Tata Motors Limited

C. Ramakrishnan – President and CFO

Yogesh Aggarwal – HSBC Securities Kapil Singh – Nomura Hitesh Goel – Kotak Equities Pramod Amthe – CIMB Securities Mahantesh S – Vijay Nara Sanjeev Jinglo – Majed Asset Management Rajasa K – Jefferies Sanjay Doshi – Reliance Mutual Funds Vishal Serav – FDI Mutual Funds Amit Kasat – Standard Chartered Pramod Kumar – IDFC Securities Aashiesh Agarwaal – Edelweiss Securities

Thanks, Emma. Hello, everyone.

Thanks for joining the Tata Motors 3Q FY 2013 call today. We are glad to have with us Mr.

C. Ramakrishnan, CFO Tata Motors and his team to discuss the results.

Sir, over to you for further proceeding.

Thank you, Yogesh. Good evening or good morning, everybody.

To startup the call, I’ll quickly go through the presentation that we have put together for this earnings announcement and we can follow the question and answer later on. At the consolidated level for this quarter, Tata Motors consolidated, reported total net revenue of INR 46,000 crores, up from INR 45,000 in the same quarter last year.

And cumulatively from nine months period INR 132,000 crores, up from INR 114,000 in the same period last year. EBITDA margin for this quarter came in at 13.3%, down from 16% in the same period – same quarter last year.

And 13.7% cumulative for the nine months period this year, compared to 14.4% in the same period last year. Profit after tax, we report a PAT of INR 1,600 crores compared to INR 3,400 crores in the same period last year, and for the nine months period, INR 5,900 crores, down from INR 7,200 crores for the nine months period last year.

At the consolidated level, the total capital expenditures and product development expenses stood at close to INR 14,000 crores, that includes Tata Motors and Jaguar Land Rover. And again, at a consolidated level, net automotive debt to equity stood at 0.3721.

Coming to Tata Motors’ standalone India operation, we have a phase with a very weak operating environment and weak macroeconomic situation in the country and with the intense competitive pressures and pricing pressure on the products that’s increasing marketing spend. The medium and heavy commercial vehicles volumes were affected significantly.

The net revenue was INR 10,000 crores for this quarter, compared to INR 13,000 crores in the same period last year. For the nine months period, the net revenue was INR 34,000 crores compared to INR 38,000 crores of the nine months in the previous year.

EBITDA margin took a sharp drop at 2.2%, compared to 6.7% in the same quarter last year. And for the nine months period, the EBITDA margin saw a similar drop at 5.2% compared to 7.5% next year.

At profit after tax level, this quarter, we report a loss of INR 450 crores compared to a modest INR 174 crores gross profit last year. And for the nine months period, the profit after tax of INR 614 crores this year, compared to INR 677 crores in the same nine months period last year.

Just to clarify, this year, first nine months INR 614 crores PAT include dividend that we received from Jaguar Land Rover which was INR 1,200 crores in Q2. In Tata Motors, the product development and capital expenditure for the nine months period was INR 2,000 crores and net debt to liquidity has gone up slightly and stood at 0.89:1.

Jaguar Land Rover, while I run through these numbers just to caution, the Jaguar Land Rover numbers that I read out now are computed in the IFRS reporting. Jaguar Land Rover net revenue stood at £3.8 billion for this quarter compared to £3.7 billion on the same quarter last year and cumulatively £10.7 billion for a nine months period compared to £9.3 billion last year.

EBITDA margin came in at 14% this quarter, down from 17% from an exceptionally strong quarter we had last year this time. For the nine months period, the margins are more comparable.

For the nine months period, the EBITDA margin for Jaguar Land Rover was 14.4% this year compared to 14.2% in the nine months period last year. Profit after tax, Jaguar Land Rover £296 million compared to £393 million last year and for the nine months period, £837 million compared to £785 million last year.

We have cash and liquid funds in Jaguar Land Rover balance sheet which counts £2 billion at the end of the quarter. And product development expenses and capital expenditure in Jaguar Land Rover for the nine months period stood at £1.5 billion.

And for this period, post the capital expenditure spend we generated positive free cash flow of close to about £100 million. Going a little bit into India business, medium and heavy commercial vehicles, our market share in the overall commercial vehicles continues to improve sequentially quarter on quarter, sequentially and for Q3 this year, our market share stood at 62.6%.

