Tata Motors Ltd (TTM) 2015 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Tata Motors Q3 FY15 results conference call hosted by Nomura. At this time, all participants are in a listen-only mode. There will be a presentation followed by question-and-answer session. (Operator Instructions). Please note the participants are restricted to ask only two questions during the question-and-answer session. Please be advised that this conference is being recorded today.

Now, it's my pleasure to hand over the call to speaker for today, Mr. Kapil Singh. Over to you, sir.

Hello, everyone. Thanks for joining the call. We have with us today the Group CFO of Tata Motors, Mr. C. Ramakrishnan; Mr. Vijay Somaiya, Head of Investor Relations and the IR team. Sir, I'll hand over the call to you for presentation.

Thank you, everyone, for taking out time and joining the call. Thank you, Kapil. I'm Vijay Somaiya. Let me take you through the financial highlights for the Q3 FY15. Starting with the consolidated financials, the net revenue for Q3 came in at around INR70,000 crores compared to almost INR63,900 crores similar quarter last year. EBITDA was slightly lower at 15.4% as compared to 16.6% last year. The profit-after-tax was close to INR3,600 crores as compared to INR4,800 crores the previous year.

For the nine-month financials FY15, the net revenue came in at INR1,95,000 crores as compared to INR1,67,500 crores. EBITDA was 16.8% as compared to 15.9% last year. And profit after-tax came in at INR12,270 crores as compared to INR10,000 crores last year. The net automotive debt equity as of December 31, 2014, on a consolidated basis is 0.15%.

Moving over to Tata Motors Group India business, the revenue for third quarter was INR9,000 crores as compared to INR7,770 crores in the previous quarter. EBITDA was negative, minus 8.5%, as compared to minus 4.3% the last quarter. And profit after tax came in at negative INR2,123 crores as compared to INR1,250 crores last year. The EBITDA this year has been impacted by the provision, which we had taken for Singur, amounting to around INR310 crores because of the uncertainty in the legal case; and you may also recollect that in the Q3 of FY14, we had done a divestment of overseas subsidiaries from India to the Singapore holding company which had resulted in significant profit and that is why the profit after tax was on the positive side, so the two quarters are not exactly comparable.

For the nine-month FY15, the revenues at the India business came in at INR25,500 crores, almost flat compared to last year. The EBITDA margin is at minus 4.5% as compared to 0.2% last year. And profit after tax for the nine months came in at minus INR3,575 crores as compared to INR1,150 crores last year. The net debt equity as of December 31 in the India business is 1.22, greater than 1:1.

Moving over to Tata Motors Group-Jaguar Land Rover business, the amounts are in GBP million. The revenue for the third quarter FY15 came in at GBP5.8 billion as compared to GBP5.3 billion previous quarter. EBITDA was slightly lower at 18.6% as compared to 19.1% earlier and profit after tax was also lower at GBP593 million as compared to GBP619 million last year.

For the nine months year-to-date, the net revenues came in at GBP16 billion as compared to GBP14 billion last year. EBITDA was slightly higher, 19.4%, as compared to 17.6% previous year; and the profit after tax was GBP1.7 billion as compared to GBP1.4 billion, because the net debt equity is negative 0.24 because JLR has cash of almost GBP4 billion on their balance sheet.

Moving over to India business, on the commercial vehicles side, we have seen our growth in M&HCY industry. The volumes for Tata Motors grew by almost 43% on a year-on-year basis. And our market share was at 57.7% in Q3. This has been supported because of the positive business sentiment, the form freight rates, improved freight availability, a lower fuel price, easing of inflation and improved profitability of operators and also because of the early kick in of replacement cycle kicking in.

The light commercial vehicle business, mainly small commercial vehicles, still continues to be impacted because of the low transportation tonnage and the overcapacity of vehicles and also because of constrained financing environment. The variable marketing expenses for commercial vehicles continue to remain high in the industry. And in this quarter, we have launched Prima Trucks in Nepal and the Ultra range of trucks in Sri Lanka.

