Tata Motors Ltd (TTM) 2021 Q3 法說會逐字稿

Ladies and gentlemen, good day, and welcome to the Tata Motors Q3 Earnings Conference Call. (Operator Instructions) Please note that this conference is being recorded.

I now hand over the conference to Mr. Prakash Pandey from Tata Motors. Thank you, and over to you, sir.

Thank you, Diksha. Good evening, everyone. On behalf of Tata Motors, I warmly welcome you all for our Q3 FY '21 results conference call. We have with us Mr. Guenter Butschek, MD and CEO, Tata Motors; Mr. Thierry Bolloré, CEO, Jaguar Land Rover; Mr. PB Balaji, Group CFO, Tata Motors; Mr. Adrian Mardell, CFO, Jaguar Land Rover; Mr. Girish Wagh, President, Commercial Vehicle Business, Tata Motors; Mr. Shailesh Chandra, President, Passenger Vehicle and Electric Vehicle Business, Tata Motors and all our other colleagues from the Investor Relations team.

Like always, we will start the session with a quick overview of the financial and business performance from the management followed by Q&A.

Over to you, Balaji.

Thanks, Prakash. Firstly, a warm welcome to all of you. Thanks for taking the time to attend this session. I hope all of you are safe and sound. And like last time, we will try and keep the presentation short, run through the key highlights of it and then have as much time as possible for the Q&A as is possible.

Prakash, will you go to the next slide, the standard safe harbor statement? Go forward. It's been an intense period of activity for us despite COVID. And the key call-outs I would call here is that the Passenger Vehicle business now reached -- in India reached a 4 million vehicles, that's #WeLoveYou4Million plan. And then, of course, Nexon reached 150,000th vehicle. What you see out there is the launch of The Legend, the Tata Safari is back, and this is the twin brother of the Harrier, the same OMEGA architecture that comes through. And in JLR, so proud to -- for the new Defender, which has been awarded the Top Gear Car of the Year and series of 21 Model Year launches, which we can talk about as well.

And on the commercial vehicle side, what you see is a picture of those 3,000 of the 6,000 vehicles that have been sold to the Andhra Pradesh vehicles, quite a fight out there.

Next slide. Overall performance, happy that we had a strong all-round performance that came through where global wholesales dipped about 0.6% year-on-year, but still revenue went up 5.5%. And PBT on a year-on-year basis up 209% to INR 4,200 crores almost. And EBITDA at 14.8%, up 540 bps and EBIT at 6.4%, up 450 bps. And a second quarter -- consecutive quarter of strong automotive cash flows as well. With this, our EBITDA is now touching INR 11,200 crores and a free cash flow of almost INR 8,000 crores. So a strong performance coming through across the board.

Next slide. Components of this growth, if we were to talk about in a minute, invariably coming in from volume and mix were against us because of the lower commercial vehicle sales on a proportionate basis as well as JLR decline. Translation did help the overall revenue growth. From a profitability perspective, JLR, TML and all others also contributed. So it has been a consistent value creation happening across all parts of the business and resulting in the EBIT actually touching 6.4%.

In line with our deleverage plan, a steady reduction in net automotive debt, now down to INR 54,700 crores, another INR 7000 crores (technical difficulty)

Next slide, Prakash. Overall debt profile is strong with liquidities well spread out. The promoters have exercised their warrants to -- for INR 2,600 crores yesterday, and this has increased the voting shares of the group -- the promoters to 45.82%. This is not there, the liquidity that you see in Tata Motors stand-alone, but that is something that will come up in Q4 as well.

In JLR, a strong liquidity of $6.4 billion, $4.5 billion in cash and $2 billion in RCF means that bond issuance that we have done as well as the (inaudible) bond issuance that we did in November, all have gone through well, and liquidity is adequate and well spread out.

Next slide. Let me hand this over to Adrian to take us through the JLR performance. Adrian, over to you.

Good evening, everybody, on the call. Okay. So the headlines are really strong. As you see there, the profit before tax was GBP 439 million, EBIT percentage 6.7%, best Q3 EBIT for JLR for 5 years and free cash flow positive GBP 562 million, the best Q3 cash flow in the history of Jaguar and Land Rover. It's important to look below the headlines. So please, please listen on.

The patterns we see here is similar to the patterns that you saw actually last quarter. So retail is higher quarter-over-quarter, but lower than the same quarter last year. Of course, revenue will, therefore, be the same. We will talk about profitability and EBIT in some detail and also free cash flow.

Next slide, please. So the headlines, obviously, as I said, quarter-over-quarter improvements, a particularly good quarter. Again, in China, you'll see in a moment when we break out regional sales year-on-year up almost 20%. And we're also talking about inventories, mainly for the last time, actually. They grew disproportionately. At the end of March, we made all the corrections we committed to make in effect, in many places, inventory is actually lower than ideal at this point. Profitability, I've talked about. Charge+ doing what it does the best. When we get on to that slide, you should start to note that it's no longer just structural cost reductions, improvements and reductions in warranty costs, in variable marketing also as well as manufacturing efficiencies starting to come through into the program.

A care point about CJLR probably one of the disappointing elements in the quarter, we did lose money in CJLR as we trued up their year-end position, particularly from the marketplace on variable marketing costs and cash flow, as I say, is significantly strong, including investments, which were lower than last year by just about GBP 200 million, but this is now much closer to a normal quarterly level of investments you should expect to see going forward.

Next slide, please. Okay. So these are the regional retail numbers. Again, you'll see the same pattern as the total numbers in North America, in Europe and overseas, i.e., quarter-over-quarter growth, but not yet at last year levels. U.K., of course, has a particularly big month in September, which was in the Q2 data. And therefore, the year-over-year in the U.K. is a better comparator.

And then China. China again, has grown not only quarter-over-quarter as significantly versus the same quarter last year, 19% up versus Q3 last year. And that is actually impacting the results significantly, both on profitability, on margin and on cash.

Next slide, please. And by nameplate, again, I'll just draw out the Defender from this page because most of the patterns I've talked about are repeated on Range Rover, Discovery, and the PACE. Defender, we're now getting towards a normal size and scale quarter. I've told you in the past, about 5,000 units a month is a good barometer for us. You can see we broke that level across quarter 3 margins are healthy as well. We've got a separate slide later on Defender to share more details. And then the electrified vehicles, 53% of the total in quarter 3 had some level of electrification. We've broken that down by the ICE, petrol, diesel and the MHEV split and then particularly PHEV. And very strong quarter BEVs for us, as we closed out some of the deals we had lined up in calendar year '20. But note that we have proportions increasing now, particularly as we bring those 20.5' and '21 model year vehicles to the market, more about that in a few moments.

Next slide, please. Inventory, all down to target levels or slightly below, whether it be retailer inventory, our owned inventory or days' supply. So we've done the job we committed to do, and we hauled at level, you can see that within the quarter. And I do not anticipate this to substantially change either way going forward.

Next slide, please. Okay. So our profitability in the quarter versus the same quarter last year. A number of things happening here. You've seen already volumes were down substantially. Wholesale volumes, of course, this would be about 27,000 units, so we lost GBP 250 million of that, but a substantial swing in mix. And this mix swing happened for several reasons. Of course, the markets of China and North America are more open and more active than our U.K. and the European regions today. And they significantly sell our Range Rovers, our Range Rover Sports, our Defender products, i.e., the larger vehicles, the significantly profitable vehicles as well. So you see that within the mix column. We're also seeing here a shift towards Land Rover from Jaguar. We've talked about that as we've gone through the course of this year. And again, partially, that's because of the regional health of China and North America, that shift already exists in those 2 regions.

