Tata Motors Ltd (TTM) 2018 Q1 法說會逐字稿

Good day, and welcome to Tata Motors Q1 FY '18 Quarterly Results Conference Call hosted by JPMorgan. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Saurabh Kumar, Equities Analyst at JPMorgan. Thank you, and over to you, sir.

Good evening. Welcome to the First Quarter Fiscal 2018 Post-Earnings Analyst Call of Tata Motors. We have with us today Mr. C. Ramakrishnan, Group CFO of Tata Motors; Mr. Kenneth Gregor, CFO of Jaguar Land Rover; Mr. Vijay Somaiya, Head of Treasury and Investor Relations; along with the entire IR team of Tata Motors with us today.

Without taking any further time, let me hand over the call to Mr. Somaiya to make an opening statement. Over to you, sir.

Thank you, Saurabh. Thank you, everyone, for taking out time to attend the Q1 FY '18 quarterly results analyst call, conference call, which is there. The investor presentation has already been put up on the website, so I just plan to take the financial highlights and the way forward section in this presentation, and then we will use the balance time for the question and answers, which is there.

Moving to Page 3 of the presentation -- Page 4 of the presentation. This is the Tata Motors Group consolidated financials. For Q1 FY '18, we have a net revenue of INR 58,651 crores as compared -- lower as compared to last financial year of INR 65,115 crores. The EBITDA came in at INR 5,777 crores as compared to INR 9,900 crores last quarter, last fiscal. The EBITDA margin is lower at 9.9% as compared to 15.2% in the previous year. The PBT, before exceptional item, is INR 117 crores as compared to INR 2,061 crores. PBT after exceptional item has come in at INR 3,737 crores as compared to INR 2,551 crores. This does include a onetime credit of INR 3,600 crores in relation to changes made to JLR's defined benefit plan. The profit after tax for the quarter came in at INR 3,200 crores as compared to INR 2,260 crores last year.

The consolidated performance in Q1 has been impacted by weaker volumes of M&HCV in the standalone business. As you would have seen in the numbers, the M&HCV volume are down almost 35% Y-o-Y, which is there. And also, on account of muted wholesale volumes in JLR. The JLR volumes, after adjusting the -- after removing the CJLR volume, is down 2.4%. And the results are also impacted because of the higher marketing cost and higher material and operating cost, which is there.

As of 30th of June, 2018, the net automotive debt equity on a consolidated basis stood at 0.33.

Moving to Page 5 of the presentation. This is the Tata Motors Group standalone financials including the joint operations. This includes the financials of the joint ventures Fiat and Tata Cummins, which is there. The net revenue in Q1 FY 2018 came at INR 9,207 crores compared to INR 10,393 crores last year. The EBITDA was breakeven, INR 3 crores as compared to INR 670 crores last year.

The EBITDA margin came in at 0.03% as compared to 6.4%, which is there. The profit after tax came in at negative INR 467 crores as compared to a profit of INR 26 crores last year. The Q1 performance, as mentioned earlier, was impacted due to weaker volumes of M&HCV, which I said was almost 35% down Y-o-Y. In the Tata Motors standalone financials, the net debt equity as of 30th of June 2017 stood at 1.

Moving over to the Tata Motors Jaguar Land Rover performance for Q1. This is as per the IFRS accounting standards. The net revenue for the quarter came in at GBP 5.6 billion, higher than GBP 5.3 billion last year.

The underlying EBITDA came in at GBP 442 million as compared to GBP 672 million last year. The underlying EBITDA margin came in at 7.9% as compared to 12.6%, which is there. The profit before the onetime item was GBP 157 million as compared to GBP 348 million. As indicated earlier, the financials for Q1 does have a onetime credit of GBP 437 million in relation to changes made to the pension plan in Q1 FY '18 as compared to GBP 50 million of credit which we had received in the first quarter last year on account of Tianjin recoveries. The underlying EBITDA this quarter is lower than the previous quarter on a Y-o-Y basis, partly because of the lower wholesale volumes, 2.4% lower wholesale volumes, which were there.