Moving over to passenger vehicles of the India business, the passenger vehicle industry saw a growth of 4.3% in Q3 as compared to last year on the back of low vehicle ownership cost due to reduction in fuel prices, improvement in the environment GDP.

And for Tata Motors, passenger vehicles grew 4.6% and the car segment grew much stronger at 16.9%, on the back of launch of Zest which we had launched in the month of August. After almost eight quarters, we also saw our share increase in market share for car segment, which increased by 60 basis points to 6.5%. Zest has won multiple awards in the compact segment since the launch in the month of August.

Moving over to Jaguar Land Rover business, the wholesale volumes for the quarter came in at 122,000 units and the retail volumes at 111,500 units. The EBITDA for the quarter was up GBP1 billion and it was reflecting an increase in wholesale volume compared to the previous quarter, solid product mix on the back of Range Rover and Jaguar F-TYPE sales, and a strong market mix with sales growing in UK and China and also a favorable foreign exchange which was impacted by the existing hedge book mark-to-market and the realized losses on the existing hedge book. The profit before tax came in at GBP685 million, which was lower YoY by GBP157 million because of the unfavorable revaluation of foreign currency debt and hedges and higher depreciation and amortization charges.

We have continued to invest for the future and the cumulative spend for nine months in this financial year is close to GBP2.3 billion. Post investment spending, we are still free cash flow positive for the nine months at around GBP456 million. And as I said earlier, we have our cash and financial deposits which are at close to GBP4 billion and undrawn committed lines at around GBP1.48 billion, which are there. While we will start the retail sales of Discovery Sport and the China JV Evoque in the fourth quarter of this financial year. And the XE will go into sale from the first quarter of next financial year. I will not go through the pie chart which depicts the different share of volumes for this quarter as compared to YoY last year.

Moving ahead, India business way forward, the improved economic outlook and business environment is expected to accelerate the sales in next financial year FY16. On the commercial vehicle side, we have already started seeing the impact on the M&HCV growth which is expected to consolidate in FY16. Small commercial vehicle segment, which has been impacted by financing, we expect the recovery to start happening from second half of next year, FY16.

JNURM phase II continues to drive bus volumes in M&HCV vehicles and we have a very wide and compelling product range and have plans for launching several new products in Prima and Ultra range of products and in small commercial vehicles and in pick-ups Super Ace Mint and Ace Mega which will provide a strong foundation for future growth. The growth in exports will continue to be in high focus.

In passenger car business, the new products and mid-cycle enhancements will drive growth for us. It would be a full year for Tata Zest and Tata Bolt. The recent launches, Nano Twist, Vista VX Tech, and the all-new Tata Aria, will support the volume growth. We have launched for new-generation models which will drive growth on the back of the launches of Zest and Bolt. The product strategy for PCBU has already been defined till the year 2020 and we plan to launch two new vehicles every year. And we will continue to avail opportunities for extending to the export market.

Moving forward to the Jaguar Land Rover way forward, 2015-2016 is an important and exciting year for JLR with major developments, including the launch of new products like Discovery Sport, Jaguar XE, and F-Pace; also the launch of the new engine plant in UK, which will produce the Ingenium engines. And as already said, we have also launched the joint venture with Chery in China and the Evoque will start dispatches to the consumers in Q4 of this year. And we have plans to launch two more products in the China JV over next 18 months. These developments are expected to support the [continued] growth in profitability of JLR with strong EBITDA margins. However, the EBITDA margins for the coming year 2015-2016 could be slightly lower than the current financial year because of the startup of the China JV. As you are aware, it's a 50:50 joint venture.

So JLR would accrue only 50% of the JV profits. Since we are launching the new engine factory, the new China plant and the XE, we would have a model mix and launch costs associated with the new products. And the market conditions across the world are mixed; as you are aware, Russia and Brazil are underperforming, while US, the UK, and China still continue to grow. However, JLR is very confident of significant volume growth in 2015-2016 as with the launch of new products.