Talking about different segments, the medium and heavy commercial segment was affected by significantly in terms of overall demand, which affected our sales as well. And lower freight availability driven by sluggish economic activity, weak macroeconomic outlook and high operating costs for the operators, affected the demand quite significantly.

Our growth in volumes in commercial vehicles was mainly driven by Ace and the small commercial vehicle volume. We are focusing on our network expansion, offering value-added services to our customer and intelligent vehicles and new product introductions in our commercial vehicle business.

Passenger car, by quarter on the intense competitive pressure, our overall market in passenger vehicles stood at 10.1% for the period till December. Our recent product introductions like notably the Safari Storme has been received quite well and we expect – based on the early signals, we expect the most recently launched Indica Vista D-90 will also be received as well.

We have initiated several actions in our passenger vehicle business, our transformation of the business, to enhance of our dealership experience, effectiveness. We will continue to focus on new products and various introductions and enhance sales and service experience for our customers.

During the quarter, we also saw a strong retail sale which did not reflect in our wholesale as we went through some inventory correction, both at the dealer end and at our end during this quarter. This affected our wholesale numbers in passenger vehicles more than the earlier quarters.

For the India business, exports from India also saw a decline about 17% in this quarter. Export volumes came down to about 11,000 compared to 14,000 in the same period last year, and similar drop, about 12% for the nine months period.

While we did reasonably well in some of our markets like Nepal, Thailand, South Africa, et cetera, our strong volume markets like Sri Lanka, Bangladesh continued to decline. Turning to Jaguar Land Rover, we saw an exceptionally good quarter this year.

Volumes up about 18%, cumulatively for the nine months period, and about 10% for the quarter. The Range Rover Evoque and Freelander drove volume growth mainly.

And in terms of regions, China continues to grow quite strongly with a 50% year-to-date growth. China, today, accounts – in this nine months period, China accounted for about 23% in terms of our overall global sales volume; followed by Europe, again, about 23%; North America about 19%; UK about 15%.

The share of China region have further grown from Q3 of last year to the Q3 of this year from 17% to about 23%. Our 2013 model year products including the XF Sportbrake, all-wheel drive, smaller engine derivatives of XF and XJ, and the recently launched new Range Rover have been received very well.

Some of the highlights in Jaguar Land Rover, as we said earlier, revenue at £3.8 billion reflecting strong demand for our products. EBITDA margin at 14% which is in line with the recent quarterly performance but lower than an exceptionally strong quarter a year ago, mainly influenced by product mix, continuous effect of slowly creeping up marketing cost compared to the level which were exceptionally low in Q3 of last year.

Cash and bank balances and liquid investments stood at about £2.1 billion. In addition, we have unutilized but committed facilities close to about £1 billion aggregating to a very good liquidity pool.

In Jaguar Land Rover, we launched and completed a very successful 10-year bond offering of $500 million priced at 5.625% per annum. Our work on building the engine plant in UK continued and during this quarter, we laid the foundation for our joint venture in China with Chery.

The India presentation has been loaded on the Web site. So, I’ll keep the slide on – I’ll just touch some of the highlights.

Our vehicle financing subsidiary in India, Tata Motors Finance, reported good earnings. PAT for the quarter improved to about INR 84 crores for the quarter in Tata Motors Finance compared to INR 71 crores in the same quarter last year.

Our IT and engineering subsidiary company in India, Tata Technologies, again reported a strong performance. PAT coming at INR 75 crores compared to INR 58 crores in the same quarter last year.

Our Korean subsidiary in commercial vehicle, Tata Daewoo commercial vehicles, which reported negative performance last year in this quarter turned and reported marginally positive numbers in this quarter, about KRW 0.59 billion PAT. TML Drivelines which is our axles – heavy axles and transmission subsidiary in India reported similar decline in profit and profit after tax coming in at INR 12 crores compared to INR 60 crores in the same period last year, which is reflective of the lower demand in medium and heavy segment.

Going forward, we continue to see the external environment and the overall economic activities to remain stressed, resulting in overall demand continuing to remain under pressure and this is particularly true for the medium and heavy vehicle segments. The outlook on small commercial vehicle continues to remain strong and we see growing numbers there.