Continued higher variable marketing expenses, higher by around GBP 93 million as compared to the first quarter of last year. These expenses are higher, mainly in the U.S. region, which is there. Higher material and operating costs by around GBP 96 million, which is partly because of the exchange fluctuation impact on the material on the GBP euro leg, which is there. The share of China JV profit for Q2 was GBP 77 million, and this includes GBP 31 million of local market incentive, which is a one-off in this quarter from a China JV perspective.

Moving ahead on the way forward slide, Page 19 of the presentation, our Tata Motors Group standalone business. As you would be aware that along with our Q4 results in the month of May, we had unveiled the transformation strategy pursuant to which the company has initiated several programs and actions for driving the top line growth, improving profitability through major cost reduction initiatives, which are there. These initiatives have gained significant movement over the last few months, which is there.

Some of the key trends confirming the progress of these initiatives is a continued M-o-M -- month-on-month improvement in the market share across all segments in commercial vehicles starting from April 2017 onwards until date, which is last month July 2017.

The filling up of the gaps in the key growing segments, like 37 ton and 49 ton, which now accounts for almost 40% of the M&HCV volumes. The series of product actions. These were the product gaps which we had identified and which talks about the new product launches in M&HCV's segment, 4 new products in the ILCV segment. And also the XL family in the SCV, wherein we have launched vehicles with a longer load body of around 8.2 feet as compared to 7 feet, which is there.

We have also come out with a wide range of people transport solutions, Ultra BS4 range on 3-liter engine, Magna and Magic Express. From a passenger car business solution, there is a ramp-up of volumes on TIAGO, HEXA and TIGOR. Very recently, we had introduced the compact SUV Tata NEXON, which -- for which we have been receiving a very favorable initial response, and better-than-planned implementation for cost reduction ideas and time-bound action for the coming quarters, which is there.

The company will continue to explore capital optimization through better operating efficiencies in working capital and monetization of non-core assets on some of its investments. As you would be aware, we had announced that we are signing a divestment of 30% of our stake in Tata Technologies to Warburg. This is still subject to the Competition Commission approvals, which are there, and we expect to receive those approvals in Q2.

Looking ahead, we do believe that infrastructure and rural spending, favorable GST impact and normal monsoon is expected to support the CV growth in the current fiscal year. Volumes of LCV and buses, as indicated earlier, we expect it to grow by 10% in this fiscal. M&HCV growth, because of the weak start in Q1 on account of the BS4 implementation and the introduction of GST, will -- so we will have a weak start in H1, and we hope to recover the volumes in H2 as we move along. From a passenger car business perspective, TIAGO, HEXA, TIGOR and NEXON will continue to support the growth of passenger vehicles. We continue to focus on the channel strategy to build customer-centricity and brand perception improvement.

Moving over to Page 21. This is for the way forward for Jaguar Land Rover. We continue to invest to drive profitable growth. JLR's strategy is to achieve sustainable profitable growth by investing proportionately more in new products, technologies and manufacturing capacities. Consistent with this, our spend on investment this year is expected to be in the range of GBP 4 billion to GBP 4.35 billion, which includes the investment in new Slovakia plant. As indicated earlier, in first phase of the Slovakia plant, we are spending close to a GBP 1 billion to create a capacity of 150,000 vehicles.

Despite increased geopolitical uncertainty, post Britain applying for the Article 50 at the end of March, economic growth in most major economies is continuing. However, we do see higher competitive conditions and incentive levels in the automotive sector in key markets, especially in North America. As indicated earlier, we do expect to see margin pressures, which we have seen last year, to continue including higher incentive levels and launch and growth cost to continue in this fiscal. We have also -- we do also expect a seasonality in volume and profit by quarters to continue. The Q1 numbers, we believe, are the lowest in this financial year.

The launch of the versatile new Discovery, U.S. and China in May, the stunning Range Rover Velar, the Jaguar E-PACE, XF Sportbrake and the other exciting models in FY '18 are expected to strengthen our portfolio and attract new customers, driving sustainable profitable growth over the course of this financial year and beyond.