China JV, I've mentioned, it was a disappointing quarter for the JV. There's work to do there. But we did have a really nice quarter on compliance. We talked about this last time. We did expect this quarter to be positive from a credit generation perspective, and we're able, as a result of that, to reduce our CO2 fine reserves, which we had at the end of September by GBP 55 million from GBP 90 million to GBP 35 million. That's a one-off within this data set, of course.

Net pricing, as we've started to constrain the supply to the marketplace for the reasons we previously talked about, but also for reasons I'll expand on a little later. VME is a symptom of supply and demand in many respects, and we're starting to see reduced supply means reduced variable marketing also. The headline numbers were down to 5%. We haven't seen that level of VME for more than 3 years. The underlying is about 5.7%, again, sub 6% is a really good place for us to be at this stage of our evolution. And we did actually release some residual value reserves, mostly in North America, GBP 36 million on a year-over-year basis, and that would be the difference between the underlying and the headline numbers.

Nice progress on warranty again. We put this theme up for the last 4 to 6 quarters. We did say previously 4% was a good barometer line for us. You can see now we're quickly breaking through that line and the 3.2% underlying warranty number, particularly off the back of the 20 Model Year units, we talked this point before, we saw improvement in quality 20 Model Year. It will be the best Model Year for at least 3 years for us as we're now making progress in terms of the consistency of the engineering within our vehicles and manufacturing efficiencies coming through. A care point on commodity costs where you would have seen yourself precious metals are actually increasing, and that obviously impacts our bill of material. We have a number of those, which would be in the FX and commodities columns.

We continue, of course, to rightsize our organization and only allocate spends that we believe are appropriate and year-over-year, significant reductions in fixed marketing and selling. And again, because we believe we've got our pipelines at a much better place and our order banks are healthier, you have to spend less money attracting people to buy the cars that you have. So this is a part of the quality of sale and the health of sale, which we've consistently talked about, and a model isn't just absolute number, a model is a quality of each sale as a result of which those costs of sales are falling, exceptional costs of VR redundancy and some pension true-ups as well.

And if you look at the EBIT 2.7%, in quarter 3 last year, 6.7%. Those one-offs, if we were to take those away at 2 to 2.5 points, the underlying EBIT closer to a 4% level, that was their target underlying for pre-COVID. So we do actually think our operating performance is back to pre-COVID levels, and we're benefiting from some of the adjustments from those 2 poor quarters in the first half of this calendar year.

Next slide, please. Possibly the most dramatic slide actually, free cash flow GBP 562 million. As I've mentioned, that is a quarter 3 record for Jaguar Land Rover. Historically, our free cash flow has been significantly influenced by working capital movements, positive and negative. This was another positive quarter as we said it would be, but it was less than half of the free cash flow. Now the bulk of it this time was actually underlying. Again, as a result of that very sweet model we had on China, on North America and a rich mix, it's starting to come through the cash profit as well. But cash profit after tax is just short of GBP 1 billion is a record for many years. We haven't had that in our Q3 and the investment level is GBP 600, so that's why it goes to the far right-hand side. So we're doing again what we said we would do. Perhaps a little bit more dramatically than we indicated, a lot of that is to do with the mixture of sales we had in Q3 this quarter, just gone.

Next slide, please. Okay. So investments a little higher this quarter, GBP 675 million as we started to lay down some of our investments for MLA. So this is probably at the higher level of a quarterly number you will see in recent times, and in times coming at us. We're still on track for the guidance we gave you 9 months ago, GBP 2.5 billion investments this year. And this is just GBP 217 million lower than last year and the GBP 200 million cost and profit improvements plus this made about GBP 400-plus million improvement on the Charge+ program in quarter 3.

Next slide, if you will. All right. So this one is starting to shape. The reason why we put this page in place just like this. Sadly, COVID got in the way. But you will start to see the consistency of the quarterly data. When you look back 12 months, you'll start to see that the current quarters are better than previous ones. If I take you from the start of Charge, and you were tried of all of those numbers, we're net free cash positive since the start of the program despite the horrible events of COVID. So we're particularly proud of the work we're doing on our turnaround program impacting our overall cash management. So of course, this underpins our commitment to get to net debt positive over the next 3 years. We're starting to see the balance between gross debt and cash available to us, including the RCF, even if it sells out, we expect that to continue over the next quarter as well.

Next slide, please. Okay. So a business update, I quickly go into. We talked these a couple of times already. We've got a dramatic 21 Model Year Series of product offerings. I mean historically, I think, the industry has got used to a model year being minor change. This is dramatic change and not minor change. People should really understand these aren't just model years. These are significant vehicle upgrades. And you can see the visuals we got here. Interior-wise, there's a step change improvement. Drive-wise similarly. electrification wise, with the PHEVs being introduced to 3 of these vehicles and MHEVs to Discovery. We have almost a complete new range of products. We're very, very proud of the work we've done over the last 18 months, particularly for a COVID period, right? So this is the back end of, hopefully, towards the backside of this COVID period, we produced these vehicles in the marketplace. Please find a way test drive, you will be wowed.

Next slide, please. Defender. So you know we've been positive on Defender all year. We've slightly changed the layout of it, so we can continue with a good message. The black line is retail, that continues to increase. So in December, we actually topped 6,000 retails for the first time. But I think even more dramatically, you now see the order banks of this vehicle approaching 3 months' worth of sales, more than 14,000 cars in the order bank as we've just started to release the Defender 90 availability. So I think it's reasonable to assume that 5,000 units a month is going to continue to be beaten on a month-by-month basis; in fact, probably lifted from that level and the order bank situation over the next several months will be healthy. So very, very pleased with the Defender progress. Top Gear Car of the Year winner and European Car of the Year nominee. It will continue to get dramatic reports and feedback from people driving it from reporters reporting on its super job by the team.

Next slide, please. Okay. 12 of 13 vehicles are electrified. This is the message that we get towards the back end of quarter 3. You can see them all there, that underpins the 53% of, I'd say, of retail in Q3 and some form of electrification, which also, of course, underpinned the fact that we were significantly credit-generating across the target we've been set by the different countries in quarter 3. So a super and brave new product and electrification now hitting the marketplace.

Next slide, please. Okay. And this is where it plays back in terms of the financial data. So we still do end up with that 2020 full year problem. GBP 90 million, as I said, we believe, will fall to GBP 35 million when it's finally assessed by the U.K., European Authorities. Everywhere else is green, and we expect to be substantially green going forward as well. In total last year, across all of the regions, compliance finds or our acquisition of credit totaled around GBP 60-some million. As it heads and flows across the regions, for those of you doing your modeling, I think, it's reasonable to assume that across the planet, we will have similar amount of tax credit, CO2 credit -- excuse me, acquisitions in 2021, and our intention is to continue to be compliant. And that's what we, of course, will be working towards. That's the gold medal.

Next slide, please. Charge+. So by the end of September, the first 9 months, GBP 2.2 billion worth of savings. I think you can start to see the mirror of this within our quarterly results. As I mentioned earlier, particularly pleased the cost and profits are no longer just structural cost of people and marketing support costs, manufacturing warranty and VME savings are starting to come through and will continue as we go beyond into quarter 4 and beyond that level. Warranty at 4% to say that. We still hold that as a barometer, but I think it's reasonable to assume that our warranty cost of percentage of gross vehicle revenue will start with a 3% plus going forward into Q4 and beyond with the quality of those 20 model year vehicles substantially improved as previously mentioned. We will hit the GBP 2.5 billion guidance we set earlier in the year as well. That's pretty clear, now I think.