Moving over to the next stage, JLR strategy continues to invest substantially in future products, technologies and capacities. For 2014-2015, earlier we had indicated that our CapEx and product development spend would be somewhere around GBP3.5 billion to GBP3.7 billion. At this point of time, we expect this to be slightly lower at close to GBP3.0 billion to GBP3.2 billion. For next year, 2015-2016, we expect the spend to be similar to this financial year in the range of GBP3.6 billion to GBP3.8 billion because of our investments in product development expenses and the launch of new products, we expect the depreciation and amortization charge will catch up over the ensuing years.

The strategy for JLR is to continue to drive strong operating cash flows to fund investments. And for 2014-2015, after spending GBP3 billion to GBP3.2 billion we expect the net free cash flow to be positive. For 2015-2016, because we are speaking for slightly higher investment and because of the launch costs and the mix effect, we might be free cash flow negative. However, we are supported by GBP4 billion of cash and cash equivalents on the balance sheet. And undrawn credit lines of around GBP1.5 billion which would support the investment plans.

With this, I would stop and we would be happy to take any questions that you may have.

(Operator Instructions) Binay Singh, Morgan Stanley.

Hello, sir. Thanks for the opportunity. My first question is basically on your guidance that you are guiding for JLR, that the margins will be slightly weaker next year versus this year. Are you taking into account the currency like what kind of currency assumptions are you taking in, with the currency should be fairly favorable for you next year?

Currency is an unknown factor. I think the general guidance, while there will be volume and a richer mix, newer products. And as far as the topline and the product performance and the business performance is considered, it will be exiting. So caution is because of the year in which will be in next year due to the startup and rampup of many of these major activities. In this I will say the currency assumption if you take it as constant, that would be pressure on the margins.

When you say constant, you mean currently remains where it is today?

Yes.

And the hedges roll from there on?

Yes.

Not what is the average of 2015, FY15?

I think I would say, on an average if it remains at 2014-2015 and 2015-2016 levels on a comparable basis.

Okay. And sir, secondly, then JLR margin, this time, is there any incentive being added from UK we've been talking about?

We have received the incentive from China, which is around GBP54 million this quarter.

Where is it?

EBITDA.

It is above EBITDA.

Okay. Like what is the nature of this incentive, like it comes once every year, in one quarter?

Yes, it comes once a quarter every year, you are right.

Okay, okay. And sir, lastly, just on the India business, apart from the Singur expenses, is there any one-off expense from the Zest launch or something, because the other expenses seem pretty sizable? Is it mainly car launch expense or is it because of the mix being slightly more adverse of most series? Could you throw some light on that?

More than mix or business issues, I think it is more the effect of one-time provisions. The biggest [part] of it was the -- you're comparing between two quarters, this quarter and the previous year's quarter. The Singur [exposure is] a major provision. And we have also had an additional one-time provision for receivables and write-off and inventories and so on. The effect of launches, et cetera, would be there in the quarter, but much less, not very material. But the one-off items have been fairly crowded in this quarter.

Okay. Great, sir. Thank you. I'll come back in the queue. Thanks.

Pramod Kumar, Goldman Sachs.

Yes, thanks a lot for the opportunity. And sir, my first question pertains to your China business. As you roll forward the Evoque into the market through the JV, how are you reading the demand environment in China, especially for imported brands, because what we learn is a few of the other imported -- few other brands are actually indicating that demand for imported models could be kind of flattish for the year. So, how are you looking at for your portfolio on an import basis?

From an overall retail sales and markets footprint point of view, the JLR brand vehicles are [separate] from the UK or from the China production. Overall, I think the market footprint and the retail sales of JLR I think will see a strong growth. The demand continues to be quite favorable for a key product lineup that we have.

Okay. But would you like to quantify what was the calendar year growth we will be looking for in China?

We are saying that we remain positive and confident about it, I wouldn't want to give them.