Our planning target on profitability remains a range of 8% to 10% EBIT margin over a medium term.

With this, I would stop here and would be happy to take the question and answers, along with Mr. Ken Gregor and Ben Birgbauer from the JLR's team.

(Operator Instructions) We take the first question from the line of Sonal Gupta from UBS Securities.

First, I just want to understand, how much of the FX impact in revenues for JLR and under the JLR accounting? I mean, what has been adjusted against the revenue?

Ben, are you there? Could you answer the question please?

Yes, I am here. So net-net, FX is actually good news to revenue, probably a couple hundred million pounds. The hedging losses that were binned against the revenue line were in -- on the order of GBP 400 million -- a bit more.

I mean, so the presentation says GBP 465 million. Is that the number that's all in the revenues? Or that would include some FX related to maybe some other cost line items like on raw material costs, et cetera? So I just want to know what is exact number against the revenue.

Well, remember, we hedge cost as well. So the absolute level of realized losses on hedges in the quarter was GBP 454 million, although some of that was actually recognized for accounting purposes in prior quarters. So the accounted -- the actual accounted losses on hedging, including hedges that didn't mature this quarter, was GBP 365 million. So that's the total of all hedges.

But no, I was just trying -- looking at the -- could you -- would you have the specific number of how much is against the revenue?

Well, I think I just told you that the -- within -- of the GBP 460 million -- sorry. Of the GBP 450-odd million of realized hedges in the quarter, over GBP 400 million of that was related to revenue.

Okay. Just another question that I had was on -- I mean, you've announced that E-PACE would be sort of outsourced in terms of manufacturing to Magna Steyr. So I just want to understand, I mean, the strategy behind this. Is this a short-term move until Slovakia comes up? Or I mean, because my understanding would be that, in a way, you're giving away the manufacturing margins. And given that, I mean, this would be within the portfolio probably a relatively lower margin product. I mean, this would further compress margins for this product for JLR. So I just want to get your comments on that in terms of the strategy and, I mean, impact on margins if potentially.

Yes. No, it's a good question. I mean, in terms of the contract manufacturing arrangement with Magna Steyr, it on balance, offers us a positive benefit for the business from a couple of different ways. For one thing, we were constrained on capacity in our U.K. manufacturing sites, so this offered us the ability to introduce a new model but at a lower investment approach than if we were to have invested in the capacity in the U.K. in order to facilitize for that model introduction in the U.K., because Magna Steyr in Austria had some space in their factory that they could utilize for the production of the E-PACE, so it's a lower investment approach.

Yes, there's an element of profit that Magna will earn from it, but I actually think we have a pretty good commercial arrangement with Magna that's quite competitive with what it would have cost us to build in the U.K. And then the further thing is it also enables us to access the supply base for the vehicle with a slightly higher proportion of material sourced from Eastern Europe, so that enables us to manage cost as well. So overall, I'd actually say that the profitability of the vehicle is not negatively impacted by being built by Magna Steyr in Austria, taking some of those pluses and minuses into account.

All right. And just lastly, again, just on one question that I had. So is this a shorter-term arrangement? And once Slovakia sort of ramps up fully, do we see this shifting to Slovakia? Or this is like the arrangement for this model?

This is the arrangement for this model.

(Operator Instructions) We take the next question from the line of Robin Zhu from Bernstein.

Two main questions please. One on the FX. I mean, the FX loss number seems to be a fair amount larger than the last quarter. I remember last quarter was lower quarter-on-quarter even though the volumes are higher. This quarter, the reverse seems to have happened. Just wanted to understand the reasons for this, whether it's just a timing issue or whether it's -- did you guys expect a higher level of volume in Q1, and therefore hedged for more than what was actually produced? And where we should expect the FX losses to trend from here over the next 4 quarters and beyond?

Second question in terms of CapEx. I've noted that you guys -- the free cash flow number that you guys have shown in the PowerPoint is what it is. Have you guys done any study or contingency plan in terms of the U.S. in particular if that market is weaker than we currently observe or than you guys plan? How much of the CapEx is sort of optional and how much of it can be scaled back?

Okay. So I think Ken and I are going to split those questions. So I'll start with the FX question. So we stuck a slide in our presentation for JLR that we'll discuss later. But it showed -- and actually, it's in the back of the TML presentation as well. It shows the losses on FX derivatives that were realized in the quarter were GBP 454 million, and we did show what that was for a year ago. But you're actually asking quarter-on-quarter. So quarter-on-quarter, the number -- the comparable number is GBP 400 million. But it comes back to the point I mentioned on the earlier question that that's the losses on hedges that are realized, which means that mature. However, it does include losses on some hedges that were not designated for accounting purposes, so we actually realized the losses earlier. And so for example, if you look on the schedule you'll see a number called 89 for reevaluation of unrealized currency derivatives. And that reflects derivative -- well, some of that number is hedges within the GBP 454 million, where we actually previously realized losses on them.

So the accounted losses on derivatives in the quarter was GBP 365 million, the net of those 2 numbers. The accounted losses on derivatives in the fourth quarter, that number equating to 89 was GBP 72 million in the fourth quarter, so that was GBP 472 million. So the accounted losses on derivatives were actually down about GBP 100 million quarter-over-quarter. And then the other question you were just asking is how do hedges play out going forward. And I think we've talked about this before, that we were relatively well hedged going into -- or preceding Brexit. But we do expect hedging losses to come down going forward, assuming that exchange rates stay where they are, and that's just an important point. Obviously, if exchange rates change, it could be something different. But assuming exchange rates stay at present levels, we would expect to see hedges progressively declining over the rest of the year, particularly in the fourth quarter.

Sorry, just to clarify on that a little bit. I mean, I think it's important that -- you're now saying FX losses will reduce sequentially from here. I can understand that as being -- starting from Q2. Are we still going to see a relatively high number in Q2 and then later on in the year, it's going to get smaller? Or any color there you can provide would be great.

Yes. I mean...

Well, assuming [comp diverts], yes.

Look, I think that we stuck a slide in our results presentation in Q4 that went through this, and I think we've shied away from giving specific numbers of forecasting FX in future quarters because it all depends on what the exchange rate is going forward. But we would expect on hedging -- on hedges alone, the level of matured -- the level of losses on maturing hedges should start declining more so in the fourth quarter than in earlier quarters, but it should start declining this year.

Okay. And on CapEx, please?

CapEx.

Sorry. Yes. On the CapEx, no, a really good question. I think in terms of our CapEx spending for this year, I think the straight answer is it's pretty well committed this year for all of the projects that we are pushing forward with in terms of the model launches, the Velar that we're busy launching right now, the Jaguar E-PACE, the Jaguar I-PACE, we're building out the factory in Slovakia as well as other models that we haven't announced yet that will be launched this year, and as well as other models that we haven't announced yet that will be launched next year and the year after.

Going forward, of course, there's always some level of flexibility in terms of the amount of our capital spending. But it's fair to say that one of the reasons we maintain strong liquidity within the business is so that we are -- we have the ability to keep pushing forward with our investment plans. Because if there's one thing I've learned in my history of the business, that even when you have one or other shorter-term ebb and flow of one market or economic issue in another place, the key thing in this business is to have fresh, relevant product for customers. And it's that, that we're absolutely committed to continuing to push forward with, and therefore, hence, we maintain the financial strength and capability to do so.

Cool. Got that. And sorry, one factual follow-up. I mean, just saw on the free cash flow calculation, there was an other amount that went from GBP 30 million in 2016 to GBP 496 million in the last quarter. I mean, just wondering where that is please. It goes a long way to explaining what your free cash flow was this quarter.

On the cash flow, that's the reversal of the noncash item that's in our PBT, which is the GBP 437 million credit that we had in our profits -- that we have in our profits in the quarter that relates to the changes that we made to put the defined-benefit pension schemes that we have on a more sustainable basis going forward. That GBP 437 million is not cash in this quarter or year, and hence, it gets reversed out in that cash flow walk.