Next slide, please. Okay. So a deal did get done. As we all guessed, it was truly late 24th of December, some of us guessed 29th. So it was earlier than some of us feared, I suspect. We did get the deal, mostly we were looking for. Clearly, the direct tariff imposition is not going to happen. You will know there are Rules of Origin to ensure that our vehicles do not, all subject to tariffs. So 55% of the content of ICE vehicles needs to be U.K., European, 40% EVs and that 40% will grow up through 2027 in step changes, which will then be at a 55% level, and there's a 12-month period of phase-in. So overwhelmingly in trade, this is the deal that we were looking for. The U.K. government have also actually put in place their own free trade deals to mirror the deals, which the EU has made and the U.K. were previously benefiting from. So mostly from a trade perspective, we pretty much ended up where we said we thought we wanted, but actually did get done and face a significant potential risk away.

From a compliance perspective, I talked that already in earlier slides. Operationally, we shouldn't bypass the operational challenges here. I know from a U.K. government perspective, they would say Brexit means Brexit. Well, I think we're finding bureaucracy means bureaucracy, actually, there's a huge amount of customs declaration and paperwork required. Our teams are working flat out across end-to-end supply chain to make sure we can get the parts to our operations on time.

It has been a bit bumpy in January. It probably will continue to be so in February, but over time, these processes will be embedded into what we do from a day-to-day basis. So I expect the operational frictions that we have seen and you wouldn't have witnessed because they're not in the borders. We have actually seen, will eliminate as we go through the course of this quarter.

Next slide, please. And the more difficult one to assess, of course, is COVID. You know from a dealer perspective, we're locked down in the U.K. we're partially significantly locked down in Europe, less so in North America, very little in China. This starts to explain why sales have been stronger in China, of course, and also sales have been stellar in North America and less so in U.K. and Europe, which starts to explain the mix pattern we had, which were disproportionately to those Land Rover bias, heavy metal biased regions. From an operating perspective, our sites still do remain open.

We've got an excellent record of health and safety, which we are very passionate about the protection of the safety of our employees. Obviously, suppliers are going through the same challenges and do on a day-to-day, week-to-week basis suffer from (technical difficulty) not being able to attend work. So we expect this environment to continue through Q4. But we all hope that, of course, we all pray as well that this horrible virus actually becomes eliminated with the introduction of the vaccine as soon as possible. That I know is what we all pray for.

Offices, where people can work from home, of course, that's a safe place for them to be. Where they can't, and we make our offices safe as well. I myself, actually work mostly from the office, and I feel very safe and secure here. And of course, we will always, always observe government guidance. We have lots of health and safety people, making sure that we are working to the highest standards, both within our production facilities and our plants. And of course, we have registered NHS sites at our main facilities in Jaguar Land Rover as well. We're one of the biggest testers in the country. Actually, in fact, I think, we are the biggest tester for COVID in the U.K. And you know what, I'm really proud of that and so is the management team, that is just an amazing response to these awful, awful events.

Next slide, please. So the outlook, I expect retail to be slightly higher than Q3 in Q4. We do expect a solid EBIT margin and also a positive cash flow in the quarter. Full year positive EBIT investments still, I'll say for the fifth time less than a GBP 2.5 billion, we have repeated that every quarter. And if we do in Q4 for cash, what we've done over the last 2 years, we will be very, very close to that breakeven level.

I mean the underlying, obviously, challenges here is whether dealers stay open and whether we can continue to safely build vehicles. And nobody can say both of those things were happening. But as we go through, will happen for sure, as we go through January, we are managing to navigate both of those challenges. Risks: COVID, Brexit reduced, COVID still here. And of course, I think we are more compliant and have the product lineup over the next phase for the required electrification and emissions.

And I should call out, of course, our investment day, the JLR Investment Day (sic) [JLR Investor Day] is on the 27th of February, and we've got some really exciting news for you on the 27th of February, which you'll probably want to ask about today. So Thierry is with me today, will obviously say what he feels he should.

Next slide, please, and maybe the last one actually. Many thanks.

Thanks, Adrian. So I'll be moving on to Tata Motors stand-alone. Performance revenue at wholesale growth of 18% and revenue growth of 35%, with a PBT loss of about INR 600 crores, halving what it was in the last quarter on a sequential basis. EBITDA, up 570 bps at 6.8% and EBIT breakeven delivered with a 710 bps improvement here. And another quarter of strong free cash flows coming through well.

Moving to the next slide, to unpeel this a bit. Overall volumes and revenues, the sequential recovery is strong. In the case of CVs, the recovery is led by medium and heavies and higher CV with a higher demand coming in from infrastructure, mining and e-commerce. And in the case of passenger vehicles, that business is on a tear, very, very strong sales momentum coming through with the New Forever portfolio with the highest set of sales in the last 33 quarters and the highest revenue in its history in the quarter.

Profitability, EBITDA at 6.8% is the highest we delivered in the last 7 quarters and EBIT breakeven has been achieved. In the case of CV, the EBITDA at 8% is now touching its traditional levels of 10%, 11% that it's supposed to be there, nearing there, with significant improvement in margins and mix. And in the case of CV, it is the highest EBITDA that we had in the last 10 years, with EBITDA further improving to 3.8%. And there is a particular point, which I'll pick up when I come to the PV financials. And cash we've talked about. On the cash savings, we had committed INR 6,000 crores of savings for the year. We've already delivered INR 5,100 crores, and we're confident of delivering the remaining as well.

Going ahead, where does this money come from? Slightly busy chart, and it is possible to explain what's happening. Within the category, the mix is improving. So because take commercial vehicles, we are selling more M&HCV and ILCV, so that's actually starting to help us. Within passenger vehicles, we are selling more the Harriers and the Nexon. But actually, we are selling more passenger vehicles than commercial vehicles, and therefore, that's actually pulling us the other way around. So that's what is the dynamic that is playing out. Solid improvement in realizations as well as better volumes and pricing. These are the ones that are leading it and pretty tight control on fixed costs are the ones that are helping us improve this. So therefore, as the CV business starts coming back, you will start seeing this listing even further.

Go ahead. Free cash flows, again, very happy with the fact that the business is now funding itself. So the cash profit after tax is now higher than the investments that we are putting in place. And as far as working capital is concerned, I'm aware that a few of you had some worries on this. Cash conversion cycles are very steady. JLR is neutral, and we are sitting at about minus 15 days. That's what we need to get to. So therefore, we are pretty comfortable on the working capital. The reason this cash is coming out is as growth is coming back into this business, this negative cash in the cycle is what skewing the cash coming through.

Going forward. Investment is INR 547 crores for the year, lower than last year by INR 771 crores. Compared to the INR 1,500 crores we had originally put out, we are now upped a little bit at INR 1,850 crores. Demand, there is additional demand coming in from passenger vehicles. And therefore, that is something that we will dynamically manage going forward as well.

Go ahead. This is the slide on the INR 6,000 crores versus INR 5,100 crores. I expect on the investment side, products to be slightly short of the INR 3,000 crores. But on the working capital side, we'll exceed that, and cost and profits will deliver. So therefore, the INR 6,000 crores will get comfortably net.