And sir, second question pertains to your other expenditure line in the JLR results. If you can just help us walk through what are the quantum of gains and losses on the ForEx side, on the realized side, that will be very helpful?

Sure. If you look at Q3 FY15 compared to Q2 FY15, which is there on a quarterly basis --

Running quarter.

Yes, running quarter basis, the net impact on exchange fluctuation is close to at worst GBP140 million.

Above EBITDA.

Above EBITDA.

Okay. GBP140 million. And last quarter, we had a favorable impact, right, net impact?

Yes, please. Last quarter meaning the previous quarter.

Yes, the Q2, sorry, sorry, I'm referring to Q2. We had our --

FY15 was a positive impact, close to GBP120 million. In Q3 FY15, the impact is minus GBP20 million. So if you look at the swing, it will be GBP140 million adverse.

Okay, sorry. Apologies for this, but I'm just going through the notes on the last quarterly call. In other expenditure, you had talked about INR80 million realized gain on hedges and GBP30 million realized loss on the balance sheet items.

You're talking about EBITDA. So on the loans side, it will be below EBITDA.

Okay. So you're saying, between the quarter, there is a GBP140 million swing with minus GBP20 million being in this quarter and there was a GBP120 million positive last quarter?

Yes, this is above EBITDA, and let me speak to you of what happens below EBITDA which is there. So below EBITDA, Q2 of FY15, there was an adverse exchange fluctuation of GBP85 million. In Q3 of FY15, we have an adverse exchange fluctuation of GBP137 million. So the next delta there is minus GBP52 million. So if you compare both above EBITDA and below EBITDA, the bottom line impact is as what I have spoken about.

Okay. And sir, finally, where are these incentives being routed, the China incentive, has it been in which line item?

It will be in other expenses.

Other expenditure. Thanks a lot, sir. I would come back in the queue for more questions and best of luck. Thank you.

(Operator Instructions) Jamshed Dadabhoy, Citigroup.

Yes, hi. Good evening, sir. So just to clarify, you've mentioned that if you will have a constant currency year-on-year between FY15 and FY16 in JLR, the margins will be under pressure. So what I wanted to check is, when you mean average currency, you're taking the full run-through all the way from the first quarter to the fourth quarter, or are you looking at the currency as it is today?

The guidance is the performance of 2014-2015 compared to 2015-2016, difficult to get into a detailed calculation and a weighted average impact and a constant impact at a point of time, etcetera. In general, compared to 2014-2015 and 2015-2016, currency remaining same between the two years, while there will be growth --

Sir, how much will the swing be, like how much compression do you expect and can we expect that in fiscal year 2017, this reverses, because it will be a one-off due to start-up costs, etcetera?

I think it will be two, three impact; one is the startup of China production and the ramp up in China before volume gets shifted from UK production to China production and whatever is the share of the JV profit in JLR UK, we will consolidated the PBT level rather at the EBITDA level. And the startup and the ramp up of the engine production in the new cars and the launches that's happening in 2015-2016. We expect there'll be an offset in terms of overall growth in volumes and the strength of demand on the new products in terms of pricing and demand pull. It's difficult to give a range, but in general, I thought it's only fair to say that these impacts will happen in 2015-2016 and we should be prepared for that.

Okay.

I don't want to give a number forecast, which we never do.

Sure. Sir, what has led to the sharp deceleration in the CapEx spends? You've said that certain projects were deferred and even next year. I mean if you just look at the CapEx to sales, this year is looking quite moderate vis-a-vis what we expected going into the beginning of this year and even next year at 3.6 to 3.8, that has seemed to be a deceleration. So what has led to this change in CapEx outlook?

This year, at the beginning of the year, we've indicated about 3.5 to 3.7 as the range in which the capital expenditure would be for 2014-2015 financial year. The more the -- it's not so much the deferment of projects, et cetera, but there is also more of an impact in terms of timing of the commitments and the cash flow. It's more of that effect rather than any retiming or postponement or a delay as far as this year is concerned. So we expect that you will end up at about 3.2 or so instead of 3.5, 3.7 range that we had indicated earlier. Yes, definitely, it is lower, but more on account of timing and commitments and cash flow impact.