Competitive intensity will increase which will add further pressure to the marketing expenses. From the company point of view, we will continue to leverage on our sales in the commercial vehicle business, a very strong understanding of the domestic market requirements, a very wide and compelling product portfolio, strong brand and customer support, widespread distribution network, and large economies of scale in this business.

We’ll continue to upgrade our products, provide value-added services and solutions for our end customers. In passenger cars, I shared with you some of the underlying activities that are happening in the business intense funding and turning around our performance in passenger car which has been under pressure for many quarters now.

Many initiatives under aggressive implementation, which includes regular product refresh plans which are in pipeline, improving the customer experience and engagement, further expansion of the distribution network and significantly improving effectiveness and efficiency, and managing our cost and quality performance much better than we have in the past. In commercial vehicle and passenger car business, some of the new products in pipeline for the financial year 2013 includes further variants from our Prima range; the new light commercial range of trucks, branded the Ultra; variants on the Ace platform; variants of the Nano and refreshed car models which will be across the car portfolio.

We’ll continue to focus on extending our export potential for the products. On the cost side, we expect material cost and commodity cost to be under control in the coming quarter.

For the company of course, the cost optimization, cost reduction effort will be further aggressively pursued. Coming to Jaguar Land Rover, our investment in product and new technologies and product pipeline will continue.

Last month when we made the bond offering, we have given an increased guidance on our capital spend. You may recall we have mentioned earlier our annual capital spend will be in the region of about £2 billion with newer opportunities that we see in Jaguar Land Rover and the more aggressive product line and keep enhancing our capacity.

We expect in the coming year, our capital spend is likely to be in the region of £2.75 billion. We will continue to focus on profitable volume growth and we will continue to balance production and sales to keep the inventories and our activities in check.

I’ll stop here and throw the line open for questions. Yogesh, back to you.

Yes, Emma, can we start with the Q&A please?

Sir, good evening. I have a couple of questions.

First on MHCV volumes, we’ve seen a dip in market share this year compared to last year. And in some of the months like January it has been even below 50%.

So, is it related to inventory correction or is it related to growth or decline in volumes in markets where Tata Motors is stronger? How would you explain that and what is the plan to gain back the share?

I think you have touched on the two factors that are both important. I think there is a play of both.

Inventory production, not so much at our end. Our inventories have been under control for – in the commercial vehicle business.

But there has been inventory correction in some of our competition and there is a regional play as well. We expect that the market share will maintain and come back to our market share in the coming quarters.

Sir, in retail you would have around 60% kind of a share?

Yes. I don’t number right now readily here, but yes, in retail, yes.

Okay. And sir, secondly, as far as profitability is concerned for MHCVs or even for that matter for LCVs, is there increase in competitive intensity?

And when the market recovers, do you think we will be able to get back to historic levels of margins that we used to see two or three years back or do you think that because of higher competition, the margins may be are tagged lower than what we were seeing earlier?

It’s difficult to predict on the margin given where we are today. In general, I would say there is a bit of a pressure on the margins for everybody and definitely in our case due to the competitive intensity we face, not only in the commercial vehicles, but also the passenger cars in particular.

It will tend to increase the marketing cost, particularly the ongoing marketing expenses. There seems to be a tactical play from quarter to quarter.

But in terms of an underlying long-term trend, I think margins will be somewhat under control.

Okay. And sir finally, has there been any price increases or reduction in discounts that has happened in January or February?

During the quarter, October to December, on an average in commercial vehicles, we have taken a price increase of about 1%, but this is October to December quarter.

Right.

So did we in January as well. So we have been taking general, small doses of price increases from time to time as we have done in the past in the commercial vehicles business.

Discounts, I’m not seeing any particular reduction in January, February compared to a quarter ago.

Right. Thanks a lot.

Thanks Kapil.

Thank you, sir, for taking my question. Sir, first I have the question on the JLR front.

Why have the relations dropped like 6% on Q-on-Q basis? Was it driven mostly by discounts?

We know that there’s a higher mix of Evoque and Freelander also but what was the extent of discounts and if you can detail out that? Secondly, the margins have come up quite well at around 14% despite relations dropping so much so you can – if you can give some color on that as well.

The innovation is a mix of many things including regional mix and margin mix and variants mix as well as exchange. I would focus more on the margins, which as you said have remained visibly strong compared to – in three quarters.

It’s difficult to comment on utilization mix. It’s a function of many things but not necessarily reflective of any significant increase in discounts or variable marketing expenses.