Go ahead. On the commercial vehicles side, the market shares have been sequentially improving. This is on a cumulative 3 months, 6 months and 9 months, that's what you see there. M&HCV steady at about 60%. ILCV sharply improving as inventory levels are on listing. Small commercial vehicles also improving. This does not include the almost 3,900 vehicles that we sold to the Andhra Pradesh State Civil Supplies Corporation. That will come up in Q4 because the revenue recognition, it is not recognized as revenue, therefore, we have taken it out of market share as well. Otherwise, this would have been sitting at almost 36% is what my sense is. SCV is about 35%. And therefore, this will continue to improve further as well. So commercial vehicles market share coming back as the year is progressing.

Go ahead. On the financials, this is an important one. I'll pause a bit to explain what is happening. On the wholesales, we are down 8%, but on a year -- retail, it looks like optically, it is down 23%. I draw your attention to the absolute number of vehicles we have sold. You recollect, we started the year with 0 inventory. So therefore, it's broadly same. So there is whatever we are producing, we are able to put out there, we are able to retail the following month. So nothing happening as far as wholesale, retail is concerned. We are still working our way to improve the channel inventory.

As far as revenue is concerned, if you notice that the wholesales is down 8%, revenue is up almost 21%, which just tells you there's a significant pickup in realizations happening. Thanks to the BSVI price increase as well as lower VMEs that we are operating under. So even though volumes may not hit, volumes may not pick up, the turnovers are now starting to move quite fast. And that augurs well in terms of overall operating leverage going forward. And this is something for us to keep in mind. So we shouldn't get locked into just volume. There's a very different dynamic happening on revenues picking up faster than volumes. On the EBITDA, we're now at 8%, touching distance of the double digit, and therefore, that should -- as we go forward, this will start moving in that direction and it is also starting to improve.

Next one. Let me hand it over to Girish to give a quick update on what's happening. Girish?

Yes. Thanks, Balaji. So let me speak about the market side first. So the industry grew by more than 40% in Q3 over Q2, whereas we at Tata Motors actually grew by almost 50%, therefore, outpacing the industry growth. There is a broad-based revival, which is being seen. If we look at M&HCVs, the revival is happening due to good growth in infrastructure projects, housing construction, mining, e-commerce. So across, if you see, I think there is a good growth happening. And therefore, M&HCVs, for the first time, the salients reached almost 24%, 25%.

Same case with intermediate and light commercial vehicles. I think e-commerce and growth in manufacturing has been driving this improvement. At the same time, we have also recently introduced vaccine transportation trucks, considering the requirement of the country.

In small commercial vehicle and pickups, e-commerce has been driving the demand. One has also seen urban demand coming back; in the first 2 quarters, it was more from the rural side. I think the urban demand is coming back. And consumption also seems to be going up. So that is something which is driving the small commercial vehicles.

The CV passenger, I mean, buses and vans is something which still remains a concern. So while some employees have started going to the offices and a large part still working from home, schools not operating, STUs running at a very low level of utilization, therefore, leading to little demand in passenger.

We've seen sequential market share growth across all the segments, as Balaji spoke. And we worked on supply constraints, which were seen in Q1 and Q2. So most of those constraints have been behind us. But of course, as many of you know, there are a few new constraints coming up, which I'll speak about.

Therefore, on the back of this, we've seen the highest EBITDA margin in 6 quarters, due to the continuous cost reduction efforts and also higher M&HCV salients which has, therefore, led to positive PBT in Q3.

Going to the bright spots. I think what has seen improvement in most macro as well as some of the micro indicators that we look at. So whether it is the e-way bill, fast track collection, container traffic, monthly diesel and petrol consumption or the freight rates, I think, everywhere, things are gradually going up, which is, therefore, improving. The fleet utilization is almost 90% to 100% of pre-COVID levels and the profitability of the fleet owners is also going up.

The consumer sentiment index is something which we track internally every quarter. And the good thing is that the index is now trending up. The index has actually scraped the bottom in Q1. It improved in Q2 and in Q3, it has further improved. And the good thing within that, in sentiment index is a multiplication of -- is a combination of both satisfaction in the current state and future expectations. So within that, I think the future expectations are even doing better. So this is also something which augurs well for the industry.

In terms of our BSVI products, I think, we have been focusing a lot on back-to-back trials in the market, with respect to our own BSIII, BSIV vehicles as well as competition vehicles. I think the purpose is to demonstrate to the customers, the improvement in total cost of ownership. And therefore, what is the payback for the higher price that they are paying for the BSVI technology. So I think this is also something which is helping us in terms of higher realizations, which Balaji mentioned.

Looking ahead, some of the challenges, I think, since Q3, we started facing the semiconductor issue. It started with one supplier and then gradually a few more. But we are continuously tracking the situation. We are also talking directly with for the semiconductor manufacturers to see how we can manage this situation. So this does remain a very important agenda for us, and it's going to drive the volumes in this quarter.

Increase in commodity prices is something which is an important thing which is happening. And I think something we have been tracking. We have been able to negate it through cost reduction as well as price increases. So we have taken price increase in Q3. We have also taken price increase in Q4. So this is something which is helping us to tackle this commodity price inflation.

And finally, the CV passenger segment, which I spoke about, I think, the demand remains a concern. It's -- the industry has collapsed by almost 80%. And schools yet to open up, business and leisure travel is yet to normalize. So we are tracking this to see how this last segment within the commercial vehicles can come back.

So this is summary of commercial vehicles. Back to you, Balaji.

Thanks, Girish. Moving on to the next slide, on passenger vehicles, a quick run-up on the numbers. Draw your attention to the graph, again it's an industry decline of 16% in the year-to-date so far; we have grown 39%. And that has ensured that our market share has stepped up strongly from 4.8% to 7.8% holding there. Also draw your attention to the powertrain mix where EV, which is negligible, is now starting to make its presence felt to the 2% contribution of the powertrains. And Nexon EV is now almost 64% of the EV industry volumes in the last 9 months. And vehicles Tiago, Tigor, Altroz, Nexon, all of them in the top 10 in their respective segment. Harrier is a particular call out; it is now crossing 3,000 vehicles per month with a very strong growth rate compared to last year.

And Altroz, of course, has been a blockbuster success for us as we started. We just launched the iTurbo a week back and expecting continued strong performance on this front. I think the overall point on PV being the New Forever range as well as the entire focus on the front end activation, which Shailesh covered extensively 2 quarters back, is starting to pay results. And we will talk about this quite extensively in the Investor Day that's coming soon.

Next slide, On the financials, 85% growth here. Again, you'll notice there is very limited inventory there. We sold 70,000 on our own from the wholesales; 77,000 got retail. So actually, the retailer -- dealer inventories are precariously low, resulting in a huge lead time increase for orders. Revenues touching INR 5,000 crores for the first time. EBITDA increasing substantially over last year, now at 780. And really draw your attention to what's happened to the EBIT line. We always talk on EBITDA, but with the operating levels starting to kick in, you see that while we increase EBITDA by 780 bps, we are able to move EBIT quite substantially by 1,400 bps. And therefore, the next target for this business is to now get to an EBIT breakeven and then, of course, a cash breakeven, and we are confident of pushing that through as well.

And the good part is every line of the P&L is not starting to work, contribution, mix, operating leverage and, of course, the fly in the ointment is commodity inflation, which we have to take it on the chin and manage it as well.

Go forward. Shailesh, would you just want to take this slide?

Thank you, Balaji. Let me give a quick update on the business performance turnaround for PV, which is a result of actions taken broadly in 3 areas: demand generation, demand fulfillment and profitability improvement actions.

Starting with demand generation, the key actions actually were focused strongly on retail, which was well supported and backed by a very synchronized demand supply planning. Channel partner margin structure and policies were revamped to enhance their profitability. And this was very important because this is what enabled the enhancement of working capital, which was extremely important for supporting growth, which was nearly doubling the growth.

