Tata Motors Ltd (TTM) 2023 Q1 法說會逐字稿

Okay. Apologies for the delay. Welcome to Tata Motors Q1 FY '23 Earnings Conference Call. I'm joined today by Mr. Thierry Bollore, CEO, Jaguar Land Rover; Mr. PB Balaji, Group CFO, Tata Motors; Mr. Girish Wagh, Executive Director of Tata Motors; Mr. Shailesh Chandra, MD, Tata Motors Passenger Vehicle Limited and Tata Passenger Electric Mobility Limited; Mr. Adrian Mardell, CFO, Jaguar Land Rover; and my colleagues from the Investor Relations team.

Today, we plan to walk you through the earnings presentation followed by Q&A. (Operator Instructions) I now hand over to Balaji to begin the presentation.

Thank you. Firstly, thanks everybody for taking the time to join the session. And as customary, we'll quickly cover the presentation slide assuming that you've gone through it or have first look glance at it, and obviously, spend as much time as possible on the Q&A.

Regarding the safe harbor statement, you are well aware of nothing new there. Just again, a reminder to everybody that the way the numbers are being presented with consolidated view downwards into TM -- Tata branded commercial vehicles anywhere in the world, Tata Passenger -- Tata branded passenger vehicles anywhere in the world, Jaguar Land Rover vehicle financing. That's how the verticals are done, no change in that, just a reminder.

Thanks. Again, it's been another intense period for us, both in TML and in JLR. And part of the (inaudible) fall out, I want to (inaudible) this in terms of the incorporation of Smart Mobility Solutions subsidiary for managing the GCC business of the Government of India and (inaudible) transport undertaking. And, of course, the EV portfolio continues to expand with the launch of EV -- Nexon EV Prime and JLR for the Defender 130 launch, we can talk about later as this come through this quarter, and refocus continues to deliver results for us. And the order bank rose to a new record of 200,000 units.

Next slide, please, on the financials. Let me start by putting it in a context that it'll be a disappointing quarter for us, and we are well aware of these numbers did not match our own expectations when we started the quarter. Yes, there is a fair amount of challenges on semiconductors and COVID-related lockdown that we have to contain with.

But at the same time, the one that really caused us we push the ramp-up -- the slower-than-expected ramp-up that we had in Range Rover and Range Rover Sports. And I'm sure, Thierry and Adrian are going to talk about it in the coming plan. But as we end the quarter and we entered into Q2, we believe we are in a strong wicket and therefore are quite confident of how the current quarter is going to land up that is Q2. But that's for the future, but let's [what we delve] into Q1. Growth of 48% in wholesales and about 8% revenue growth and the PBT before exceptional item of about INR (inaudible) crores. And (inaudible) pension-related matters, that Adrian will talk about in the INR 5,000 crore loss.

EBITDA deteriorated by about 90 bps year-on-year and EBIT percentages of about 60 bps improvement compared to last year same time is something that would have been better. And FCF on outflow basis about INR 9,800 crores, most of it is working capital, so I'm not particularly worried about that.

Next slide. Obviously, the number also got impacted by the revaluation of FX and commodity hedges in the highly volatile FX and commodity markets.

Next slide. Source of growth, if you look at it, we grew about 8% in revenue terms, volume and price contributing roughly 50-50, and translation took away a lot of it basically pound sterling, depreciating a lot vis-a-vis Indian rupee. And therefore, that's what we see as a 4.3% in the translation.

The profitability improvement, most of the cylinders fired between CV, PV and the others. And of course, JLR took down the big profitability because of their challenges that they had which ensured turnaround in this quarter. Net automotive debt went up from INR 48,700 crores to about INR 60,700 crores, almost entirely explained by working capital and about INR 2,000 crores of underlying external debt that is there with INR 34,800 but that should reverse once the profitability improves.

With this, let me now hand it over to Adrian to take you on JLR in a bit of detail. Adrian?

Yes. Many thanks, Balaji. Next slide, please. Okay. So this is [our 6 quadrant,] as Balaji said, disappointing quarter for us in Q1. Retails were balanced the same. So as you'll see in the presentation, we have no concerns about demand and retail levels at all.

Revenue was down. Wholesale volumes were down 7%, and that's reflected in the revenue particularly because of the model changeover nameplates, Range Rover and Range Rover Sport in the quarter. We had a particularly weak mix within that revenue base.

And that really is the story for the losses that you see there, the GBP 500 million. The EBITDA 6% and the EBIT minus 4% in the quarter. Free cash flow was minus GBP 769 million. That's not a number we're proud of, although it is the best quarter 1 result for 5 years, incredibly but we can do much, much better with that in Q2 and going forward with certain of that.

Next slide. Okay. So these are the key performance highlights. I've mentioned some of them. Order bank, Balaji mentioned, up to 200,000 units, we will take you through that. There is a pensions benefit for the reestablishment of our future pension liabilities at an inflation level of CPI rather than RPI. That's excluded from that loss before tax because it's non-EBIT related. A refocused program continues to go well.

I will take you through that. And the liquidity continues to be strong, GBP 3.7 billion cash on hand and a GBP 1.5 billion revolving credit facility from July 2022. So total liquidity GBP 5 billion plus.

Next slide, please. Okay. So this is our retails under wholesales in quarter 1 by brand. We've broken this out by the -- we used to refer this to nameplate families. We're now referencing this as individual brands. Retail is at the top there, you see a flat and they're pretty much flat across all of the brands.

Obviously, that's retails being fed from dealer inventory. I do have an inventory slide later, and there's some things on there that hopefully you'll see is this starting to turn around for us.

Wholesales. This really lands on the point about our Range Rover and our Range Rover Sport. You can see there in the Range Rover brand. Wholesales are the lowest quarter-over-quarter versus last year. That's where we've fallen because we haven't been able to build up the production in that new facility. I'll talk to that later as well as fast as we would have wished.

And that's really the story behind the total wholesale reduction in the quarter. Defender was stronger than previous quarters than last year as that plant, Nitra is getting closer to a level of production than any of the plant at the moment.

Next slide, please. And this is the same data but hit now broken down by region, regional sales, retails again at the top. And what you see here, which knowing our profile of what we sell where is corroboratory to the last page, we've done weakest in our regions that are most reliant on our Range Rover and our Range Rover Sport because of our inability to ramp those products up at the speed we would have wished.