They have been increasing gently I would say over last year but nothing exceptionally strong in this quarter.

Could we say that this is largely driven by higher Evoque and Freelander volumes?

That’s right.

Because the geographical mix for China only remains the same so I can only think about product mix.

It’s more the margin mix and within the margin maybe the variants mix.

So – but then margins would also have got some impact but there’s no impact on margin strength and also if you can give some outlook for next quarter per se that would marketing cost and stuff will be much lower next quarter as compared to third quarter levels and how do you see currency shaping up for fourth quarter.

On currency shaping up for fourth quarter, I would – maybe I should take an average of predictions from all the analysts in this meeting.

Because the currency has started to move in your favor in January and February, that’s why I’m asking that question.

That’s true. There will be some play of that in the coming quarter, but generally I would say margins will remain strong at the current level.

But the marketing and the – marketing expenses will go down or do you see more marketing...

I don’t see a significant change either way.

Okay, okay. And finally, sir, if you can throw some light on the tax rate and the depreciation expenses that have gone up, and JLR and tax rate in the consolidated has been – is around 39%, so if you can give some color on that.

JLR, if you recall last year in March, we brought in the deferred tax accounting and took a rise in deferred taxes. Therefore in JLR, we’ll be fully accounting between deferred taxes and current tax will be – they are fully accounting for the tax as an exercise, I mean, P&L.

So there is a difference in tax treatment in JLR, which I think we explained in the last two, three quarters. In addition to that, I recall during this quarter, JLR also had a tax incident on the dividend and started getting from various overseas operations including...

So JLR tax rate is at 27%, I’m more talking about the consolidated tax of 39% despite tax rate and the standalone operations so we’re unable to understand that. So if you can...

That’s primarily driven by the JLR tax. JLR has tax both in UK, even though the cash payment of tax in UK is low, and the overseas operation.

I think they are explained in one of the earlier calls. JLR in all of its industry operations will have to pay the local income tax on its local assessment, including in China.

Yes. So that should – that is already reflected in JLR operations right, but if we look at the consolidated tax rate, it is like 39%, with the JLR tax rate of 27%.

There’s some INR 240 crores difference even if I translate on that.

Maybe we can send the details to you offline after the call.

Okay, sir. And the depreciation expenses in the JLR front, how should we look at that now, if you can explain that?

The depreciation expenses in JLR, depreciation, amortization in general in JLR will keep going up as a line item. As you know when we acquired and whatever product development and the existing expenses have been capitalized in JLR, as a new model get launch and our – we do have an aggressive moderate and product direction plan going forward.

So, you should see this expenditure going up in the coming years, coming quarters.

So, how should we look at £90 million to £100 million increase every year? It’s difficult to give an estimate but how should we monetize the capitalized R&D spend.

Should we do it over a 10-year period? How are you looking at it?

In general, I would say over five to seven-year period.

Okay. Okay, sir.

Thank you.

Hi, sir. Currency has seen a lot of fluctuation.

Would you like to reveal whatever hedges and at what levels for JLR especially?

In terms of currency hedges, I can give you a general directional comment in terms of the hedging policy, our principles that we follow for the – in any particular quarter. The immediately coming quarter we would remain mostly hedged upwards of 80%, 90%.

And the success will be lower percentage in terms of our hedge position for the succeeding quarters. So, and we normally go up to two to three years, but lower and lower percentages.

So is it fair to say that the benefit which you’ve seen in the last couple of weeks on the currency will not immediately flow through and it will be more back-ended?

It will be more gradual over a period of time.

Okay, sure. Thanks and all the best.

Thank you this is Mahantesh S. here.

I just thought I’ll ask you this question. One, on the tax guidance on from JLR, I understand the corporate tax rates are coming down year-over-year by 1 percentage point, so what would your tax rate be in FY 2014 as far as JLR is concerned?

I can give you an answer offline, but Mahantesh I can let you know later.

The corporate tax rate in UK has been reduced. Can you confirm that at least?

It’s been FY 2012 to 2013 and it will reduce further in FY 2014 again. You also follow, for tax purposes, the April to March year.

Can you confirm that or...?

Actually, it does come down, but in JLR accounting terms, between deferred tax and cash tax, it will be almost at the marginal rate.