We just kept our share of voice high through marketing campaigns, and it continued in Q3 also to support the demand generation of our New Forever product range. And therefore, we have been able to garner very strong bookings in quarter 3 also. And we expect that in quarter 4 also, the demand is going to remain strong for us particularly because our channel inventory is possibly the lowest ever in our history. And as I said that we have a very strong pipeline of bookings.

Talking about demand fulfillment side, I think the demand generation could not have been supported if we did not do enough on the demand fulfillment side in the pandemic times. And I would say it was a unique situation for us where we were possibly the only player who was able to ramp up the production to twice what we were as an average in the last financial year. Particularly on the petrol vehicle production, we increased more than 2x as compared to the average of last financial year. And this has involved not only a lot of debottlenecking actions internally, but more so on the supplier side for many critical items, where there was a very good partnering between Tata Motors and the suppliers to debottleneck capacities many a times without any CapEx and through multiple kaizen activities. So this has really helped us in debottlenecking fast.

Yes, the challenge, as Girish also mentioned in CV, the semiconductor and steel availability will be a concern, but we are taking several mitigation steps to see how we can minimize the impact of this global disruption, what has happened.

The last one on the profitability and cash improvement actions. Efforts were actually put to optimize the product mix and variant mix, both actually because Balaji covered on the product mix, but there was an effort in terms of tweaking the pricing of the variants also within the product so that the movement of demand was in favor of more profitable product. And this had an impact, as you can see on the profitability.

Driving scale was one of the biggest motto for us because -- and we also, in parallel, we kept the fixed costs under control. And this was crucial to improve our EBITDA margin, and we have seen the result of that. There was a very systematic cost reduction initiative undertaken, which has involved nearly 600 employees who have been generating a very strong pipeline of ideas. In the last quarter, we did more than 150 idea generation workshops, and we have actually done a very strong pipeline of ideas.

So this is in summary of the actions that we took on the PV side. Back to you, Balaji.

Thanks, Shailesh. Next slide, please. Moving on quickly to Tata Motors Finance. This business is now -- we made a PBT of INR 55 crores with an ROE of 7.3%. AUMs increased to INR 41,000 crores during the quarter, and we did manage to assign about INR 729 crores out of that. And GNPA at 5.6% is stable and NNPA is at 4.2%, marginally down. The real good news is the graph on the collection efficiency that you've seen before, sequentially improving, hit 105% in December and continuing strong in January as well. And therefore, while collection will remain a focus area, starting to get more reassured that this thing is starting to come back correctly, but we cannot take our eye off the ball.

Excellent performance on cost-to-income ratios, which are now down to 32%, has fallen a long way over the last 3, 4 years, and the business has pretty adequate liquidity at its command. So business doing well and business starting to move on track to an asset-light ROE accretive model.

Next. So in conclusion and looking ahead, I think, we talked demand, I think, the situation we expect it to continue to improve despite continuous lockdown. I think the entire focus for all of us is on the various supply bottlenecks, disruptions, Brexit-related logistics matters; these are all causing a lot of irritation in the supply chain, and that's something we are seized of and working through it.

Commodity inflation needs to be managed everywhere. And despite all this, we intend to consolidate the gains that we have had in Q3 and finish the year strong, which will then place us well for the subsequent year ahead. That will be the broad message and the individual line items for each of them, we've already seen.

Move to the next slide, please. Really keen to see you at the Annual Analyst Meet, which will be there on the 22nd of February for Tata Motors and 26th of February for JLR. And look forward to seeing you there and sharing our plans in more detail there.

Over to you and then over to any questions that you may have.

(Operator Instructions)

Okay. We have the first question that has come up from Yogesh Aggarwal of HSBC. Great set of results. Thanks, Yogesh. Questions: Why was Discovery volume so weak in the third quarter? Was it due to the upgrade? And number two, XE volumes are now almost negligible. Has it been discontinued now?

Adrian, would you want to pick this up?

Yes. Thanks, Balaji. I'd love to. So I think on Discovery, there's a few things to note on the Discovery product. One is the 21 model Discovery is a dramatic refresh. And therefore, I would encourage you to think about Discovery volumes as we go through Q4 and into next year. Two, of course, it does share production facility and production lines with the Defender, and you've seen how strong our volume demand is for Defender at the moment; it's outsold. So there are some imbalances we do across those product lines. And I think the third point to note is there has been some cross-shopping between Discovery and Defender over the first 12 months. So again, we'll see as Defender balances out, whether that continues to impact Discovery post 21 Model Year or not.

XE volumes, they're mostly negligible now. Okay. Of course, we've talked a lot to you previously about health of sale. I also said our model isn't just to sell more cars; our model is to sell more profitable cars. We had a significant refresh again on XE into 21 model year, which is just coming through into the marketplace. But the important thing to note here, we are also repositioning that nameplate in some key markets, like the U.K. where we've taken some price changes. And we've consolidated in North America, our XE and XF just for the XF going forward. So it's all a part of our strategy to put cars into the marketplace that customers have appetite for. We can make good solid returns on, and XE isn't one of the most profitable nameplates we have. You can continue the…

Thank you, Adrian. Okay. Next question from Sonal Gupta, UBS. Can you share the BEV + PHEV volume share in the U.K. and EU? The reason the question being asked is how much does this need to increase further to achieve the CY21 target? Second question, what portion of JLR -- okay, you take this, and I'll read the next one after that. Go for it, Adrian.

So it's around 30% PHEV for U.K. and Europe in quarter 3. And obviously, that was a substantial credit realization position. Going forward, you'll see -- going forward, that 4% to 6% of total global demand is where we would expect to see in this quarter. It really ebbs and flows depending on regional changes. So actually, we expect PHEV proportions in Q4 to be higher than a normal quarter why because it's a strong selling month in quarter 4, of course, March for the U.K., so we will sell more PHEVs and BEVs in quarter 4. It will level out a little bit as we go forward.

And the next one from Sonal again. What portion of JLR revenues are hedged for FY '22? And what's your hedging strategy for aluminum and other key commodities? And how much do you expect from the impact of the rise in commodity prices in Q4?

Our hedging differs by currency, of course. There are prime currencies, as you know, U.S. dollar, RMB, and euro, you know more than 2/3 of U.S. dollar and RMB are likely hedged. It really depends on what the gross vehicle revenue is, of course; but that will be our expectation, slightly less on the euro closer to 50%.

Commodities, we hedge those 12 months and also broadly 40% of our commodity acquisitions on aluminum, on platinum, maybe a little bit higher next year are already hedged in place, a little bit less on copper.

Okay. Moving to the next question from Chirag, Edelweiss. CJLR, and there's a few questions on CJLR down as well. So maybe, Adrian, you may want to wrap this all in one question. CJLR quarter-on-quarter ASPs have declined and margins are negative. Anything specific or anything else you want to talk about on the CJLR piece, so that we can take all CJLR questions in one short?

Yes. Okay. So yes, this wasn't a good quarter for CJLR. It's definitely something we'll be working on more determinedly than we already have been. There was the end of the year position for them. We have gone into a position. We've talked a lot about our supply lines for Jaguar Land Rover. We have got 2 months' worth of stock locally for local produced products, and it's starting to show itself as higher discounting. So we do need to pull back. We do need to pull back on the level of supply into the marketplace, which we will begin to do over the next few months. I would encourage you to assess the impact of that probably not in the next quarter, but in 6 months' time, where I'd expect us, again, to be back towards that breakeven position on CJLR on lower volumes, on lower volumes.

We're looking for volume to be to 5,000, 5,500 units a month, and they are a little higher over the quarter 3 period. Of course, quarter 3 is the biggest adding quarter for Jaguar Land Rover in China, and for the local business as well. I think we saw a little bit of discounting around the highest selling quarter also. So judge us in 3 to 6 months' time is what I would suggest.

Got it. Another one on mix. I think we'll pick all the mix questions together. For JLR, volume contribution, Range Rover Sport and Defender in wholesales is an all-time high of 47%. How should one look at it from here on?

There's about a 6- to 8-point swing from Jaguar to Land Rover across the quarter from what we would expect to be a normalized quarter. So 84% Land Rover, we would expect about 78%. And that swing was heavily as a result of China and North America being open for business a lot more than the other regions. So it's less about more sales in those regions, although China did very well. It's more about less sales in our historical U.K. and European regions. So that's really what's happening here. Volumes are lower than we would have expected on a pre-COVID period, and they're dramatically impacting the regions of U.K. and Europe, lower margin areas. So this will normalize out as we sell more cars.

I would encourage you as we come out of quarter 4 in 8 to 10 weeks' time, to look at the mixes and the absolute volumes in that quarter because I think Q4 is going to be closer to a normal quarter than the abnormality of Q3. I think there'll be about a 6-point swing back to Jaguar. So Land Rover is high 70% set rather than mid-84%. And a lot more of that will play itself out as a total proportion of lower Range Rover Sport and Defender, which will be 40-low percent rather than 40-high percent would be my expectation.

Okay. Again, another one on the one-off, Adrian. So you mentioned some one-offs in the EBIT of 6.7%. What are they? And can you quantify them?

Yes. So there's some binary one-offs in that. So the -- we've talked about the compliance reserves, GBP 55 million. We talked about the residual values, GBP 25 million or GBP 36 million year-over-year. So the binary one-offs were about 1.5 percentage points. It really then gets into that abnormal high level of risk, and how you would evaluate that. Now my view to some of that is abnormal, and therefore, that's overly influenced the EBIT as well. So you should think underlying EBIT closer to 4%. However, quarter 4 is normally better than quarter 3.

So comment on commodity inflation, which I'll pick up, how much is visible in Q3 for India JLR? Can you quantify it?

We have called that out in the JLR side of about 19-odd million. And as far as India is concerned, the inflation has started now and the bulk of the impact, you will see it more in Q4 rather than Q3.

Moving on to the next question from Amyn Pirani, CLSA. What are the retail trends in U.K. currently? And the expectation for the customers, what (technical difficulty) have been extended?

Yes. We showed you on the slide. Q3 versus last year was down 9%. That's been typical of the scale of the reduction that we would have expected to have seen. Q4, as you know, in the U.K. is the biggest selling quarter, particularly biased to the biggest month. In March, normally speaking, therefore, we'd expect the higher quarterly volumes in the U.K. to be this quarter. Clearly, at the moment, dealers are closed and therefore, we're not selling at a normal level. If COVID actually starts to allow us to open dealers up for our biggest selling month in March, I would anticipate quarter 4 to be the highest U.K. retail of this year.

Clearly, versus last year, we started to close down in March. So again, I'd expect year-over-year quarter 4 U.K. retails to be higher than last year quarter 4.

We will go to the next one from Binay Singh, Morgan Stanley. Effective earnings. Questions are on JLR. EBIT per unit is now almost a (technical difficulty) quarter high. Could you share your thoughts on how you think of FY ['22, '23] EBIT per unit? And the question is also coming later from Pramod, Goldman, on any views on FY '22, '23 CapEx with margin?

That's an easy point to answer, which I'll pick up the first one, the hard one, I'll give it to Adrian. '22, '23, just give us a bit of time. The Investor Day is a better time to say that as we put our strategy also together along with that. There, we'll also share the cost plans that we have.

So the question more on the EBIT per unit. Adrian, how do you think of this? How are we supposed to think about this?

Yes. So think about the underlying level we talked about for quarter 3. We're now back to where we were pre-COVID. So I do have to say, depending on how COVID developed, of course, you'd expect me to say that. But if that increasingly becomes in control, I'd expect us to continue to trade at those pre-COVID levels. So an underlying EBIT of around the 4% level, ebbs and flows by quarter. As you know, Q1 tends to be a weaker quarter for us. Q4, a stronger quarter. Don't forget, over the next 12 to 18 months, we do have some significant product changes, and therefore, we'll give you better guidance quarter-by-quarter as we go forward.

Okay. A quick question from (technical difficulty) JLR in India business.

(technical difficulty) given the actual rate of regulatory time line (technical difficulty) what are the (technical difficulty) background CapEx?

We will cover that in the Investor Day.

Moving to the next question coming from Shyam Sundar. Great performance. (technical difficulty) PV, can you please talk about cost reduction initiatives? What if the PV side turns around? How will we manage margins? How are you seeing Indian PV demand in FY '22?

Shailesh, would you want to pick this up?

Yes, Balaji, I'll pick this up. So starting with the cost reduction program, I mentioned while I was presenting my slide, that we have initiated a very structured program on cost reduction with very stretched targets, which involves nearly 600 employees in the company, working in a very cross-functional structure. And they have been organizing multiple workshops through which idea generations are done. And the key areas of focus would be value engineering, for example, or new variant creation, which leads to profitability improvement.

Commercial reduction through should be cost approach. Then it would also include ideas of import substitution, reduction in outbound logistics and so on. So these are the initiatives which are going on. And very steep cost reduction targets have been taken, and you are already seeing the result of those initiatives, which have rectified in the last several months. So this is broadly as far as the cost reduction initiative is concerned.

Talking about how we see the market as far as FY '22 is concerned, all the estimates show that if the economy rebounds back and also given that the vaccine is there now, PV industry on the back of 2 years of decline, which has been pretty steep in the last financial year and this financial year is also, it is expected to be around 5% or so decline, and 20% decline in the last year, it is expected to see a steep recovery is what is expected and some estimates hover around $3.2 million to $3.3 million market in FY '22, is what we anticipate.

Thanks, Shailesh. Question on JLR from Shyam Sundar again. Can you talk about your electrification plans. More importantly, what is driving such faster adoption of EVs in (technical difficulty) Is it driven by the supply push to minimize compliance costs? Or is it given by -- driven by subsidy? What's your take?

Okay. Well, we -- look, we talk a lot about the current nameplate plans, 12 out of 13 of them electrified in some form. Anything else, I think, I'm simply going to say, we've got a super Investor Day set up on the 26th of February. You have the pleasure to listen to our CEO, Thierry, and he could -- he will talk about this much more eloquently than I could. So please humor me and allow us to give you a really full outline of how we're thinking, how we're shaping our thoughts and what you should expect, but be excited.

Okay (technical difficulty) production and other expenditures in JLR. Can you give some (technical difficulty) how much of (technical difficulty)

Yes. So this is where all the interesting stuff goes. So within there, other expenses, the reductions in engineering, the SME we called out earlier on the slides, reduction in all other expenses. Warranty is also finding its way in there and the emissions compliance as well. So you will see the significant drop. And I'll remind you, some of that's one-off and a lot of that has underlying. The thesis we call out in the structural cost income, think of mostly underlying. Our expectation is we will manage our business within those funding levels going forward. And you can see by the results, we're actually managing it pretty damn successfully.