We take the next question from the line of Kapil Singh from Nomura Securities.

Firstly, I wanted to check what is your outlook for each of the markets for JLR. And what is the kind of waiting period which are there on Velar?

Sorry, I missed the first part of your question. Could I trouble you to repeat it?

Yes, from JLR's perspective, what is the outlook for each of the geographies?

Good question. I mean, I think I shouldn't go into a lengthy economics lecture because I think all of you would understand that pretty well, but if I did just walk around our 5 key regions. If I look at the U.K., I think we see positive economic growth in the U.K. this year. But we do see, in general, the U.K. car industry being somewhat lower this year than we saw it last year. And in fact, that is what we've seen in the first part of this fiscal year following vehicle excise duty changes that happened in the beginning of April, and we've seen the car industry down in the April to June quarter.

So we -- for the U.S., the car industry is also somewhat lower this year than the sort of seasonally-adjusted rate that we were experiencing this time last year. But economic growth in the U.S. continues to be fairly robust. In China, the economic growth continues, and we see the car industry continuing to grow broadly in a similar pace. For Europe, we see economic growth on balance across Europe, and we see the car industry being -- broadly growing in line with economic growth.

In the rest of the world, to be honest, we see some pluses and minuses. We see Russia recovering a bit. We see the Middle East being down. We see South Africa being down. We see Brazil being down. We see Australia, that's a bit of a mixed picture. And South Korea, a bit of a mixed picture. So what I'd say is, overall, when I step back overall from all of that, the way I think about this is, on balance, we see -- despite various geopolitical uncertainties, for example, including Brexit, on balance, we see economic growth in the regions in which we do business.

We do see the car market becoming a bit more competitive in a number of those regions as the volumes peaked and are somewhat lower, for example, in the U.K. and in the U.S. compared to this time last year. So that is how we see it. Looking forward, our business, as I said already, is about creating exciting new cars and SUVs that our customers will love. And we've got a very strong product pipeline of new products that we're launching this year and beyond, and it's that, that I think gives us the best opportunity to be able to continue to grow our volumes despite one or other economic challenge in one or other region around the world. That's absolutely our direction and our intent.

Okay. And what about the Velar? How much is the waiting period or order books that you have on hand?

I think we -- it's very early days on Velar, so I'm actually hesitating to give a figure. I think in the markets where we've released it, I think we have about 3 months' sales, but it's not been 3 months' orders. But it's not been released yet, launched in all markets around the world. So it's a little bit early to say. What I would say is the press reactions to the car and the initial customer reaction to the car has been incredibly positive. And I had the pleasure of driving one last week, and it's a superb new addition to the Range Rover line. And I know I'm biased, but it's a fantastic car. So I'm convinced it's going to do well.

Okay. And my second question is on ForEx. When do you see a large part of this ForEx running out? I mean, I know this question has been asked. But just to understand, the bulk of the losses, by when do you think they will get over? Because for this quarter also, if my understanding is right, if there were no hedging, then you would have had GBP 450 million higher EBITDA. Is that understanding correct?

Well, for EBITDA, yes, that's true. But for accounted profits, it's GBP 365 million as we talked about before. And I think that -- I think I hesitate to think -- to say that we're going to forecast any line of our income statement individually out to -- by quarter this year much more beyond that. So I'm kind of reluctant to kind of get into that with the FX part of the income statement. I think I'd just stand by the statement that we made before, that from here, we do expect the level of hedging losses to start coming down, perhaps gradually in Q2, in Q3; a little bit more pronounced in Q4 and then come down thereafter. Remember, we have -- our hedging program is to hedge out 5 years in descending percentages, and it does come down every year, so.

Okay. But I mean, what is the outstanding loss that you would have on our book right now?

Well, in terms of the hedge reserve, it's something on the order of GBP 1.7 billion.

So it has come down significantly from what it used to be around, say, GBP 2 point --

Yes, it was over GBP 2 billion at the end of March.

And just one question on India business. So would you have any update on how is the new SCR technology trucks that we have launched? How is the performance of that? And how is the acceptance? Just some thoughts on that.