So North America is down significantly heavy Range Rover and Range Rover Sport region. So is China down heavy Range Rover, Range Rover Sport region and also snippets of overseas. We've done better actually in the quarter in the regions that take the other products from other plants (inaudible) in Europe and the U.K. And the wholesale data you see there is while I won't go through that all in detail is a version of what I've said before. You see China down again because of that Range Rover, Range Rover Sport numbers there. Electrified data are up 2% on previous quarter, now to 66%. [BEV&PHEV, MHEV] was down slightly, and that's because of the absence of the Range Rover, Range Rover Sport for (inaudible)

Next slide, please. Okay. So this is our walk from last quarter -- sorry, from quarter 1 last year. And it's telling you what you should expect to see the significant adverse is on both volumes down 13,000 units and mix, within that mix, there's actually a negative of 170 for Range Rover and Range Rover Sport and 50 positive for Defender.

Our VME continues to be at historical lows and the pricing actions we took earlier in the year are starting to come through. Inflationary pressures are similar to what we actually indicated in Q4. We continue to have bad news on capitalized engineering. Why? Because our new programs haven't yet come to maturation, expect that to change as we go through the balance of this year.

That's worth about 1.5% EBIT. Next. And then the bad news on revaluation because Sterling fell to 121 at the end of the quarter. The bad news on commodities because actually commodity rates for aluminum palladium, the ones we hedge most actually also fell as we went through the quarter.

Obviously, both of those 2 things are good news for our operating model, and you can see operational financial exchange, particularly on the dollar was good news in the quarter. So overall, that walked us from the 0.9% EBIT to the minus 4.4% EBIT. And again, this excludes the pension exceptional item, which I referenced earlier.

Next slide, please. Cash, where are we on cash, minus GBP 769 million. Most of that, again, is working capital, but the constituents are slightly different. And the inventory has actually increased, which obviously, from a cash and a working capital perspective in quarter is bad news. But from a starting to build back the health of the pipeline and starting to build back parts inventories, which, of course, will help with our build reassurance going forward. That's where that money is being consciously spent this quarter.

Underlying cash is actually minus GBP 150 million. And again, that points to the weakness and our sales profile, particularly to Range Rover and Range Rover Sport. Next slide, please. Okay. Our breakeven remains pretty much the same as was last year on a full year basis. 80,000 to 85,000 units in a given quarter. It was -- even though we had a weak profile of sales in quarter 1, as I've explained already, that breakeven point was still 80,000 units.

We actually did build more cars than we actually wholesale, and I'll take you through that in a moment. We ended up by building our inventory work in progress by about 8,000 units, which we will complete in quarter 2. So that breakeven given the conditions we have is still really, really low and really, really strong.

Next slide, please. This is the investment a little bit lower than I was expected by about GBP 50 million. You can see the point there on the left-hand side, the amount of engineering expense we are capitalizing, it's only just over a quarter, total engineering bill. And the previous year, you can see it was 40%.

When we take our new reimagine architectures, EMA and Pantera through their approval processes later in the quarter, [stroke] early next quarter, then that will start to lift to a normal level. I've given you before, 50% to 60%, and that's worth 0.5% EBIT. Capital investment is lower. This time last year, we're finishing up our investments and our (inaudible) facility for MLA.

Next slide, please. Okay. So let's talk about where we were on supply and particularly on production in the quarter. I'll give you a second to start reading that, but I hit the highlights. So look, we did have some chip supply constraints, particularly earlier in the quarter, but particularly relevant to the build-out of our old Range Rover Sport.

That did delay the completion of the old Range Rover Sport. Many of those units we did actually need to build into WIP, which we're clearing through actually some of them this month in July. That did have an impact on the transfer of our labor into the new facility, which builds the new Range Rover and the Range Rover Sport.

So there was an impact on semiconductors, with a particular supplier and the work we've done with our particular supplier later in the quarter has meant we haven't had any further disturbance from that supply source right through to the shutdown period at the end of July. It shows the long-term contract work we are doing is actually starting to show benefits.

We are seeing the light at the end of this very, very long tunnel here, particularly on semiconductors, we feel. And then the rest has been all about our ability to ramp up 2 new vehicles on an all-new architecture in an all new (inaudible) facility with an all-new body shop and of course, a workforce that needs training and an added shift, by the way. We have added a third shift into that facility because of the huge demand that we have for these products within our order banks.

And is -- so those challenges are actually quite normal for a changeover point, but they have been exacerbated by the semiconductor point I mentioned earlier and also the COVID lockdowns in China, which did impact the ability for us to consistently build units week by week within that facility. A lot of that is starting now to become behind us.

I've mentioned the partnership agreement with our key supplier, which has meant no shortages of semiconductors from that source for the rest of the quarter and through the first 3 weeks of July. Our ramp-up is beginning, particularly on the Range Rover, which was the first vehicle and our production on that vehicle doubled as we went through the quarter from just about 500 units a week to just over 1,000 units a week.

So we're starting to see that increase ramp-up speed on the Range Rover through to July, that increased again to about 1,300 a week. So we really do feel we're breaking through on the Range Rover, and we now will go into that same process with the new Range Rover Sport, which may take a couple of months or so. And we're also seeing reduced impact from COVID lockdowns in China as well.

So just a point around MLA, the production of the new Range Rover, the production of the new Range Rover Sport, the improvements we've made over the last 6 weeks where we ended up in July at a much better place in April. Now with what we see in front of us, and we're now starting to see the capability to deliver 90,000 units to our dealers and importers in quarter 2.

So a significant jump on that quarter 1. Next slide, please. And the orders have kept growing. In fact, they've grown in this quarter larger than any other quarter, marginally larger than the quarter when we announced and showed the Range Rover in October last year. We've now got 200,000 customer orders. That excludes the dealer orders, of course.

And you can see there our 3 latest and greatest product offerings, Range Rover, the Range Rover Sport at the bottom there and the Defender making up almost 65% of that volume. They are our most valuable brands, our most valuable nameplates as well. So we have a super healthy order bank, a super healthy future revenue stream, and we're starting to break through the production issues, and they're starting to be light at the end of a very long tunnel on supply and semiconductors as well.

So a lot of that is not reflected in Q1. That's why we're really disappointed and as you can probably hear from my voice, that had frustrated about quarter 1 as well, but we are starting to see those core ingredients move in our favor into quarter 2.

