison of Q3 to now, where China has seen a improvement, but on a sequential basis, if you see, I think, it has been contributed more by product mix and content and variants mix and better realization of the product and lower overall variable marketing expenses. Not so much on the cost factors. Costs have been more or less benign, I would say.

Okay. And sir, can you give us an update as far as your distribution footprint in China is concerned, where have we reached and are we still on track to reach that 200 kind of number by FY15?

We are on track. I am not sure whether we can give an update on this every quarter. I think end of last year -- end of this year -- beginning of this year, I think our distribution strength, our dealership strength in China was about 120 -- 130,000 -- 130 dealers. We do expect it can go up to 170 to 200 in that region in the next year, year and a half. We are on track for that.

But sir, as I understand it, of that 130, only about 100 odd were operational. Is that -- so can you give us a sense of how many are operational?

No, we are talking about 130 operational deals.

130 operational. So, that number is going to go to about 170 to 200 in the next 12 to 15 months?

Yes.

Okay, fine.

Of course, the touch points could be more. One dealer could have more than one showroom or whatever, but we're talking about dealerships.

Okay sir, thank you.

Thank you. Ladies and gentlemen, due to time constraints that was our last question. I now hand the floor --

May I interrupt for one minute before we end the call? There was one question earlier where I said before the end of this call I will revert with the specific numbers. The question related to distribution of capacity, when we talk about 550,000 or 600,000 or whatever, what is the broad distribution from -- between Jaguar and Land Rover capacity. In line with the overall mix, in terms of our total number of vehicles, the capacity consistently will be planned about one-third, 30% to 35% for Jaguar and about 60% to 65% for Land Rover and Range Rover. I just thought -- since I mentioned I'll mention it before the end of the call, I just thought I'll -- the person whoever has asked the question if he is still there, sorry, I couldn't reply immediately.

Thank you very much sir. I now hand the floor to Mr. Jinesh Gandhi of Motilal Oswal Securities for closing comments.

Thank you Inba. On behalf of Motilal Oswal Securities, I would once again like to thank all for joining the call today. Thanks.

Thank you. On behalf of Motilal Oswal Securities Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines.