Tata Motors Ltd (TTM) 2016 Q1 法說會逐字稿

Ladies and gentlemen, good day and welcome to TATA Motors Q1 FY16 Earnings Conference Call, hosted by Macquarie Capital Securities, India Private Limited. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Amit Mishra from Macquarie Capital Securities; over to you, sir.

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

Thank you, Amit. Good evening, everybody. Apart from Vijay and his IR team, we also have Ben Birgbauer, Treasurer from JLR joining us. My colleague CFO in JLR and lastly week they are in Auto Show in Europe. To start the presentation, Tata, short while ago, we announced the first-quarter results. Tata Motors Group consolidated revenue came in at INR61,000 crores, down from INR64,600 crores in the first quarter of last year.

EBITDA margin at the consolidated level came in at 16.1%, down from 18.2% in the same period last year, and profit after tax, INR2,769 crores, down from INR5,300 crores in the same period last year. We'll see the individual elements of it. If you come to the India business, TATA Motors Limited India, first quarter, the net revenue was up at INR9,300 crores, up from INR7,700 crores in the same period last year. EBITDA margin was positive at 4.7% compared to a negative EBITDA of 2.8% in the same period last year, and profit after tax, INR258 crores, down from INR394 crores, same period last year.

Jaguar Land Rover, and these numbers are as per IFRS JLR reports. Net revenue is a little over GBP5 billion, down from GBP5.3 billion in the first quarter of last year. EBITDA margin came in at 16.4%, down from the near-all-time-high of 20.3% in the same quarter last year, and profit after tax, GBP492 million, down from GBP693 million.

In TATA Motors India business, we had a strong growth in medium and heavy commercial vehicles segment of our commercial vehicle business, and the passenger vehicle business; however, light commercial vehicles continue to remain weak. The medium and heavy commercial vehicle growth has mainly driven the India performance.

In Jaguar Land Rover, it is a solid quarter at EBITDA margin of 16.4% and EBITDA of GBP800 million plus, but lower than a very strong quarter in which we witnessed about a year ago, primarily driven by weaker China sales in this quarter. In the TATA Motors India business, the net debt to equity came in at 0.63:1, down from a little over one --1.3:1 as of March 31, 2015. In Jaguar Land Rover, they continue to have negative debt net of the cash on their balance sheet.

Going a little bit into the India business, in commercial vehicles as I said earlier, medium and heavy commercial vehicle industry was supported by fleet replacement demand, and mainly in the high tonnage segments. So the model mix was also rich.

For the Company, the segment of medium and heavy commercial vehicles grew by about 20.7% year-on-year with a market share of about 52.6%. LCV industry mainly the numbers are driven by the small commercial vehicle segment continues to remain weak, a hostile financing environment and lack of last mile load factors are the major reasons. For the industry, the variable marketing expenses continue to remain somewhat in the high territory.

For TATA Motors, the international business grew at about 38% in this quarter and contributed significantly to the overall CV performance. We saw the start-up assembly and distribution in Vietnam, the launch of PRIMA in Bangladesh and Sri Lanka, opening of some modern and flagship showrooms and service facility in Middle East and start of assembly in [Indonesia].

In passenger vehicle business in India, the industry witnessed a growth of about 6.8% year-on-year. Our passenger vehicle segment in the domestic market grew by about 27.4%. Domestic market share therefore increased by 80 basis points in this quarter to reach about 5%. And within that, in the car segment, our market share went up by 1.4%, 140 basis points to reach about 5.6%. As a main launch in this quarter, we launched the new generation GenX Nano.

Jaguar Land Rover, the wholesale and retail volumes for the quarter stood about 110,000 and 115,000 respectively. Not getting into the details of the volume breakup, you'll see the presentation in the website shortly and we've already put up in the website.

In terms of the breakup, the normal pie chart that we have, China region accounted for about 14.4% of global sales, down from over 29.5% in the same quarter last year. The EBITDA was GBP821 million with the margin coming at 16.4% arising from the lower wholesale volumes and less favorable market mix due to lower China sales, less favorable model mix overall and it was offset partially by the one-time annual receipt of local market incentives, primarily China which happens once in a year. In this year, it happened in this quarter.

In JLR, the total CapEx and product development spend for the quarter was about GBP776 million. After this spend, the free cash flow was negative at about GBP810 million, driven significantly by inventory buildup in anticipation of the XE and XF launch and of course resulting from lower China retail sales. You just note the product development and CapEx spend of GBP776 million was slightly lower than the EBITDA in the quarter of GBP821 million. The working capital factor should correct over time.

JLR continues to have a strong balance sheet, as I said earlier. The cash and cash equivalents and the liquid investments stood at about GBP3.3 billion. In addition, we have undrawn, unutilized but committed bank lines of credit of about GBP1.5 billion, which after the end of the quarter, recently, we have increased it to GBP1.8 billion.

PBT, as I said earlier, was down at GBP638 million, resulting from lower EBITDA for the factors that I talked about earlier and in addition, higher depreciation and amortization, offset partly by some favorable exchange movements in this quarter. China, we've indicated previously that economic conditions in China had become more mixed and we expected a certain normalization of the automotive market and this gathered pace in the last quarter, with the overall industry down by about 3.4% year-on-year. And in particular, JLR sales was affected and were down much more than the industry due to a number of factors, which are JLR specific, which also we had discussed earlier.

Slower sales ramp-up of the new local Evoque and startup of the new integrated marketing and sales service organization, run out of the Freelander and launch of the new Discovery Sport, with import volumes, which had to be carefully planned to ensure a complete and smooth transition to the China-made products towards the end of this calendar year and run out of XF and XJ in advance of the all new models coming soon. So these are some of the more JLR-specific factors that contributed to lower-than-industry performance in our segment.

In response, JLR has been discussing these issues for some time with our retailers and our JV partners. We've since aligned the production and sales targets to reflect the slowing market and the model transition issues. They've repriced the JV Evoque, a price realignment of about 5% to 6% and we've also realigned the pricing for the launch of the new Jaguar XE. We've made the changes in the integrated marketing and sales and service organization, including new experienced senior management. And in consultation and in response with the retailers' requests, we have also arranged for a shorter payment cycles for some of the dues, which normally get paid out by JLR. Just to complete the China story in terms of outlook, we believe that China will continue to be a growing market for premium vehicles and for JLR. It's after all the largest car market in the world with a growing GDP and increasingly affluent market who'll aspire to hold the premium vehicles, notably JLR. We expect to increase our share in the market with new JLR model launches, some of which I mentioned earlier and more products to come in the future years.

Moving away from China, as far as Jaguar Land Rover is concerned, we witnessed strong growth in most of the major markets that we have. Europe JLR sales were up about 27.7%, outperforming the industry, which grew at 7.5%. In UK, JLR grew at 20.5%, beating the market growth at 12.9%. In North America, in particular, the US, JLR was up 12.7% compared to market which grew at 3.4%. In other markets, Russia was down, primarily driving the overall rest of the world performance for reasons well known. On a positive note, the Middle East region picked up [handsomely], grew by about 17%.

Looking forward, in commercial vehicles in India, we continue to see a growth momentum in medium and heavy commercial vehicles and we except it to become more comprehensive during the rest of the year. This small commercial vehicles segment, which is yet to see any signs of change, I think it will reflect growth momentum, maybe towards the end of this financial year.

The JNNURM Phase 2 orders will support the bus volume growth. From the Company point of view, we have a wide and compelling product range with several new launches in this financial year. It'll be across our PRIMA and Ultra range of vehicles, refreshes and variants in small commercial vehicle and pickup. Export will continue to remain a matter of high focus and we also have received and expected good pipeline of defense orders.

In the passenger vehicle segment, our new products and mid-cycle enhancements will drive growth. For example, we will have the full year of Tata ZEST and Tata BOLT as well as new generation Nano. We have further exciting model launches this year, the new-generation models from next year onwards to drive further growth in volume and improve significantly in our market share. As I've shared with you all, product plan has been defined and approved till 2020; in broad terms, incorporates at least two new vehicle launches every year from now on in the passenger vehicle business; and the business will, of course, look at every opportunity for improving its international sales.

Jaguar Land Rover, looking ahead, we will focus on building on the successful launch of the new Discovery Sport and Jaguar XE, launching of the all-new Jaguar XF and Range Rover Evoque in Q2, the 2016 model year Jaguar XJ in autumn this year and Jaguar F-PACE and Evoque Convertible in the last quarter. These products are expected to drive significant volume growth in the current year although as we have stated earlier, EBITDA margins are expected to be lower than the very high levels we witnessed in 2014-2015. It's basically a reflection of model mix, launch costs, ramp-up costs associated with the new products and the more mixed economic conditions, particularly in China and the reporting effects of the China JV profits in our accounts. A combination of these factors.

We will continue to focus on our growth strategy in JLR, investing in more new products, powertrains, technologies as well as capacity both in UK and overseas. We expect these will deliver growth and profitable growth in the years to come. We continue to focus on generating strong operating cash flow to support our investment in the business, in product development and CapEx, which we expect will be in the region about GBP3.5 billion or a little more in this financial year.

I'll stop here along with Vijay and his colleagues and Ben. I'll take any questions that you may have. Over to you, Amith.

Thank you very much. We will now begin the question-answer session. (Operator Instructions) Binay Singh , Morgan Stanley.

Hello, sir. Thanks for the opportunity. My first question is with regard to pricing pressures in China. We've been hearing that a lot of dealers have been saying that JLR is giving rebates in China. Most of them are saying that the dealers' rebates will actually be paid in Q1. So in terms of your accounting, do you -- like all these rebates, will they reflect in next quarter or are you already provisioning for them in this quarter numbers?

I don't know I can comment about the accounting and provisioning for a particular market and the dealer rebates, et cetera. In general, if you go back, Binay, I've been saying that the segment of the industry across the globe, including China, has been witnessing fairly very soft conditions in terms of variable marketing expenses in general for the last several quarters and I think these expenses will go up. You see some of that happening now, and that will be true for China as well as other markets.

Once the discounts of the variable marketing expenses normally if it is firmed up and committed, it will be provided for and it's difficult to say how much of it is provided in this quarter and how much is in the next quarter, etcetera but I think we will see both of the variable and fixed marketing expenses, we will generally see it creep up In China as well as elsewhere. Against this, I think this also we have discussed earlier. If you step back from 2015-2016, I'll come to 2015-2016 fiscal year a little later. If you step back away from quarter to quarter or a 90-day performance, we started -- after the transition, the transformation in JLR, we started on the new strategy and the growth strategy about three, four years ago; and since that time, we've been successfully launching several new products, focusing on product development and introduction of new models, new platforms, powertrains, et cetera.

In the process, I think we've also rationalized the number of platforms and significantly enhanced the model to platform ratio, we are somewhere halfway through the journey with more efforts on the back-end of the business to follow with more model launches on our new platform which are much more modular in construction.

So I think the business overall is halfway through in terms of becoming much more cost efficient in the back-end of the business, from design, manufacturing, and supply chain point of view, and some of it will have to be reinvested in the market in terms of supporting the new models and launches and brand building, as well as variable marketing expenses. Where it will balance out, I think we'll have to see as the time goes on. So, I think there is a lot to come from the business side in terms of JLR, but we will see more pressures on the variable marketing and fixed marketing expenses.

I don't know whether it precisely answered your question in terms of accounting and provision for this quarter and next quarter, I think we'll see a general pressure on the variable marketing and fixed marketing expenses in this year, maybe in the years to come.

(inaudible) linked to it, the other expenses have been pretty flat quarter-to-quarter. So that also because you are investing into our new engine facility while the topline contribution of those seem to be pretty limited for now, is that also getting reflected for now?