Next slide, please. And we've also revealed a new member of our Defender brand family, the Defender 130, the extension of the vehicle at the rear -- beyond the rear wheels. This vehicle will safely and comfortably occupy 8 adults. We expect it to be very, very popular in U.S. and some Middle Eastern markets as well.

And if you did notice, even though the production at Nitra is closest to a normal level (inaudible) of the plant. Our demand in orders for Defender increased by 5,000, 6,000 units in the quarter. A lot of that was for this vehicle. So it's at an incredibly fast start and appeal even though it was only revealed a month before the end of the quarter.

Next slide, please. Okay. Refocus. Look, we did GBP 1.5 billion last year. Even though it was a very thin transactional value quarter for us, we still did GBP 250 million in quarter 1, that was broken down in 3 constituents. You've seen most of that data already earlier in the presentation. The net pricing value was GBP 120 million. That's a big constituent of it. We are starting to see labor and efficiency benefits within our agile transformation, particularly within the engineering fraternity.

Obviously, we're doing that mostly to ensure that we speed up the quality maturation of the delivery of our products, but of course, the unspoken within there is the cost of delivering them will be lower, also spending less time and less people hours on it. And then the investment number, which was low for the quarter, and therefore, did contribute in this quarter, but I do expect that to be much, much less in later quarters.

And I expect the other constituents to be greater. Next slide, please. So inflation, we'll be talking about inflation I'm certain for the next few quarters that we introduced this slide earlier this year. The same slide on the left. GBP 12.5 billion in cost base, variable cost base, 4 significant elements within there, which are suspect to high inflation levels, labor, multi-cost semiconductor prices and energy, of course. And the balance between the pressures have shifted a little bit. We went into the quarter with aluminum at 3,500 tonne. We've come out of the quarter with $2,400. Palladium came down as well $300. So it shifted a little bit temporarily perhaps from commodities and, of course, we're getting some utility energy cost increases, semiconductor cost increases and labor cost increases.

So the absolute number for the quarter versus last year was GBP 160 million greater. It's a little bit less than I was expecting actually in the quarter. I was expecting up to GBP 200 million. And some of these headwinds are stronger and some of them are starting to alleviate. But I think it's reasonable to assume we will have quarter-over-quarter data of this type of scale and size as we go through at least the next 2 quarters, not certain about where we end up in Q4 yet.

And our refocus program, we're very, very confident will more than offset and almost did -- in fact, it did offset even though not fully in EBIT, the on cost and inflation as we go through FY '23. So I'll repeat 2 or 3 things here. One is we're very confident about the overall scale of the program. And what we will do this year, we're confident that it will offset. In total, the absolute amount of inflation. And as we go into the second half of the year, we expect an EBIT offset also as most of the inflationary pressures we're seeing is then overtaken by the other things that we are doing, including the pricing actions, which will come through later in the year.

Next slide, please. This is an important slide, although it doesn't look it, right? So this is the health of our end-to-end pipeline from build to ship in those vehicles. And if you -- I'll take you back to January '21, we've talked this 2 or 3 times before, but I wanted to talk specifically today.

If I take you back to January '21, that's as close to a normal healthy pre-semiconductor pipeline that we have. And it increases and falls down because of the aberration called March in the U.K. where we build units and then we sell them. So if you draw a line versus the first 3 months, you'll see pretty much 60,000 units in the dealer pipeline and 40,000 units in our pipeline, and 1,000 total units would have been a pre-semiconductor normal environment. And from there, our order bank is about twice of our dealer inventory.

That's what we would have expected before semiconductors. WIPs about 4,000 units. That's what that blue line [lives.] The WIP is a subset of the gray line called, JLR inventory. We own the WIP, we own the JLR inventory. That's on our balance sheet. That's a part of the GBP 3 billion that you would have seen if you look at the balance sheet.

It really, really fell as we went throughout quarter 2. You will remember the quarter 2. They both fall towards the 30,000 level from an inventory dealer and an inventory JLR perspective. But our WIP also fell to about 2,000 units, right? So we were building cars, but very, very few.

We gradually grown both of these over the course of the next -- last 3 -- excuse me through to June. And there's been a significant uptick, as you can see there in June. So what that means, we are releasing more cars into the dealer network, and we are releasing more cars onto transporters, onto trains and onto ships, and they will turn into retails and wholesales at some point. And we do believe a part of that uplift is going to happen in quarter 2.

Now we did end up with 10,000 cars and work in progress. At the end of June, 5,000 of those were Range Rover and Range Rover Sport, and I'm simply giving you more corroboratory evidence to the real breakthrough here is in that facility at Solihull Range Rover, Range Rover Sport. That should have been 1,000, not 5,000, and we're starting to work that number down, including JLR shutdown period this week and next week, and we have high confidence those units would also be released onto those transporters, ships and trains as we go through August and into September.

So we are long, long way away from being normal there, but this (inaudible) starting to shift back towards a more normal environment, which underpins our 90,000 unit projection for Q2.

Next slide, please. So one of the things that are in front of us, I've said them a few times already, right? We absolutely need to continue to make progress in our new facility at Solihull.

We're very, very confident we're doing that on Range Rover. We can then repeat that product off the same architecture, don't forget, in Range Rover Sport later in quarter 2. Our guidance is (inaudible) of 90,000 units I've mentioned a number of times. We're very confident Refocus will be GBP 1 billion, and there is a plus there, by the way, I'd be more informative about how much of a plus when we talk in November.

Our full year guidance is still 5% and GBP 1 billion positive cash flow despite the disappointing and frustrating quarter 1, that does mean we need to break through in quarter 2 and delivering 90,000 units would be a sufficient breakthrough to underpin that number. And we will then need to break through again in quarter 3, and that's where the Range Rover Sport will come through strongly for us we do believe.

Our longer-term targets, of course, on Reimage, we rarely talk about these, right? Please don't think because we're not talking about that we're not doing them. We absolutely are doing them. 90% of our engineering teams are on Reimagine programs now. And those engineers were released from Range Rover, Range Rover Sport, which is why the capitalization is so low at the moment. So overwhelmingly, the focus and attention of our workforce is on future product.

We now have a much more concentrated determined full-time response to the daily activity, which you're starting to see us break through on and that has been added to again during quarter 1 because of the challenges we had in quarter 1.

Free cash flow. Look, I'm not walking away from the near debt number in FY '24. We have to break through in quarter 2. We are running out of time. We just have 21 months and that means from the end of June, that's an average GBP 200 million positive cash each month. This is still possible, but we now have to break through the speed and the confidence when we do breakthrough will underpin FY '24, 7% plus EBIT. And obviously, at that point, we'll be in a really nice place to talk to you about how we're going to walk to 10% plus.

Next slide, please.

It's me, Balaji. The numbers here. On the market share side, we had a -- we dropped 42.5% for the quarter. And the key callout here is the shift away and more than a shift away to more shift towards the demand pool supply chain to ensure that the market share gains are sustainable and focusing squarely on how we are working with the registration market shares rather than wholesale-led market shares.

So this is something that we are committed to. And therefore, this noise in terms of market share for a quarter or 2 will be there, but it didn't get us to a more sustainable pathway of simultaneous market share gains, optimal inventories at the dealers and, of course, lower levels of VMEs that we need to put in place. So that's the emphasis there. I'm sure, Girish, would want to talk about it subsequently.

Next slide, please. The key callout on this slide is a mix that you see of powertrains. We would want to watch the ILCV space carefully because we did notice the reduction in the CNG composition. I believe it is nice -- temporary nice as the prices of CNG with diesel arbitrage came down a bit, but let's watch it for a few more quarters before we can take any message out of it.

Overall numbers, CV turned in a positive PBT for the quarter and on a year-on-year basis, revenue grew 107%. And obviously, this being a weaker quarter, you could see a sequential drop in terms of revenues. And EBITDA at about 5.5% and an EBIT of 2.8%. We expect this is something that's now starting to stabilize, and we'll be able to build from here on as the commodities come up. So that is the thing on CV going forward.

In terms of the WACC, the P&L WACC, you'll notice that we are stepping up SME in line with our plan to move to a more a full-based supply chain. So therefore, working on retail leads. And employee cost of 200 people, basically just the beginning of the year when the number of reset bonuses for the year, et cetera. And what you see is the unrealized FX and commodity hedges we did lose on the rupee depreciation because the hedges on the exports did lose money. And this in turn get compensated by the dividend income coming in from their account.

So overall, that thesis, the numbers balance each other out. But the other call-out I would definitely say is look at the line between realizations versus variable costs. This number if you recollect is to be at 540 bps. So most of the pricing actions have gone through realization to offset the commodity cost have gone through, and therefore, we should start seeing this starting to improve here.

Next slide. Girish?

Yes, Thanks, Balaji. So some of the highlights for the quarter, I think the industry continued good recovery and doubled the volume over the Q1 of last year. Of course, the last Q1 was barred by the pandemic second wave, but nevertheless, I think good growth shown in Q1. The EBIT margin improved by 690 bps driven by the remaining growth and also the pricing and cost actions that we have taken and has also grown 240 basis points over FY '22 full year.

We continue to see a very good growth in our spares and service penetration, thereby improving the nonretail business revenue by 75% over Q1 of last year. And this is, of course, a good profitable stream for us. On new products, we continue to launch -- 15 new products were launched along with 25 variants. And as all of you know, we also launched an Ace electric vehicle in the quarter gone by. Some of the bright spots, and we've seen that Trucker’s Sentiment index, which we track every quarter is now almost at a 2-year high in MHCVs and intermediate and light commercial vehicles. Of course, this survey was done just before the first interest rate hike was announced.

So we are keeping a track of this. There have been some softening of the sentiment after that, but I think overall, it remains very, very positive. On the commodity side, it did show some hardening up during the beginning of the quarter. But towards the end, I think we are seeing signs of softening after a good upward run since second half of last year.

Coming to the passenger segment. Finally, we are seeing a return of demand. So with the staff movement that is employee transportation to offices and factories back in place as also tours and travel and specifically opening of schools has led to good demand and the volumes grew by 60% over Q4 of last year, which is just the quarter gone by and almost 4x that of what we had seen in the first quarter of last year.

So very good demand coming back, although this is still lower than the highest which we have achieved in FY '19. Balaji spoke about the retail push that we have initiated. And happy to tell you that we had the highest retails in small commercial vehicle and pickup in Q1 of any year for almost last 10 years.

Going ahead some of the focus areas, I think our international markets, demand has been impacted especially in SAARC as well as sub-Saharan Africa essentially due to steep depreciation in the local currency, along with fuel price [tick, high] and of course, the Sri Lanka, all of us know about the political turmoil.

In this -- in these circumstances, we are looking at alternate markets and products to see how we can get back to the required level of volumes for international business. I spoke about the retail acceleration and a lot of demand pull to ensure that we actually have sustainable gains going ahead, sustainable share gains.

There's a lot of push on the digital yield generation. I'm happy to tell you that 20% of our volumes are now coming from lease, coming from digital in the small commercial vehicle and pickup. With the interest rates increasing, I think we have continued our engagement with the key financials and trying to find out ways and means to see how we can support the customers in this environment.

We started the margin improvement journey towards the second half of last year. We continue to do that and as is being driven by both pricing actions as well as the cost savings and the fundamental margin has improved quarter-on-quarter from Q4 to Q1.

Next slide. Update on the new businesses. On electric mobility, happy to inform you that additionally 100 electric buses were delivered in Q1. So now we have cumulative 715 electric buses running on Indian roads and cumulative coverage of more than 40 million kilometers. So that's a good experience that we have at over multiple cities in the country.

We are also working on the fuel-side electric bus, as we've been mentioning, and the program is on track. And in fact, we had first milestone review with IOCL with whom we are working jointly, and this milestone has been completed successfully, and both the partners were quite happy with the progress.

We did foray into the last mile e-mobility on cargo side with the launch of (inaudible) understanding for now 39,000 units. We already started customer trials and towards the end of this quarter, we will also start delivery of products.

Going ahead, we also incorporated the TML Smart City Mobility and Solutions Limited as a subsidiary and operationalized 53 buses in Delhi -- Delhi Transport Corporation. And as a part of the Smart City Mobility Solutions, which is the gross cost contract model or own and operate model, we are now managing 450 buses -- more than 450 buses and delivering more than 96% uptime.

And all of you know, we were declared eligible for the largest global tender more than 5,000 e-buses. And now we have received LOA that is letter of allocation from Delhi Transport Corporation amongst these 5,000 buses for around 1,500. We are engaging with the rest of the cities and where transport undertakings with LOAs for their share as well.

As an outcome, the revenue which this business has generated in quarter 1 is around INR 145 crores, and we are on track in terms of the revenue trajectory. On the digital businesses (inaudible), we are focusing on increasing adoption and active usage. So we have more than 235,000 vehicles now amounting to around 100,000 customers who are already onboarded.

We are now initiating the minimum viable product (inaudible) already being piloted with 3 customers will be launched next month as we enhance the user experience further. So this is based on the exterior expectations that we have captured from the customers. And finally, our digital storefront for spare parts (inaudible) pretty well, continues to grow and has grown 26% in revenue over quarter 4 of last year. So that's in summary of about the new businesses. Back to you Balaji.

Thank you, Girish. Just moving on to the passenger vehicle business. A follow-up on this slide is fundamentally around the powertrain mix, what's the CNG numbers now with increasing to 11%. EVs continue to grow strong at 7%.

Next slide. And market share of total 14.3% and the EV market share continues strong at 88%. Next slide. And from an overall financial perspective, we continue to do well on the improvements in profitability that we are putting through. So the business is now on a PBT breakeven after a long time and EBITDA of 200 bps and EBIT margin for 750 bps, pretty strong and likely to improve further.

Obviously, for the -- on a year-on-year basis, one other thing to watch out for the sequential (inaudible) in this quarter that's a bit of a pacing issue that impacted sequential margins, but that's something that should take care of itself.

Next slide. On overall financials, both volume mix and realization is coming through strong, still about 30-odd bps of variable cost realization to be made up as we go forward. Stepped-up SME is strong and will likely to step up even further as we go forward. And overall, commodity hedges did cause a bit of [grease] and that's flowing through the P&L that you see there.

Next slide. Shailesh?

Thank you, Balaji. So let me start with the Q1 industry highlights. So in Q1, the industry wholesale increased by 41% year-over-year as the semiconductor supplies improve. And the quarter sales were quite healthy at (inaudible) quarter. Segmental shift towards SUV further strengthened. It was at 40% and just continue to sort of share from 37% to 34% to last year. As far as Tata Motors is concerned, we continue to strengthen our market share, and we have maintained the spend of the quarter-on-quarter growth in market sales.

And while the PV ICE business grew by 102% with PV business grew by nearly 5.3 times. The products seen on production lines, we crossed the milestone of (inaudible) of the quarter. We also passed one of the major milestone of a monthly sale of 45,000. As far as EVs are concerned, we posted the highest set of EV sales of (inaudible) despite the stress that we faced on semiconductors in the first half of the travel, and the market share remained strong at 88%. The last several months now, we continue to be the #1 SUV manufacturer (inaudible) FY '23.

Nexon has been trending as #1 selling SUVs and (inaudible) to further strengthen our supply side, we Tripartite MOU with government of Gujarat for the automobiles for the potential acquisition of the Ford’s Sanand Vehicle (inaudible) already discussed and move (inaudible) as far as the industry is concerned, we really see that for this financial year SUV growth is nearly 3.5 million. EV demand continue to remain strong with (inaudible) positive word of mouth of nearly 40,000 (inaudible) customers that we have today. As far as Tata Motors is concerned, our -- at the start of the Q2, we have a very robust booking pipeline and no channel inventory, which (inaudible) quarter 2. Demand for the SUVs remain strong. We have a very strong booking pipeline here also.

There has been a good traction of CNG, which continues. We expect the vehicle supply to improve (inaudible) semiconductor availability in quarter 2. Our rural demand is expected to be strong on the back of good monsoon. And Nexon EV Max which we launched in May has seen a tremendous response and has augmented the EV demand and supplies are expected to increase in quarter 3.

So going forward, the challenges really see is that the high inflation and interest rates will start impacting the auto demand while there is no stress as well as people is concerned. Until the festive season, we don't see a consumer -- we also don't see a sign as far as the ramping up demand is concern given how the retail industry is getting impacted because of these factors, we have to be a bit watchful, and post the festive season, we will witness a list of other industrial demand systems.

As far as Tata Motors is concerned, we remain focused on demand-generation activities with now a segment level and micro-market area focus. We continue to enhance the supplies further with -- as the semiconductor availability also improves, and we'll fast track the cost reduction efforts. Back to you, Balaji.

Thank you, Shailesh. Moving quickly on to the cash flow slide (inaudible) go straight into the Tata Motors Finance.

Go to the Next (inaudible) collection efficiency starting to improve now at 98% for June, and therefore, GNPA will keep improving with every passing quarter and fully compliant with all the new PCA norms that RBI has put in place, and both capital adequacy and liquidity remains comfortable. And that's (inaudible) we take that ROE from 5.1% all the way up to double digits in the foreseeable future.

Next slide. So coming on to the outlook, key callouts, Demand remains strong, and we expect it to remain strong despite inflation and geopolitical situation. Obviously, need to watch the Indian CV situation carefully. But right now, we don't see any cause for concern at this point in time. Chip supply is expected to improve further from Q2 and therefore cooling and -- added to the cooling commodity prices, that should also help in underlying margins and therefore, we do aim to deliver the strong improvement in EBIT and free cash flow from Q2 onwards.

And one of the key things in this is what Adrian talked extensively about is JLR delivering a 90,000 on this side, continuing to improve market shares while restoring double-digit EBITDA margin will be the key imperative of PV and of course, CV and of course, PV, keep the show going and accelerate as much as possible. So that's (inaudible) what we are working on.

Happy to take any questions that you may have. I already see you have got 13-odd questions that have landed up already. Let me start. I think, Girish, the first one is coming your way.

This is from Sonal Gupta, L&T Mutual Fund. MHCV market share is now down to 54.6% in Q1. Is there a level at which you expect this to stabilize? And what are the risk that the commodity benefits are competed away in that CV business -- -- benefits are given away in the CV business?

Okay. So first of all -- yes, first of all, on the market share front, so I think over the past 4 years, we have been consistently growing market share in MHCV and we've seen some softening happening in Q1, but we are determined to get this back and on the back of wave of actions that we have, both on the demand generation front as well as launch of new products, I think we should be getting it back. So certainly not satisfied at this level. As far as the commodities are concerned, Sorry Balaji?

Commodity margins are likely to be given away due to intense competition.

So I think we have a comprehensive margin improvement plan running, which is working on both the plants, that is how do we improve the realization basis delivering more value to the customer. And the second thing is how do we keep on shaving off cost. And one of the cost benefits is the commodity reductions, which are likely to happen, we see how it comes.

And also, Sonal, just to add to that point, if you recollect the outlook, we specifically calling out to reach double-digit EBITDA at the earliest. So that's clearly an imperative for this business.

Okay. Next slide -- next question from Jinesh Gandhi on JLR. Adrian, I think it was coming your way. How should we think about mix for JLR, considering ramp-up in Range Rover and Range Rover Sport, Defender, but also chip supply is expected to improve, could mix further deteriorate over first quarter levels. And the second question, do you expect strong and consistent increase in wholesale from second quarter from the 90,000 level (inaudible) And lastly, in which line item does an effect devaluation unrealized commodity hedges gets affected. 3 questions.

Okay. Thanks, Balaji. So the mix was really weak in quarter 1. Range Rover mix was about 8% of that 70,000 units. Our order bank is telling us between Range Rover and Range Rover Sport is 40% of the order bank there. So there's a significant improvement of mix that will happen.

Once we start to overcome those issues, we've referenced significantly in the quarterly results so far. So I absolutely anticipate mix not only to improve in quarter 2, but to continue improving through the balance of the year as those production challenges continue to boost. Do I expect strong increase in wholesales from Q2? Look, I expect each quarter to be better than the quarter before. That's no different actually to what I've been saying for the last 2 to 3 quarters.

I did expect that in this quarter also, actually. So if I had to put a number on the data last in March, that number would have been 70,000 high, 70,000 mid and the difference would have all been Range Rovers, and that would have actually started to shape the quarter much closer to the level of EBIT [stroke] cash loss I was inferring on May 13.

So I do expect each quarter to be better than the last. I can see data for the first 3 weeks. We are now building consistently above 7,000 units a week, and we're building consistently week on week on week. That will increase to the 8,000 units plus, which we will need in this quarter when we start building Range Rover Sports.

We haven't built Range Rover Sports for 6 to 7 weeks apart from a few units just in and try that. That will begin to happen post shutdown from the 8th of August. So we're pretty confident actually with what we see in front of us that the build will grow from 7,000 to 8,000 units a week.

We have 11 production weeks in the quarter that gets you close to 90,000 units, and we have 10,000 units in WIP, which will reduce. And therefore, that's why we're saying we think the wholesale number will be 90,000 units. And which line item does FX revaluation, well, it plays down the whole step. So it's significant on revenue, of course, as we bring all of the overseas revenues into sterling. It's significant on cost, of course, because so much of our cost base is sourced on overseas currencies around 55%, a lot in euros. But it's line by line. So if you take marketing costs, and within the marketing costs, which is obviously in the other expenses, we add up all of the foreign currency pieces. And then we have a big line item in there, which really covers our exchange losses. So it's down the whole stop.

Thanks, Adrian. Yes. Next question also from Jinesh Gandhi (inaudible) our capacity and capacity in the (inaudible) what is the scope increase capacity to debottleneck?

So we are pretty much operating at full capacity in Ranjangaon and Pune. We have some headroom as far as the Sanand plant is concerned. To order -- to debottleneck our capacity in (inaudible) additional possibility of 10% to 15% of debottlenecking. So that's as far as the capacity (inaudible) as you know, we have (inaudible)

Thanks, Shailesh. Girish, your way. Are you seeing (inaudible) of demand from small fleet operators?

Yes. So a few things I would like to say, first is sentiment index that we measure is at a high. And therefore, that is an indication of the interest on both large as well as small fleet operators. Also, if you see the intermediate and light commercial vehicle as well as small commercial vehicles, generally, the small or retail customer, single vehicle owners are the buyers for these vehicles. And these segments have grown more than MHCV. So actually, the small fleet owners, single vehicle owners are still earning in the market and not likely to see softening immediately.

The point of inflation, which I'll pick up, Jinesh, we expect commodity savings to come in the second quarter. We do see commodities starting to pull off, and you should start seeing this coming from the second half as the current hedges wear off as well as some of the contract we're putting in place are coming true. So let's see how it plays out.

Next question is from Ronak Sarda, Systematix. In specific headwinds on CV EBITDA margin as Q1 FY '23 production was largely similar to the Q4, coupled with softening RM?

Yes. So I think 2 points I would like to make. One is, of course, the scale impact. So the revenue has actually gone down by 15% from Q4 to Q1. So that is one of the reason. Second is that MHCV volumes have come down by more than 20% from Q4 to Q1. So this certainly has an impact on the margins. But what I would like to say is -- on the back of the pricing and the cost reduction actions that we've taken, the fundamental contribution or underlying contribution margin has actually improved over Q4 of the last year.

Thanks, Shailesh -- thanks, Girish. Next question is to me, actually. On India (inaudible) can you please take us through how the GCC orders win will be accounted in the financials?

Okay. There are 2 things here. One is Tata Motors stand-alone and then there's a subsidiary Tata Motors Smart Mobility Solutions Limited. So there will be firstly a sale happening from Tata Motors to Tata Motors standalone to the Smart Mobility Solution. This will be consumed as a sale in the stand-alone books. But in the consolidated books, this will cancel each other out. The revenue will not be recognized, number one. Number two, this asset continues to remain into the smart mobility solution books, and we will have -- and the collection will happen over a period of time as this bus starts running. And therefore, there will be a revenue recognition happening on the -- in terms of rupees per kilometers, in terms of the number of kilometers requirements. And that would be the Smart Mobility Solutions books. Against this is the running cost, operating costs, et cetera will be set up against.

Over a period of time, once this particular -- so obviously, the next question in terms of we'll keep building assets in your books, the answer is yes. And over a period of time, once the collection history has been established, then you'll be able to take this asset off your books, you'll be able to sell it down, with let's say, there are multiple options out there. And there are also other conversations that have been happening with the government to find a way to actually (inaudible) at the inception itself. And those things should start seeing some results of those deliberations in the coming year and definitely before the next tender that comes out of the sites.

But there's a lot of possibilities to how to actually lighten the balance sheet and reduce the collection risk and the solvency risk of the (inaudible).

Okay. Next question is from Prateek Poddar, Nippon [India AMC.] JLR has [spawned] out a production of close to 90,000 units. So is it fair to say the visibility of build rate has guided in people very high. Prateek, Adrian has covered this elaborately, therefore, I wouldn't want to repeat this. (inaudible) can you highlight some of the reasons for the same, which you've already done so. And on the (inaudible) division looks like the model cycle tailwind for us is over, although model refresh (inaudible) Is there a concern within the team that the market share loss might be a possibility going forward unless we start with a new model cycle? Shailesh?

Yes. So I think you are well aware of the intensifying competitive landscape country. And (inaudible) share, I think we have 2, 3 points here to share. One that, as you rightly mentioned that the cycle (inaudible) and refreshes in the cycle that you can see in 2 to 3 years starting next year. And that should not only help us sustain but slightly grow on our market share. Also right now, the share grown at which (inaudible) because we are still supplying all this into the market.

The second major lever for us will be the powertrains. We have a unique position where we have all the 4 powertrains, petrol, diesel, CNG as well as electric. And therefore, we are at the sweet spot of the [good] that we are going to see in the next 2 years as far as CNGs and the electric is concerned, so that should give us with the current models and with the expansion that we're going to see (inaudible) as far as electrification on the -- within more CNG models, we will witness a growth in this segment because of our unique position of having multi powertrain option.

And third is, of course, we have been adding nameplates, but there are certain gaps in our portfolio, which we are ready to tick in the coming years. One of them, we have already shown to you, which is the (inaudible) which we had wheeled vehicle. (inaudible) , but it is also going to come with these (inaudible) And then the additional nameplate, which we've announced at the right time. So midst of all these actions is going to ensure that we continue to grow our market position.

And Shailesh, next question also, your way. What's your backup plan in case hybrids become effective from the India PV market?

So as a company, see, we are closely -- we will be closely watching (inaudible) takes place. But see, one thing we are very clear that the long term, drivers of the auto industry as well as the government in regulation and the issues that we have as well as auto industry is concerned (inaudible) environmental issues. PV is the long-term view. Therefore, as a company, we are going to remain focused on these.

Having said that, in the later part of this (inaudible) , as the emission norms have later become more stringent, there won't be a degree of electrification that would require (inaudible) And therefore, as an (inaudible).

There's also a question on price, can we launch these prices similar to hybrids or a slight (inaudible) the value per commission from PV can further improve (inaudible).

I have no clue of the hybrid price frankly because we are going to announce a new hybrid -- strong hybrid that (inaudible) even lesser than my leverage, but we'll see how the pricing pans out. But as you have already seen that we have launched our (inaudible) which are 20% to 25% price, which is (inaudible) current petrol or diesel model, automatic model. So it's already very competitive. I'm sure that this pricing will be contradict to a hybrid option that is going to come in the market. But let's see the pricing, when it gets announced, we will discuss.

Next question is from Hitesh Goel, CLSA. How much is your steel contracts pricing in Q1 higher than spot price? And if you pick the steel cost at spot prices, could the margins be higher? Girish, do you want to take that?

Yes. So generally, our steel contracts are for a period of 6 months. But due to the reset volatility, we should get through 3 months. So we are -- we have been doing the steel contracts on a quarterly basis. I can tell you that the spot prices are much more volatile and generally higher than the contracts that we have with the team.

Next question, JLR, Adrian, coming your way. Is it possible, Adrian, to sum up what was the margin pressure in Q1 that was one-off in nature?

Sorry, Balaji, carry on.

Carry on. Adrian.

Okay. Yes. So look, we pointed towards this. It was particular around the Range Rover and Range Rover Sport facility. We only built and wholesale 6,000 Range Rovers in the quarter. There's a significant dilutive impact in the margin. I won't give you the data, but your modeling should mostly point towards that data. So is it one-off in nature? Well, the binary impact of very low production on Range Rover and almost 0 production on Range Rover Sport is absolutely (inaudible) which will progressively improve, so the margins will increase as well.

Yes, the next question, skip the other one. Second one is on production, right, which you've already covered extensively. Let's go to the one on hedges. When does the adverse impact of hedges start affecting operational numbers?

It's already effecting the operational numbers, Balaji. I think if you went back to our [walk, our EBIT walk] and our profitability walk, I think it would have said the operational exchange was 210. And the impact of those hedges was about 115 versus previous year. If I give you the rates actually, the effective rate in Q1 was about 128. Our hedges is in place going forward, just over 130. So on a quarter-by-quarter basis, we have got hedges around the 130 going forward, but it's not too dissimilar to the effective rate in Q1.

Okay. So next question is from Raghunandhan, Emkay Global. For India business, can you please indicate commodity impact in Q1? I've already called out (inaudible) in fact, look at the (inaudible) pricing versus realization. Realization was a variable cost. And you do see about a 30-40 but still can be recovered, but we believe this will come off as we go forward.

As far as the e-buses, the company has won large orders, what kind of equity infusion is planned in the company that we own the buses that supplies over on a gross contract basis. Obviously, this will pan out over a period of time because the buses have to be delivered by until FY '24 onwards. So there is a fair amount of time in front of us, and we'll do it on a sequential basis. And we got a lot of things through the equity and debt combination to get that right as well. So leave with us at an appropriate time, we share with you. This will not complicate the calculations on getting net debt free. So you can breathe easy on that, but still have to track the fact that this is asset heavy, and there's a lot of work underway to get that back.

Girish, coming your way. How do you see the impact to the industry outlook for this year? And share of CNG vehicles?

Yes. So let me take the first one on MHCV. so I think this would be the fourth quarter when we've seen successive growth that has happened in MHCV. This is happening on the back of upfront infrastructure spending by the government using freight, freight rates, fleet utilization. I think most of the things seem to be falling in place. As I mentioned in the presentation, I think we are keeping a watch on few monitorables, one is the fuel prices and second is the interest rates and see what kind of impact it will have. But as of now, I think it appears that we see a double-digit growth in MHCV for the entire year. As far as CNG vehicles are concerned, I think over the past 3 months, the (inaudible) of CNG price has gone down significantly with respect to diesel, although the gas still remains. But as a result, you've seen that the CNG salience, which used to be around 40% in our ILCV portfolio has already come down to around 25% to 27%.

This is something we'll also keep a watch on how the relative pricing between diesel and CNG plays out. I think as a company, we are ready for the portfolio either between diesel and CNG and ensure that we ride the one which is required in the market.