Okay. Question coming from (technical difficulty) market share cost, while we appreciate the cost (technical difficulty) This is from Gunjan from Morgan Stanley -- sorry, JPMorgan. Market share cost and (technical difficulty) while you appreciate the profit focus, any thoughts on market share? And how should we think of volume growth at JLR over the couple of years? And (technical difficulty) from someone else on the China market share loss as well, or how do we see market share in China?

I can answer, if you wish to the first part of this question concerning the semiconductor shortage. It's -- for the world car industry, it's a real issue. And it's a real issue in terms of allocation, in fact, at the moment because of the capacities of these big actors towards all sectors.

As a matter of fact, we are not impacted at the moment because the team is doing a great job in order to get in touch with those Tier 2, 3 and sometimes 4 suppliers compared to us in order to make it such that the allocations are positively happening to our company. And it's working mainly because we are so small compared to the actors that, in fact, our allocation doesn't change the picture for the other customers of these companies. And they understand that it may have a huge impact on to us. And with this type of approach, we have been very successful for now to be supplied.

Thanks, Thierry. Question on market shares (technical difficulty)

Yes. Let me answer that one, Balaji. I'm sorry, you're breaking up a little bit, but I think I got the question. You know -- those of you on the line will know me well, right? I have not been a great driver of market share over the last 18 months. I've talked about health of sale and quality of sales. So when we talk about market share, I'm a little bit looking at the results.

However, you've asked the question, you've asked it, particularly to China. We told you that we were up significantly versus last quarter and previous year, about 20%. When we look at competitor data, I think, BMW was up 10% over that same comparative period, Daimler 22%. So it would suggest our share is pretty much commensurate versus the growth that they are seeing as well, and therefore, the share isn't changing that much. That would be my expectations going forward as well.

We do have aspirations to sell more vehicles, of course, have aspiration to sell more vehicles in China, of course, but we don't have aspiration to challenge the quality of those sales simply for volume and where that ultimately ends up on a share-by-share quarter-by-quarter, we will explain as we go through the quarterly results (technical difficulty) as explained in Q3.

(technical difficulty) from Joseph George, IIFL. GBP has appreciated sharply in the (technical difficulty) month. When will the negative impact of the same be visible in JLR's P&L based on duration of the hedges? What's the way out to avoid the hit?

Okay. Balaji, I can answer. I am Ben Birgbauer, the Treasurer. So the answer is that it's already coming through our results. So for example, in this most recent quarter, operational exchange was unfavorable year-on-year, GBP 46 million. It's just that, that was more than offset by hedges GBP 88 million of gains on hedges in the period year-on-year. And that overcoverage of it, it reflects the fact that we still had hedges last year that were heavily impacted by Brexit rates. So the better rates are why year-over-year, why we saw overcovering it.

Going forward, the reality is we'll continue to see an unfavorable effect on our operational exchange on revenue but we do hedge. And our hedging policy is to hedge up to 75% 1 year out and then descending percentages thereafter. For example, on Dollar power, we're hedged about 75% in FY '22 and about 50% in FY '23. So that's how I can answer the exchange question.

From Rakesh Kumar, BNP Paribas (technical difficulty) in the coming quarters, how do you see it playing on margins. The second question is (technical difficulty) you know that we don't put it out there rather than giving a broad (technical difficulty) of our refresh model. So the first one, Adrian

(technical difficulty)

I'm sorry, Balaji, you're really breaking up (technical difficulty)

I'm so sorry. Can you hear me better, now?

A little bit better now, I'm sorry.

Okay. Let me repeat slowly then.

Answer the wrong question, otherwise.

Yes. As residual value normalizes in the coming quarters, how do you see it playing out on the margin?

Don't look at what happens on residual values. It really shows itself in that year-over-year overage, right? We showed out very clearly what underlying is and what headline is, right? Now most of the residual value reserves we put in place actually progressively over last year. Finally, with the COVID reserves we saw at the end of March. Most of those is now unwind wind. So what you should expect to see going forward, we have a proportion of revenue close to the underlying level, 5% high rather than the headline level 5%. That will be my expectation. But it particularly depends on what we sell, where we sell by region because it's no Africa, it's VME here, of course. VME differs by nameplate and by region. But broadly, the underlying number is a better guide going forward.

Sorry, this is the operator here. Mr. Balaji, can you hear us? Yes, sir, you may go ahead.

Yes. Let me take the next question.

Okay. Can you hear me now better, guys? Is it all right?

Yes, this is better, Balaji.

Okay. Let me go ahead. Apologies for that. Question from Rajat, ICICI Prudential. For JLR, what are the sustainable VME and warranty level in the next 1, 2 years?

I've gone on a journey with you on this, right? My first quarter, if you remember, I talked about 9% VME and 6% warranty, so 15% of revenue. 12 months later, we started to talk about 7% and 4%, 11% of revenue. I think it's reasonable to assume, we expect it to be lower than 11% of revenue going forward. I think we had a really super quarter, Q3. So may not be hitting those levels every quarter, but it will be sub-11% across the 2 for the foreseeable future. And the improvements we've been making on health of sales and on quality, you would expect over time that to be progressively improved beyond that point as well. So sub-11%, maybe even sub-10% from this point.

Okay. (technical difficulty) about market share from Aditya (technical difficulty) Jinesh from Motilal Oswal.

There's some accounting question, Jinesh, is you can pick up with Prakash. Where is the reversal of these fines accounted for and which line item? We'll pick it up off-line with Prakash. Other expenses, we've already talked about. CJLR realizations, we have talked about. Brexit, is a new one. Brexit rules of origin criteria of 40% EV. Is it including MHEVs and PHEVs?

So it doesn't include MHEVs. MHEVs go along with the ICE Rules of Origin rules. So 55% is the MHEVs fees. It does include PHEVs. So where BEVs and PHEVs go together, MHEVs and ICE together.

Good. Second, the R&D capitalization rate has been in the 62% to 64% range. Is this a new normal? Or will you revert back to the 70% range, which you had indicated earlier?

70% range at the minute. Of course, we've still got some people in Q3, particularly in October, we were at on furlough. And as a result of this, none of their costs were capitalized. So stay with 70% for the moment.

But we have explained over the last 18 months, and you've been very patient with us. I do agree that the new norm is below the 80% down to the 70% level, and we would expect over time for it to decrease from that. But not yet. There's abnormality in the Q3 data still because of furlough.

Thank you. So moving to the next question from Aditya Makharia, HDFC. As growth is expected to revive, both in India and JLR, will we turn more aggressive towards our CapEx programs?

Aditya, we'll take India, for instance. We had started the year with INR 1,500 crores of CapEx. We are now running more like INR 1,850 crores of CapEx. That's basically to take care of the delta demand that is coming through to cater to that and also ensuring that we are accelerating some of the product programs to continue delivering on the growth going forward. So we will not compromise on growth under any conditions.

As Adrian rightly put it, the value create and growth, no debate about that. As far as CapEx therefore is concerned, it will be managed dynamically, but within the broad range that we had indicated because equally important for us is to ensure that we reduce our debt levels and go net debt-free in the next 3 years. That is a hard constraint, and we will want to ensure that we get there. And whatever CapEx we're investing is anyway feeding growth, and therefore, that will come back as cash as well. So we are managing this dynamically.

Question from Kapil Singh, Nomura. Congrats on a great performance. Questions for JLR. Mix headwind, will there be a mixed headwind from here as we head into Q4?

I think Adrian has talked extensively about the LR versus J splits. I'll skip this couple. Other expenses, he's again talked about that.

Many OEMs are investing heavily into BEVs and autonomous driving. Some of them are comfortable not generating free cash flows for the foreseeable future. What is JLR's plan and investment for these?