I think we have been seeing, even in the beginning of the year, we've said that it will be between 3.5 to 3.7 for 2014-2015, and we expect it will continue at that level for the next two, three years. So for the following year, that is 2015-2016 financial year, we are still saying 3.5, 3.6 number to 3.7, I don't think there is any deduction that we are guiding now for the next year.

Okay, sir. And just on the domestic business, if you look at the business on a rolling quarter basis, it looks like the gross margin has shrunk quite meaningfully. Could you shed some light, especially on the new passenger vehicle rollout because I was under the impression that there were to be vendor discounts and cost reduction initiatives, which would flow through with the new platforms? So could you just give us some indication of when you expect some concrete improvements to happen on the domestic business, please?

As I said, I think the significant overall financial performance and bottom line performance improvements I think should start happening from next year on account of two key reasons. We have seen some early signs as we said in the earlier calls and also a short while ago in the press conference. We have seen some early signs of a smart recovery and volume growth in medium and heavy segment at this point of time. It has not yet circulated to small commercial vehicles and other segments, which are also fairly large in numbers.

Passenger vehicles, we're seeing a good beginning with Zest and Bolt, the numbers are still -- Zest, we have launched in August-September and Bolt has just been launched. So as the volumes ramp up and growth happens, triggered by these products and more products to fall out of the new platform in the next year, you will see some signs of positive impact on the bottom line from next fiscal onwards or perhaps even just the January-March quarter is likely to be a good volume quarter for industry in general in any year perhaps this quarter as I mentioned and maybe more fully from next financial year I think we should see some recovery in the financial performance.

Okay. Thank you, sir. I'll come back for more questions.

Thank you. Jinesh Gandhi, Oswal.

Hi, sir. My question pertains to domestic business and the expenses you indicated there are some onetime provisioning apart from Singur project, provisions for debtors, inventories, etcetera. Can you quantify that, how big that is?

It's almost on the same magnitude in terms of three, four -- four, five different line items or INR300 crores to INR400 crores.

Okay, okay. And sir, secondly, in domestic business, we had seen a very strong improvement in our net realizations. So what would you attribute this kind of improvement to, especially considering that mix has been more favorable on passenger vehicle side?

In fact, one of that you touched upon which is the mix improvement. If you take the passenger vehicle business new products are definitely catching up well and we have been able to get good revenue impact on that. And on the commercial vehicle front also the growth has been in the large segment, which is the in the small commercial vehicles, mainly the mix effect.

No major price increases during the quarter?

Price increase we have done. One price increase on October 1, yes.

And how big that could be?

I think it was about 1%, 1.25%, almost across the board in (inaudible).

Right, right. And sir, last question pertains to JLR tax. You've mentioned in the presentation that tax was lower due to reduction in China withholding tax. What would be impact of that and would it mean in lower overall tax rate going forward?

No, it is a one-time credit. We've been providing withholding tax at a higher percentage and that has been decided it will be lower. So we will not have a continuing impact of that going forward.

Okay. But what could be the impact in this quarter?

It's relatively small. If I remember, I think it was somewhere between GBP2I5 million to GBP30 million.

GBP25 million to GBP30 million. Okay. But going forward, it will be at 5% withholding tax?

Can you hold on for a minute?

Sure, sure.

Sorry, just one correction. An avg. quarterly impact of this lowering of the tax rate would be around GBP20 million, GBP25 million, as I said. But this quarter, we have seen a reversal in the Indian consolidated accounts in terms of cumulative effect of about three, four quarters. So the total impact on the tax rate in this quarter is slightly more pronounced about, GBP70 million, which is what in this quarter has lowered the effective tax rate. Since it's a one-time correction, going forward, the effective tax rate would still continue to be around GBP25 million, GBP26 million.

Okay. Okay, sir. This is good. I'll come back in the queue.

Okay.

Thank you. Sahil Kedia, Barclays.

Thank you so much for the opportunity. Sir, one question on the realization in JLR. There's actually been a pretty sharp jump on the revenue side. Is there any one-off in the revenue that we have booked or is it just product mix?

Volume and product mix.

Mainly the volume, overall product mix and a richer geographical mix.

Okay. And sir, the one thing, and sorry to go back to this free cash negative number, on the guidance that you've mentioned. You are already tracking if I annualize the number, close to about 4 billion in EBITDA on a more than that while your guidance seems to be between 3.64 to 3.8. So just wanted to understand does this imply a pretty sharp correction as far as your profitability is concerned, that's number one? Number two, there is new capacities coming up in the UK. Can you just give us the status of that? And lastly, how your China distribution footprint is going to look and what our targets are there?

In the same order in which you asked the questions, I don't want to get further into pinpointing a number on the EBITDA or the cash flow negative, etcetera. I think what was intended was the general guidance. One can look at it in different ways and don't want to get to the extent of putting a number in terms of our guidance. From a business expectation point of view, we expect, and I think it's only fair to share with you all that there will be some negative trends, which have an effect on the EBITDA, lowering the EBITDA in 2015-2016, all of which mostly you will be aware of.

In any situation where the manufacturing gets shifted from the UK to the JV company in China, the EBITDA accounting will be different when you account for the China JV profitability and the JV is also starting its production in a greenfield plant. A complete new family of engines is starting now and getting built there. And because of the crowded calendar that we have, there will be launch and other related costs also for many of the products in the next year.

Vijay, already in his opening comments, talked about some of the good performance in some of our global markets. I think it is a combination of all this and we don't want to get beyond this, whether the EBITDA will be X percentage or Y percentage, what could be the extent of free cash flow negative if any. Our aim would be to ensure that we are able to generate cash flows to meet our expenditure, but it's only a fact that we provide a warning for the shape of the underlying business factors that are expected for next year. I don't want to go beyond this in terms of giving a precise number and amount or quantifying.

The second question was related to capacity. We have talked about this before. By the end of March 2016 fiscal year, the manufacturing capacity in UK will reach about 550,000 vehicles, around that level; and we will have the China capacity at about 130,000, that will be our global capacity of the JLR cars.

The third question was about the China distribution footprint. As I recall, we are at about 150, 170 distribution points at this point of time. We expect it will cross about 200-plus by next financial year.

Alright, sir. Thank you so much. I'll come back in the queue.

Thank you. Govind Chellappa, Jefferies.

Yes. Hi, sir. I had two questions. Number one, you mentioned and you quantified the amount of write-offs on receivables in the current quarter. Could you also tell us what has been the delinquency support to Tata Motor or Tata Finance, Tata Motor Finance? I think, last year was a little short of INR1,000 crores. That's question number one. Second, just to refresh our memory, and this question hasn't been relevant for a long time. What is your capacity across various product lines in India, M&HCVs, LCVs and cars? And my third question is, do we have any clarity on the new Bharat Stage norms?

Give clarity on?

Bharat Stage norms, emissions norms.

Emission norms.

First, in terms of the provisions and write-offs, both in terms of receivables, inventories and others, in the quarter, it has been a little over INR300 crores, that includes a variety of two, three -- three, four items. As far as the delinquency and other support, the support to financiers, not only Tata Motor Finance, but also other financiers, can be in the form of delinquency support, it can be in the form of interest subvention that we provide to the financiers or more attractive interest rates than what they would like to charge as far as the customers are concerned, so it can take in different forms.

The delinquency support to Tata Motor Finance is an item which we have been providing for on a quarterly basis. Including that is the amount that I told you for the quarter, it's about INR300 crores to INR400 crores, more pronounced in this particular quarter, in Q3, that has tended to make the comparison somewhat difficult in this quarter.