That's right, you touched upon one other factor also for this quarter. Apart from JV production ramp-up and the new model ramp-up, et cetera, we also have a completely all-new engine facility coming into the production and beginning to supply which is also not running up to full capacity or it's also in the ramp-up stage. Yes, all this will have a [refresh in] 2015-2016 which you and I have discussed before.

So this engine facility, as of now is only supplying for the XE?

XE only.

It will be supplying for the Discovery Sport.

It will be supplying for Discovery Sport, but right now for the XE.

For the XE.

And also for the Evoque.

Eventually for the Evoque, yes.

And eventually for the Evoque, but right now, it is only on the XE.

Right, right. And just lastly, what is the JV loss for the quarter?

Ben, you have to help me out.

GBP6 million.

That is our share of --

That's our share consolidated in the --

It's a 50-50 JV. The consolidated results' share of the JV loss is about GBP6 million.

Okay, [gentlemen]. Thank you so much, sir. I'll come back in the queue.

Thanks, Binay.

Yogesh Aggarwal, HSBC.

Yes. Hi, sir. Just going back to the previous question, so you mentioned marketing cost may go up over the next few quarters. So, from a year-on-year perspective, the fixed costs, both staff and other expenses, are up like 900 basis points despite a pound depreciation, which would have helped your gross margins. So if I look at gross margins today, they are nearly all-time high. So going forward, as volumes pick up from XE and other models, do you believe operating leverage will help margins from here going forward?

Let's be careful about the operating leverage. Yes, there is a huge volume growth potential across various products. Just to pick up the example that you talked about, XE for example, it's a segment that we have not been present before; without the XE, the global Jaguar brand volumes had been in the range of 60,000 to 70,000 vehicles annually. The XE segment which is the Mercedes C-Class or [BMW 3 Series] is roughly about a 1.5 million plus market in the world. Even if you take a 3% or a 4% or a 5% market share across, we're talking about at 5% today another 75,000 potential volumes. In a way, we're seeing Jaguar brand volume can double from where it is today. You add one more variant of the XE to come later on, you're talking about further growth on the Jaguar brand alone.

And similarly, in the Range Rover, and Range Rover Discovery and other segments. Yes, there is a huge operating leverage, but remember at the same time, for achieving this additional growth in volumes, you're also investing in manufacturing capacities. If you take more juice out of an existing plant and grow from 50% capacity utilization to 80% or 90% capacity utilization, there will be one type of operating leverage. If JLR capacity is already nearly fully utilized, and you're incrementally stepping up capacity, the operating leverage impact is likely to be slightly lower, because you're also creating new facilities.

At the same time, I think the business efficiencies will also come into the models itself in the component cost, greater share of components across a product liner, common features, commonality and carryover parts between one model to the other. Yes. Overall, I think the business will function much more efficiently from a cost point of view, and particularly if you add another dimension to it, which we have seen in the last year plus and maybe into the near future at least, commodity and component prices have been relatively benign. So, I think we do see a lot more efficiencies in JLR business on the manufacturing, design and supply side, from a strategic point of view.

Okay. And sir, net-net, above the EBITDA, what is the net benefit of currency in this quarter? And secondly, can you talk a little bit about the US market, particularly the Range Rover and Range Rover Sport? Has there been any moderation in demand there in the waiting periods in U.S.?

Sorry, what is the first question? Can you repeat it if you don't mind?

Sir, the net benefit of a pound weakness above the EBITDA?

Ben, probably you can take the other question on the US also?

On the FX benefit and EBITDA , so if you just think about the operating exposure net off hedges, so operating --

You are asking about above EBITDA?

I agree and that's (inaudible), so operating exposure net of realized hedges was a little bit more than GBP50 million in the quarter in EBITDA. What I should say is that's the benefit compared to a year ago.

Okay, and sequentially?

Sequentially, it's actually quite small, it's less than that sequentially.

Okay. On the US market for Range Rovers?

I guess, actually, I don't have the specific data on Range Rovers in the US market, but in general, we've been seeing good growth in the US market, with sales of about 13% and actually -- pointing out to me that in the presentation, we actually say Range Rover is up 39.9%.

Yes, actually I know that, I was just wondering if sequentially the waiting period are coming down and it's getting more normalized volumes in the US.

In US, honestly, I haven't heard anything about waiting times coming down in the US, but I'll just tell you, I haven't heard anything like that. So, I don't. I'm probably told you I don't know when we certainly not heard anything about that.

Okay, that's great. Thank you.

Ashish Nigam, Axis Capital.

Right. This collapse in Evoque volumes in China, how much of that is due to demand weakness and how much is due to production issues at the JV?

Well, I don't think anything -- none of that's due to the production issues. I think in general, we think the quality of the Evoques being produced in the JV plant is every bit as good as what's produced in the UK and I don't think there have been any production issues at all. I think the issue has purely been ramp up or [one out] of imported Evoque and ramp up of the new Evoque and I think it's important to note that as part of that, the new integrated marketing and sales and service organization has been set up to support a coordinate sales for the JV. And I think that that has also kind of that organization has developed and grown that's been an issue in the past, but I think we've made some changes in the organization and added some new people that we think we'll address those issues.

Okay. So just on a related note, what were the JV volumes during the quarter?

The wholesale number was 3,804 vehicles.

Okay. So because I mean you're selling on a steady state around give or take a few thousands, around 3,000 a month Evoques in China, which collapsed to this level every quarter. So, was that because of our pricing strategy going wrong or just a perception of made in China, not being the same as made in UK in the eyes of the Chinese buyers. Could you just help us understand that?

Yes, I think it would be wrong to say collapsed, because I think you've migrated from an imported unit to a JV produced unit, but I guess what I would say is that in general, the ramp up has been slower than we talked about as a subjects than a new marketing and sales organization. It is also the case the terms that we have made a change in pricing to aligned what we think it needs to be in the market and that's been communicated at 5% to 6%. So I think there are some things around the launch that didn't happen as fast as we had planned. But I think we've taken actions to try to address that and I think we need to give us some time to see how things progressed after we've implemented those actions.

Ashish, Ramakrishnan here. Unlike you, I would not rush to start calling it collapsed and I don't think you should assess the Evoque potential and performance in the market based on the quarter's performance. I think that's been a combination to single out one or another and rush to a conclusion and start calling terms like collapsed, et cetera. I think it was somewhat premature. We are shifting -- it's a new model going to a completely new facility in a different country. This is the first manufacturing operation for Jaguar Land Rover outside of the UK and the partner in a different market like China. So I think we've been talking about this challenge in ramping up our production there. It's not easy to start scaling up production in an all-new facility all of a sudden.

Yes, it can be faster and it gathers momentum month after month and it will gather the first few thousands will be slower and then it's we will starts churning of faster and everything settles down the most when this is happening at the same time in the same quarter we are seeing as anticipated headwinds and China, particularly in this segment and we also had to realign and combine the sales and operating function within ourselves and the JV in the integrated sales and marketing. If you triangulate these three factors, I don't think you can ascribe one or the other reasons, but I think over time, it will play out well. The model itself is still a welcome model and as you see elsewhere in the world in China, it continues to have strong attraction in the consumers' minds. So I think we need to give it time for it to correct itself.

Okay, just on a related note, because it's also hearsay.

Sorry to come back again. If I review, I definitely wouldn't multiply three into four and say this is the annual one.

No, no, of course not. I don't think anyone is doing that, but I mean there's also --

The collapse sort of bothered me.

Fair enough, sir, fair enough. No, it's just because it's also hearsay that the Evoque demand in China has been impacted by the cherry badge on the JV produced Evoque. Could you set the record straight that has that been the case? And if so, how do we plan to rectify that?

I think the answer is we don't think that's been the issue is the simple answer. The issue we think has been the other things that we've talked about and that we've taken actions to address and I think we need to give it time for those actions to take hold.

Okay. So you're certain that this pricing action which was took around a month back is what was required and from here on, you'll expect volumes to ramp up without any other action on pricing, at least going ahead?

Well, I think you're trying to put words in my mouth. But I think in general, I think we're confident that we've taken the appropriate actions in terms of the price adjustment or realignment that we talked about in terms of fine-tuning some of the aspects of the new marketing and sales organization and adding some new people into that organization and I think that we believe we've addressed the problems.

Okay, that was very helpful. Thank you. Just one last question if I may, your R&D expensed as a percent of sales has been in the 17% to 19% vicinity. So how do you see this percent trending going to new launches and is this why you expect a decline in margins going ahead?

No, I think the overall product development and CapEx spend, if you take the total CapEx, we are in that range, 16%, 17%; and we expect over a period of time, next three years to five years, to normalize, which is more typical of our segment, in which we operate, more like somewhere between 10% to 12% range, that's definitely not going to happen anytime too soon but over a period of time, I would give it about three, four years time, it will normalize towards more like 10% to 12%. I wasn't sure I understood your question.

I'm sorry, I'm not talking about the CapEx as a percent of sales. I'm talking about the R&D that is expensed in the P&L, which is around 17% or so, this quarter at least.

Yes.

Yes. Let me rephrase that.

Okay, okay, okay. The [expense on that].

Yes.

Yes, that would have a direct impact on the margin.

No, sir, let me just rephrase my question. How important is that R&D expensed line item in your guidance for lower margin?

I don't see it will be a material one because still the product development expenses, which are mainly focused towards new products or new facilities [which seem] to be capitalized. It can change maybe from quarter to quarter depending on timing and the content of the expenditure incurred in that quarter, but remember at the same time, the overall R&D expenditure is also contributing to newer products and attractive margins in terms of multiplicity of models across the platform. So I think that should be -- in overall terms, it should be okay.

Okay, thanks a lot. All the best.

Sonal Gupta ,UBS

Hi, thanks for taking my questions, sir. Just one on China, could you just talk about how is the performance ex the transition models? I mean how have you seen things for Range Rover and Range Rover Sport Discovery in the first quarter in China and are you seeing some pricing pressure for these models as well?

On Range Rover, Range Rover Sport and Discovery, so that would be in the larger SUV segment and am I think sales for those had held up. We would recognize that the segment was maybe down about 4% in the quarter and that is about what sales in aggregate of those three models were. So we think those have held up.

And just in terms of transfer pricing for the JV, I mean now that [you're selling in] this integrated sales and marketing organization, do you cross-subsidize some of these JV models like the Evoque given the discounting or -- and it comes back to you as lower transfer pricing? I mean how does this work? Does JV bear the full cost of it?

Well, the JV is a stand-alone company, and so I think we do sell some things to the JV. So of course, there is some transfer pricing in there, but in general, for example, on the adjustment to the price of the Evoque, there is no cross-subsidy of that, that's for the JV's income statement.

And you've given us negative GBP6 million, so that's all the costs that JV has borne, including pricing issues, et cetera, the discounts that they're giving?

Well, I think that's our consolidation of 50% of the profits of the JV.

Right. Okay, sir. And just on the domestic business, I mean you've talked about again GBP35 billion to GBP40 billion in terms of CapEx and product development. I know there's been some encouraging improvement in terms of margins, but they are still very low and if I look at the first quarter versus first quarter despite the rights issue that you've done of INR75 billion, there's absolutely -- your net debt has not gone down year-on-year, so there is a massive cash burn which is happening in the domestic business and you're not really cutting CapEx, so I just want to understand like what is the strategy I mean here.

I think if you look at from a rights issue perspective, rights issue. we got the money in the middle of May, which is there from that perspective, what you are seeing is the usage and the reduction in debt for only 1.5 months, so obviously the interest benefits will start flowing through from Q2, which is there, also bear in mind that there is a seasonality in working capital in India, typically in Q1 is the highest working capital then it ceases off a bit in the rainy season and in the second half of the year, you typically repay the working capital cycle. So you are looking at a point of time when because of the seasonality and only part of it of rights issue, you are seeing that impact.

No, sir, I am seeing a net debt [called] year-on-year, right, [quote] Q1 versus Q1. So unless you think that it's not really comparable, your inventory days are actually similar, okay; receivable days are probably slightly lower. So I'm just saying that I mean in terms of strategy, I mean while you are reiterating your commitment for GBP35 billion to GBP40 billion, I mean, effectively, it means that the domestic business -- even assuming from improvement and profitability is not be free cash flow, I mean breakeven also for, I'm just trying to come from that angle as to what is really the plan. I mean, when do you expect from your side, the domestic business to really be free cash flow breakeven, at least?

If you recollect the LCV segment, which is a large segment in commercial vehicles, that is still showing a negative growth of 19% for Q1, that's a very large segment, almost 65% of our commercial vehicle volumes come from the LCV, that is underperforming; and as you would have heard it on the press conference, Mr. Pisharody did say that he expects our recovery in the last quarter of this financial year. I think we need to wait for LCV recovery to happen, that's one point which is there. Also, as you are aware, in the passenger car segment, we had told you that, that's a structural story. The capacity utilization there is still lower at around 30% to 35%. You need to take your volumes up 50% at least before you break even. Passenger car is a drag on the combined profitability at this point of time.

Okay, sir. Thank you so much.

Rakesh Jhunjhunwala, Rare Enterprises.

Yes, good evening, sir.

Good evening.

Sir, this last person's question is very relevant that you have capacity in the car business, you are cash flow negative and we are (inaudible) I mean whether our market recovers, doesn't recover, nobody can really predict. So, sir this kind of heavy investment without (inaudible) investment we have made. I don't know, I mean -- I really questionable?

Thanks Rakesh, I think the important point I think in terms of the industries that we are in passenger vehicle or commercial vehicle in the auto industry, we definitely need to make this level of investments are continuously introducing newer platforms, technologies, engines new markets, new applications, et cetera. There's no getting away from that fact.

No, sir, but the existing capacity is not utilized?

Rakesh, can I finish?

Yes, please, sorry.

Yes. It does not mean the capital expenditure, as you call it, INR3,500 crores or INR4,000 crores range annually is going to create more and more capacity. When I am sitting on a 30%, 35% capacity utilization passenger vehicles and maybe 50% plus in commercial vehicles. I don't think the management has imprudent to invest in more capacity. We are not investing in capacities. The investment is focused towards new products, new engines, new models, model year refreshes, new platforms so it is going more directly into the products rather than plant and machinery and capacity being created.

That's number one, and number two I think, we're also looking at it at a point of time in the overall market has shrunk considerably in the last three or four years. We are coming out of a cycle, which has been a prolonged downturn, which has been I would say unprecedented, both in terms of its severity and also in terms of its length of time. I think we are beginning to see coming out of it insteps, it has started happening in medium and heavy commercial vehicles, maybe give a couple of quarters, I think we will see it in small commercial vehicles. In the passenger vehicle business, more than market, I think we had a number of things to correct internally ourselves. Number one, in terms of newer products and the faster development, introduction of newer and more exciting products.

Number two, in terms of maintaining consistent performance and customer experience and product quality in the market, greater sales effectiveness, and number of these actions are also underway, and we need to gain back a significant amount of market share that we've lost in the last few years. So I think if you look at the combination of those, I think we need to ensure that we emerge from this downturn stronger than what we were when we entered it.

In our commercial vehicle range, we have completely revitalized our product range, launched the PRIMA and the newer platform vehicles, highly versatile, highly modular in construction. The PRIMA platform itself can generate something like 80 to 100 different variants. The new light- commercial platform is launched, which is the ULTRA again extremely versatile and modular platform, again dozens and dozens of models and applications from a single platform. Tata ACE and its platform will see more and more variants and models coming in and different tonnages. So, I think that businesses and each of these models we have ensured in terms of actions and improvements, in terms of telematics solutions, it contains, in terms of the interior comforts, cabin, in terms of fuel efficiency, power performance, engine output, each of these factors we have ensured from a benchmark point of view, we rank among the top or the best in each of those segments.

Similarly in passenger vehicles, we are seeing a migration in the business from older platforms to newer platforms. The new platform models will start coming from next year, in the mean time there is a catch up in terms of the older vehicles that we had so we are seeing more and more refreshed products out of the older platforms last year, and in this year. And from next year onwards, the new generation platform vehicles will start rolling.

So when you look at the business in this type of situation with the macro turnaround hopefully beginning to happen, and the business strengthening in terms of continuous investments in new models and products, I think the opportunities we see are quite exciting. We will continue to maintain our dominant position in commercial -- grow back our market share and all that requires investments. I think we are very shortsighted, look at the current performance. Therefore, I will cut back on investment for the future.

The question I had is when do you expect to break even domestically on the PBT level, in the fourth quarter?

(inaudible) because then I'll be trying to predict it for you.

(inaudible) Nobody can predict the future. It can be a volume degrowth?

I think a lot depends on how the macro performance happens. Today, what we are seeing, for example, even in the medium, heavy commercial vehicles, we see a growth more driven by fleet replacement demand rather than for our truck operators' fleet capacity expansion. The tipper segment is yet to start growing even in medium, heavy commercial vehicles. I think at the macro level, the number of projects have to get on ground even though there is a lot of good intention and financial closure and things beginning to happen. I think we need to see a lot more action on the ground before medium and heavy commercial vehicles achieve a sustainable and real growth momentum in terms of fleet capacity expansion, that will trickle down to the small commercial vehicle and last-mile vehicle towards the end of the fiscal year. A full turnaround I would think is about a year away.

The question is why this China -- I mean China is 14% of your sales. You said China in your assessment, is China the beginning and the end of your profitability? I mean today, you are -- sir, suppose China slows for a year (inaudible) transition our sales don't grow there. So don't you think we have the capability to make up for the sales in the other regions with the kind of products we are launching and the quality of those products?

Rakesh, once again, thank you for the question. I was hoping somebody would raise this. In this quarter, we have seen compared to the quarter one year ago, China's share of our global volumes in Jaguar Land Rover come down from 29% to 14%. The overall volumes have still been quite respectable and turnover wise, it is almost on par; and EBITDA wise, the margins have come down, but it has come down by about 2, 3 percentage points from 19% to 16%. This is on the back of China volumes share for JLR coming down from 29% to 14%.

Yes, we've seen a double-digit growth in other markets, US, UK, Europe and other markets. In some of the markets, it has been as high as 20%. Just to restate what I said earlier, for JLR, Europe saw a growth of about 28% year-on-year, UK saw a growth of 20.5%; and US, about 12.7%, 13%, that's the type of growth we see, which is on the back of the newer products and the market pull for the JLR brand. Yes, we do see volume growth opportunities everywhere, including in China. It is the largest market in the world and the total volume that China (technical difficulty) the focus on premium segment in China, I think continue to be an important market for us. Overall on the back of product lineup, we feel good about the future. Despite this 2015-2016 being a difficult year for JLR from the operations point of view in terms of the ramp-up and model change that is happening in a very crowded way in one particular year. Longer term, we continue to feel optimistic about our growth, both topline and bottom line.

Sir, after the change, how has July been in China?

I don't have the July numbers.

Just some idea, sir? (inaudible).

Yes, I do. But --

Because the figures (inaudible).

It will come in the next few days.

Okay, sir, thank you so much.

Thank you very much.

Thank you. Due to time constraints, that was our last question. I now hand the floor back to the management for closing comments.

Thanks, everybody, for joining. Sorry, I think the number of questions we could take was a little less because I think I had to expand a little bit on the answers, some of the questions were quite interesting and I had to provide a slightly broader and longer-term picture, and not so much focused on the quarter and the number. But thank you very much. As we always do, we can engage with you separately in one-to-one meetings to discuss more in detail.

Thank you very much for joining.

Thank you very much, sir. On behalf of Macquarie Capital Securities, that concludes this conference call. Thank you for joining us and you may now disconnect your lines.