Thierry, would you want to pick this up?

I think the first element we should say is that all the evolution in terms of drive trend is, of course, because of CapEx expenditure, which is already in our figures, first element.

Second element, it is designed by construction by the way our programs have been moved forward to generate profits. It's a matter of a business equation. And it is clear that it's not because we are moving towards electrification that suddenly, we would reduce our ambition in terms of profitability by nameplates. That's the second point.

The third point is that all the technologies, which are being used in order to get electrified even towards EV, it's moving forward extremely fast as well. And it means that the value chain is moving and it's being translated. And we are also making such that we take our chunk from that new value chain. So far, we can get robust and continuously robust in our profit prospects.

Thanks, Thierry. Then moving to the next question from Yogesh. Your PV business has been a real bright spot in India. Are there any market share targets for FY '22? And again, the standard question, what are the new launches that we will -- we have already explained what we are going to do.

Shailesh, would you want to talk -- pick up the point on market share targets that you internally plan?

Yes, Balaji. So I would say no specific number that I would, but definitely would like to hint that we would be in double-digit market share is what the immediate short-term target would be. And this will be supported by the launch that we are going to have, Safari in the next month. And then we would -- in the same calendar year, this calendar year, we would have the launch of Hornbill, and these 2 would enable us to be in the double-digit market share.

And as I said that the market is expected to cross 3 million next year. So this will be a very strong growth that we can expect next year also.

What was the second question, Balaji, if you can…

No, product launches, you have answered it.

Okay.

Thanks, Shailesh.

Question coming up for Girish, India series. How should one look -- and this is from Chirag Shah, Edelweiss. How should one look at the ability of the players to pass on the cost in the current cycle as this time, cost inflation is coinciding with early-stage recovery? Should it be relatively easy to pass on this cost? And also can you indicate the nature of the buyers, large fleet versus medium versus small fleet. Current demand should be more of a replacement demand. Is that the way we should look at it? Girish?

Right. So thanks, Chirag. I think it is never easy to pass on the cost increases. But at the same time, generally, one has seen that cost inflation, commodity inflation does happen when the CV cycle is on the upside. So we are quite conversant with it. I think, as I said, we are addressing it on 2 fronts, one is continuing our cost reduction efforts. And second is price increases in steps. So we took a price increase in Q3. We have also taken a price increase in the beginning of Q4.

I think also, what is more important is how do we communicate the value of the BSVI products and whatever higher investments they are doing with respect to BSIV, how fast is the payback. I think that's what we are focusing on, which is helping us to, therefore, let the customers digest these price increases.

In terms of nature of buyers, always in up cycle, it is the large fleet owners who come forward first, and that's what started happening in Q2. I think towards the end of Q3, we have also started seeing the small fleet operators coming in. And I'm talking specifically about M&HCV. In LCVs and small commercial vehicles, one has always seen small fleet operators coming forward.

In terms of the current demand, I don't think the replacement demand has come up yet because the BSVI vehicles are getting established in the market. The customers are still experiencing the benefit in terms of TCO. So they are watching both the technology as well as the TCO benefit. And once they see this happening more and more with more customers experiencing it, I think, we will see replacement demand coming in wherein replacing the earlier BSIII, BSIV vehicles will make economical sense. Balaji, back to you.

Thanks, Girish. Question from Kapil Singh -- no, before that, there's another one from Ronak Sarda from Systematix. Girish, back to you again. What's your view on SCV, ILCV and M&HCV demand outlook in FY '22? And secondly, are we also seeing an easing in the financing availability?

So let me take the demand one first. I think we've seen that when the industry fell, it was led more by M&HCV. So M&HCV has fallen the most. Of course, if you look at in the pandemic period, it is the passenger, that is the bus segment, which has fallen the most. And therefore, if you look at the next year, of course, there are a lot of uncertainties in terms of second wave or semiconductor supplies. But if we keep those aside, I think, it is expected that one will see maximum demand upside on CV passenger that is buses, but that's on a very, very small base. That will be then followed by M&HCV. So M&HCV also should see a fairly good recovery followed by then ILCV and small commercial vehicles. I think overall, it appears that the industry should be upwards of $0.7 million to $0.75 million during next year.

In terms of financing availability, yes, there has been a significant improvement, which has been happening gradually month-over-month, so in Q2, Q3. And we see good financing availability happening now. And apart from that, I think, the financiers have also come forward with a very, very innovative and aggressive products, considering the price increase, which has happened in BSVI. So all this therefore is helping the customers also to come forward and buy the BSVI vehicles.

Balaji, back to you.

Thanks, Girish. One more coming in to you again, your time under the sun. You talked about a sentiment index, Girish. Where is it compared to what it was in 2018-'19? This is from Kapil Singh, Nomura.

Yes. (technical difficulty) presentation, the sentiment index more than the absolute value, it is the trend, which is important. And across all the segments, we have seen that the trend is moving up. And we did scrape the bottom in Q1. After that, the sentiment index is going up. But if you insist on absolute values, I think, we are still behind 2018-'19, which is quite understandable. I mean, FY '19 was our previous peak when we crossed 1 million in volumes. I think this year, it is most likely that we will be touching around 0.55 or more than that, 0.55 million kind of a volume. So in terms of overall volumes, we are still below FY '19. Balaji?

Yes. Thanks, Girish. Question to me on Tata Motors Finance. What percentage of the loan book has been restructured?

Kapil Singh again. Kapil, 2 comments, I would say. One is, to answer your question directly, 4% is the -- broadly 4% is the book, which has been restructured on MSME credit. Also another point out, which I don't think I did it when I presented, the GNPA that you're seeing is at 5.6%, is the IFRS GNPA or the IndAS GNPA. This does not -- we have not taken any benefit because of the Supreme Court ruling on GNPA. So this is the real GNPA that we are carrying in our books, just for information, which I missed when I presented.

Question from Pramod, Capital. Is the worst margin impact of EV already captured in the financials? Or will it continue to haunt for the coming quarters?

I'll take India and then, Adrian, if you could take JLR. In India, the EV margins -- the contribution margin that we are currently delivering is broadly in sync with the category contribution margins. So therefore, we do not see any drag because of EV. And as we start improving the contribution margins for the rest of the business, we will also be working on the EV side as well. Adrian, on the JLR side? Hello? Adrian?

No. We actually provide and supply more BEV and more PHEV units into the market in that quarter than we originally anticipating. So we got the benefit of reversing some of the costs that we had previously booked and accrued.

Q4 is going to be a better sense of what normality is. Overall, I expect volumes to be higher and margins to be on average lower in quarter 4 and a small piece of that normal quarter -- a small piece of that will be increased U.K. and European volumes. And a part of that slight margin degradation is the cost of these units, which, obviously, we need to supply to the marketplace.

So if Q3 is not a normal quarter, Q4 will be. But I will repeat what I said earlier, I expect us to continue to trade at pre-COVID levels. And therefore, even with the mixing towards BEV and PHEV units, we've made significant changes in our business model and efficiency to offset the challenges and the cost of these compliances. And that's the right thing to do, and that's what we've committed to continue to do.

Okay. I think we are now on the hour. So with this, I'll call it a day. Thanks, all of you for the time that you've taken and the probing questions that you had. Feel free to reach out to us further in case you want us to (technical difficulty) anything specific. More than happy to chat with you on this. Once again, thanks a lot. (technical difficulty) Thanks for everybody for joining. Do stay safe, all the best and look forward to catching up with you soon. Take care. Bye-bye.

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