The second question was capacities in India. At the current level of operations, we are roughly operating at about -- it's difficult to put one magic number for capacity because for a wide portfolio of products ranging from trucks to small commercial vehicles to cars and UVs, overall, in the commercial vehicle business, if I had to put an average number, we will be operating between 50% to 55% in terms of capacity utilization and about 30% in terms of passenger vehicle business.

The last question was on the Bharat stage norms. No, the position is not very clear at this point of time, we have to wait and see what happens.

What proportion of your truck sales today is BS IV?

I don't think --

Govind, I don't think I'll be able to give an offhand answer at this point of time. Maybe we can put it out in the website as a response to the question so that everybody would be --

Govind, on the Bharat Stage norms, what the government has said that the new fuel would only be available in late 2017. So effectively --

We have to wait and see.

So this is the pronouncement from the government. So we'll have to wait and see. So it does look as if it's pushed out in time by two years.

The Bharat Stage IV to be met also requires a key change in the, if I remember, I think the sulfur content in the fuel that requires some major investments and modifications in the refining and the refining capacity from the refinery. So I am not sure I'll be able to give a definitive date. Right now, it is being talked about in terms of 2017. Even that, if I remember right, from history, I think it's a shift by about almost a couple of years from the position stated earlier, so we have to wait and see how it happens.

If I could slip in a related question, there is also some talk that we'll go directly from BS IV to BS VI, [if that were] by 2020. If that were to happen, how prepared are we?

I need to pass this question at this point of time. [I don't think] I'm qualified enough to answer that, but I owe you an answer.

Okay. I'll follow up later, sir. Thank you.

Sonal Gupta, UBS.

Yes. Hi, good evening, sir. Thanks for taking my questions. Just wanted to understand, I mean has there been a significant impact in this quarter of the impact of Freelander runoff in this quarter, because while your ASPs have improved, and I guess that's because of the FX being favorable this quarter, the raw material cost has not really dropped down. So if you could give some explanation as to what's keeping the raw material costs constant despite better ASPs?

You are right. Freelander has been a run-out model and typically, when a model runs out, you have to support it with a slightly higher variable marketing expense. So that is correct what you're speaking about, Sonal.

But would you be able to quantify anything on the raw material cost side, what sort of --?

No, I don't think we'll be able to quantify, Sonal.

Okay. And sir, just the other thing in terms of your EBITDA pressure points, you mentioned a new family of engines. So I mean, my sense would be I think you are actually moving it in-house. It should ideally be EBITDA accretive, how does it become EBITDA negative for you?

So we are talking about the launch costs which are there. When you start a commercial production, the launch costs would be charged up to the P&L. I think what you are talking about is after the engine plant achieves a full ramp up. What you say is if you recollect what we had said earlier that while we will definitely save Ford's profit margin on this; however, the investments are fairly high and the depreciation and interest charge would be on the higher side. So to start off the commercial production, there would be higher launch costs, but once you reach the ramp-up stage, it would be EBITDA accretive and PAT neutral.

EBITDA accretive and EBIT neutral, right?

PAT neutral.

Okay. And sorry, just going back to the Freelander thing, have you seen the most of the run-off thing in this quarter itself or do you still expect something in Q4?

I think we still expect something in Q4.

Okay, sir. And the negative impact of FX hedging this quarter is minus GDP20 million, is it?

Yes, the realized hedges, that's what --

Above the EBITDA line, the realized hedges?

Yes, please.

Okay, sir. Thank you so much. Thanks.

Ladies and gentlemen, now, it's my pleasure to hand the call floor back to Mr. Kapil Singh for the final remarks. Over to you, sir.

Hi, everyone. Thanks for joining the call and thanks to the management of Tata Motors for taking this call and joining late in the day. We'll close the call now. Thank you.

Ladies and gentlemen, that does conclude the conference for today. Thank you for participating, you may all disconnect. Good day.