I think the performance of the new SCR technology, it has been very well accepted. And as we have pointed out, it is also more fuel-efficient than the EGR technology, which is there. So the acceptance is very good with the fleet owners.

So when do you start to see the benefit of that in market share?

We have started seeing the benefit of it. So I think if you look at the SIAM numbers and look at the month-on-month sales volume, you will see that every month, we have increased market share from April until July. So every month, we have been gaining market share. Obviously, there was a constraint in the -- we had supply constraints, so that obviously has impacted our production volumes. But if you look at our sales volume, you would have seen the improvement in market share, which is there.

Do we expect that trend to continue now going ahead through the rest of the year?

Yes, please.

We take the next question from the line of Amyn Pirani from Deutsche Bank.

So first of all, just a clarification. The FX losses are now not part of other expenses line as they used to be, so they have already adjusted mainly from revenue and a bit on raw materials. That's correct, right?

Yes, that's correct.

That is correct.

Okay, okay. So in your presentation, you mentioned that there is impact of GBP 93 on a Y-o-Y basis because of higher variable marketing expenses. This would be already adjusted on the revenue line? Or is this part of other expenses?

Correct. It's -- our revenue is a net revenue, so it's in the revenue line, yes.

Okay. So my question is actually your other expenses have actually grown on a Y-o-Y basis while volumes from the U.K. plant have been flattish to slightly negative. So given that ForEx is not causing the fluctuation in other expense line, just wanted to understand the reason for the increase in other expenses. And I mean, what is the way -- how should we look at it going forward?

I think the way I'd look this quarter and the way I would look at it going forward is linked to what I've already said about the business. We're investing very heavily to grow the volume and the product range, in particular this year, with the launch of a new Discovery, the Velar, the E-PACE, the I-PACE, some other products I haven't talked about. And what that brings is a certain amount of growth and launch cost and growth in depreciation and amortization within the business in order to support the higher scale for which we are building the business. And therefore, part of what you see in this quarter are those higher costs that year-on-year, be it mark -- there's marketing cost, there's depreciation, amortization, there's some other investment related in operating cost that supports that future growth plan which we are implementing. And that's really how I would think about it for this quarter.

Okay. So going forward, given that the Discovery and the Velar are ramping up and you have some exciting refresh coming on Range Rover and Sport, these costs ideally should not expand proportionately, right? So we should see some operating leverage. Is that the correct way of looking at it?

So I would -- yes, and one way to look at it is when I look backwards actually at the prior quarter, and look at the profit in the January to March period, the PBT was GBP 676 million. And this quarter obviously, the underlying profit is significantly lower. And when you look at that running quarters, what you see is the bulk of the production and profitability is driven by lower volume because of seasonal factors and model-running the model out -- run out. And therefore, assuming we are successful, which we intend to be with our product launch and growth plans in the balance of the year, then it illustrates that one ought to expect to see that positive operating leverage help the profitability of the business in the second half of the year, as you've said, yes.

We take the next question from the line of Jamshed Dadabhoy from Citibank.

So the question from my side is that, your variable marketing expenses at this point in time are almost 7 percentage points of sales -- about 6.5 to 7 percentage points of sales. If you think about your new model lineup over the next couple of years, how do you see this number trending down? Or another way to put it is that when you look at your 8% to 10% EBIT margin guidance, which is there for the midterm versus the 1% that you will have done this quarter, how much of that margin capture will come through lower variable marketing expenses?

That's a very good question, which is quite difficult to answer. I think, overall, what I'd say is that the variable marketing level right now, it's a little bit lower than you said, closer to 6% rather than 7% to date. But it has increased over the last year, largely due to more competitive market conditions that we've talked about in prior quarters in these investor calls, and we've seen that in this quarter also. Looking forward, yes, you're right that new models typically have lower incentive levels than models that have been in the marketplace for longer. So -- but I'd think that the level that we're at, somewhere in that 5% to 6% range, is a fairly normal range for this business to be at.