Thank you, Girish. Adrian, this is coming your way. A slightly different question on the production point. Has there been any change in booking on the (inaudible) and there are production rate on other peers are rising ahead of us, particularly this quarter when you had a challenge? And then the next question, I think you've covered is about your [data] inventory and JLR been writing for the last 2 quarters despite (inaudible) order backlog and any impact on the incremental demand due to the global economic growth concern?

Yes. Okay. Balaji, let me take the first one. Look, when you study those order banks, I think a couple of things are quite evident. The 3 nameplates, the newest product, including the Defender, of course. The orders for those 3 nameplates just keep growing.

And there's several reasons for that. I mean we're not building as many as we need to, of course, that's 1 piece of that. But there aren't many on their own either, and that means we anticipate the orders for these 3 nameplates, particularly Range Rover, Range Rover Sport will continue to grow, and the risk of cancellation on those nameplates is very, very low.

I think there is a disparity when you look at the other nameplates we have, the orders for those other nameplates if you notice that data stayed pretty flat over the last 9 to 12 months, around 70,000 units in total. We haven't built to the level we can build there. So I think it's pretty clear that once we can build all of the Range Rovers, Range Rover Sports, Defenders, (inaudible) then once we go to a normal level of production, we will need to stimulate demand in some of these other nameplates, the lower transacting value nameplates, the SUV2 and SUV3 sectors and also Jaguar and Sedans as well.

But we are months away from that, we feel. Any cancellations we're getting are more in those lower value transacting nameplates, and there may be a link to question 3, which is there, which is a subset and a part of that, but that's unclear for us because it isn't that substantial yet.

I think your question 2 about -- why is dealer inventory been growing? Just think of our global profile as we build more Range Rover and Range Rover Sports, and we have been I mentioned earlier about the slide, if you can visualize the slide about where do we actually sell those. We sell those mostly in markets which are far away China, U.S. today. And of course, we own that inventory until that inventory is passed through ports of entrants in those markets.

So from dispatch from plants here in U.K., right through to the point of receipt in Shanghai, (inaudible) That's (inaudible) inventory. So it's actually evident that those cars are on the way. That's why it's growing, and it will continue to grow beyond this point when we get back to a normalized level, perhaps into the 5,000 or 6,000 units. So it's actually a healthy sign, even though it may not lock it when you read the call date.

Thank you. Thanks Adrian. Next question is from Pramod Kumar, UBS. Adrian, this is coming your way again. And if transaction price for the new Range Rover versus the old Range Rover given the significant upgrade to the model?

No, I can't. Look, I think this real data will show itself in 2 to 3 quarters' time. We're only built 6,000 cars. We've got 67,000 orders, 80-odd thousands across the 2, almost 90,000 orders. It would be a great -- it will be a great question when we get to Q4. But at this point in time, early orders, the most -- the richest value orders are the most complex and the most difficult to build. So (inaudible) which are still (inaudible) work in progress. Any data I give you will be misleading, but it's going to be bigger, right? You know it's going to be bigger. Those transacting prices can't be bigger, and they're going to be moving with close to 0 VME. So going to be a really rich healthy part of our portfolio going forward.

We've talked about the macro side, so I would skip. Question coming your way, Shailesh, auto and Girish, order backlog for India (inaudible) segments.

Yes. So PV I wouldn't add. There is no backlog there, but PVs are more relevant.

Yes. So we have a very strong order book, as I mentioned in my presentation also. And it ranges -- on an average, it's about 2.5 to 3 months of the average sales that we are doing right now. As far as the various models are concerned for PV ICE, it varies anywhere between 4 weeks to 3 months, for EVs a little higher, especially for the Nexon EV Max. The average waiting period would be 7 months and upwards.

Okay. The next question is from Kapil Singh, Nomura. You've talked about recession risk, do we have order books demand recovered it, India (inaudible) commodity we've talked about. I think same [with Gunjan,] I think you've talked about all the points that she has raised in that CSL funding, model shares, powertrain and mix. I think we talked about everything. Just hold on. Question from Satyam Thakur, Credit Suisse. Given the luxury -- global luxury OEMs, including JLR (inaudible) vehicle rise significantly over the last 6 to 8 quarters. Do you expect to use any benign commodity environment to certainly boost unit profitability? Or do you see industry using lower cost environment ahead (inaudible) support demand (inaudible) global growth concerns? Adrian, I think this is probably right up.

GP per vehicle, (inaudible)

The gross profit per vehicle, given the contribution margins have gone up with lower commodity costs coming in and more profits coming your way, do you expect to take it to the bottom line or do you expect to stimulate the one?

What we can see at the moment is that in our segments, the offer, the supply is not at the right level compared to the demand. That's the first element that people needs to understand. So there is -- we can see as far as we are concerned that the demand continues to increase despite we are increasing the pricing and just because (inaudible) in the market and because of the visibility of our products are such that there is a kind of magic happening here (inaudible) and pricing increase at the same time because it's clear that our profitability per car is also increasing, and we do more than compensating inflationary impacts that we can see well.

Thank you. Thanks, Thierry. I think we're probably arriving at the last question, is from [Priya Ranjan CMC.] Shailesh, this is your question. Does it make sense for the company to think of an ICE variant of curve and the entire taxation structure gives us too much leeway to price the vehicle within 500 kilometers range at a similar pipeline?

Absolutely, it makes sense. That's the reason why we are making both ICE as well as EV. I think there's still going to be a significant difference between the EV as well as ICE because here, the attempt is to keep the premium that we've been keeping on the EV versus ICE to increase the range as we are able to take the benefit of taxation, as you rightly mentioned, at the same time, take the benefit of getting battery price reduction, which might happen right now, we are seeing a slight spike in short term as it keeps on going on by the time we launch.

We expect that we'll be able to deliver better range as compared to what the current EVs are. So therefore, it makes sense at different price points, you pick up demand for different customer segments. And of course, there will be customers who have -- who are very touchy about certain powertrains. So I think we would like to give all the options to our customers.

Thank you, Shailesh. And with that, we come to the end of the Q&A session. I think first, once again, thanks for your time, all of you. I really appreciate it and also the probing questions. As we started off, we do end this quarter on a disappointing note. But at the same time, a very clear plan of action and a pathway in front of us in terms of how to deliver the rest of the year in a very strong way. And therefore, quite committed to the numbers and the targets that we put ourselves and also to live up to our own potential. Thank you, and speak to you in the next quarter on better times.