And therefore, I wouldn't necessarily say that I would expect to see significantly lower overall incentive levels in the future. Although new models will tend to be lower, and models that have been in the marketplace for longer will be -- tend to be higher. But I actually think what we've seen is a little bit of a reversion to a more normal level of incentive spending than perhaps we enjoyed in the past.

Okay. So then if I just look at the gap which has been bridged between margins today versus margins in the medium term, are you saying it'll purely be a function of scale of business, and operating leverage will drive it? Or is there any internal cost-cutting target embedded in that construct which hasn't been discussed?

Yes, all of that. I mean, you could expect that, of course, we -- our business plan in terms of delivering our medium-term targets depends on all of that. It depends on delivering new models successfully, and those new models with good margins is important. And as I said, the newer models do tend to have lower incentive levels. So new models, driving more scale for the business as well, and therefore, a bit of operating leverage. Yes, that's part of it. And yes, although we don't talk a lot about it in these discussions, we also have an internal cost efficiency program that you'd, of course, expect us to have when we're driving. We seek to drive cost efficiencies across, in particular material cost, in order to help offset the cost of new technology and in order to reduce cost to make it more efficient.

And If I give a couple of examples of that; in fact, I already did. Because as I mentioned, we're launching a vehicle in Austria, the E-PACE. And as I said, that vehicle will access a supply base that's a little bit more Eastern Europe than traditionally has been the case for our U.K. manufacturing plant. We're building a manufacturing plant in Slovakia, and that also enables us to access a lower cost base for the products that will be built there than was the case for the products that are built in the U.K.

And if I gave another example, we've included here the impact of changes that we've made to the defined-benefit pension scheme, which broadly puts it on a more sustainable basis, which is good both for the members of that scheme and for the company. It does help mitigate the cost of that over the coming years for the company. And those things, together with other things that I won't talk about now, are all of the things that we're working on in our medium-term business plan to both grow the top line through fantastic new products and also drive some operating leverage and also strive to keep the cost base as efficient as it can be in order to drive not just volume growth but profitable, sustainable volume growth.

Okay. Just one last question if I may. What's the backlog on the Discovery? Hello?

Yes, Jamshed, go on. We can hear you.

Yes, so I was just saying what's the backlog on the Discovery? I know you mentioned on the Velar, depending on the market, it's about 3 months. But how is the Discovery trending, the new Discovery?

I think it's around about 2 months right now. But again, it's not fully launched in all markets, just starting in the U.S. and China. So it's early days in the U.S. and China. It's been in the U.K. for a bit longer. So I think we'll watch and see that build. I'm confident it's a very -- I drive one myself, and it's a fantastically versatile vehicle, so I'm confident we'll fill the volumes of that through the year.

Ladies and gentlemen, we take the last question. We take the question from the line of Jinesh Gandhi from Motilal Oswal.

My question pertains to JLR for RM cost on this quarter benefit just for the onetime impact of ForEx of GBP 96 million, RM cost has been much higher. Any particular reason for that?

Sorry?

Sorry, we didn't understood what you said. RM cost?

Raw material costs for the quarter?

Raw material cost is a little higher year-on-year in the quarter. Yes, I think we've seen a general trend upwards in some of the commodity costs for aluminium, copper, steel compared to the levels of a year ago and in prior quarters. So yes, we have seen a, I'd say, a modest trend upwards.

Okay, okay. And secondly, with respect to the India operations. We have seen other expenses going up quite substantially. So again, the one-offs there are -- one should expect similar run rate?

Jinesh, there are no one-offs in the other expenses this quarter.

Okay. So this is more sustainable [entry]?

So we are -- as you would have seen in the presentation, we are also working on the cost efficiencies, cost reduction initiatives, which will help us reduce material cost and -- sorry, all the other fixed expenses, which are there.

Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.

Thank you for taking out time to attend the conference. In case we have not been able to take your questions, feel free to reach out to the Investor Relation team, and we will help you, support any queries which still remain unanswered. Thank you, and good night.

Thank you very much, sir. Ladies and gentlemen, on behalf of JPMorgan, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.