Okay. And related to that same tax question, you happened to mention that the previous JLR subsidiaries are giving dividends to the parent in UK.

So it will receive dividend income tax free to its sales, right?

In the UK?

Yes.

Yes, that’s right.

That would mean the overall tax rate in JLR should actually come down also on account of this?

No. But there will be tax correspondingly in the MSEs income tax.

Okay. But that’s the dividend distribution tax, that would be typically a lower rate than the corporate tax rate?

Dividend distribution tax or the income tax on net profit, whichever is applicable in that country.

Right, right, just wanted to understand a bit more on the marketing spends that you have mentioned as being higher the launch expenses especially for the new Range Rover, so can you quantify how much is that for the quarter?

It’s difficult to quantify per quarter the discounts or the marketing expenses. I’ve been giving a directional – if you take the last one year, particularly compared to Q3 of last year to Q3 of this year, you’re talking about a very exceptional strong quarter last year, October to December, compared to the – in these two time periods, I will say the marketing mixes are gentle been on the increase.

I’m referring to the launch expenses that have been talked of.

Overall, in terms of marketing expenses, I would say, it increased by about a percentage point.

Right, right. I think that answers my questions.

Thank you very much.

Yes, thank you. Sir, can you reconcile the GAAP with IFRS as far as JLR is concerned?

That’s a tough one in this call but we will be able to help you separately because yearly I have noticed when we report Indian GAAP for Jaguar Land Rover, people used to find it difficult because Jaguar Land Rover is reporting separately. IFRS is also reconciling the other way around.

Then we said as far as the JLR is concerned we’ll report consistently everywhere and share with you the IFRS results. So, I don’t want to start the story all over again this time the other way around but if you are keen, we can have it exchanged with you separately.

Okay. No problem.

Okay. Thank you.

Yes. Hi.

So this is (inaudible) here. Just on the Indian commercial vehicle business, are you expecting the demand in the Northern markets to pick up because I believe that’s where currently we’ve seen some sort of weakness?

Frankly, the commercial vehicle business and that’s not only for Tata Motors, I think overall from a market point of view, the signals are quite weak and it is linked so much to the external economic environment, the industrial capacity creation in the country et cetera. All of which are under somewhat of pressure or lack of activity in this point of time.

Rather than giving a time-related answer, I would say if the government starts some of the revival programs or start taking some major decisions, actions to tune up or revive the economy, even then, I would think it will take at least a quarter or two to work its way through the system and start reflecting medium and heavy truck demand.

Okay, fine. Thank you.

Hi, sir. Go, India.

I had a couple of questions. The first one was can you talk about trends in variable marketing expenses in JLR.

I mean you had mentioned that this comfort creeping now. I guess that has part to do with a model Range Rover change.

But it’s also had to do with discounting across the entire portfolio. Could you just speak about I mean how the variable marketing expenses have changed?

That’s true. I think it’s a play of both.

You will find it as the model – as the new model comes and the world model tends to be run out a little faster particularly at the dealer end. It does not necessarily mean the model run out – many times is maybe at the dealer end and may now flow back to the manufacturers.

Rather than quarter-to-quarter, I would say year-on-year compared to the – of course, we must keep in mind that last year October to December was a particularly strong quarter where we saw historically low levels of among these expenses. Compared to the – if we take a 12-month span I would say overall increase of about 1% in our total marketing spend.

And at a rough guess I would say equally distributed between variable marketing and fixed marketing.

Okay. So, it’s a combination of – okay and when you say fixed marketing, the general assumption is that there one-time cost because of Range Rover launch.

Would that be a fair assumption to make?

It would be a fair assumption except concerning our aggressive product plan in the past year or in the coming quarters. I don’t know how much comfort to say that it is a one-time.

It will be a one-time every quarterly.

Okay. Just the reason will be different?

Yes. What triggers that in each quarter may be different, but given the product program which we have shared with all of you for Jaguar Land Rover in the coming periods, I don’t know if there is too much comfort in saying it’s one-time.

The other confusion that I have, and I don’t know if other analysts have this, is the reported percentage margin is better I mean, it derive the arithmetic number, but if I look at your profit per car, this is the – from the time you started reporting quarterly numbers, it’s probably the second lowest or at least since first quarter – the IFRS numbers at least, it’s the second lowest. Now, there was a comment by JLRC for that margins will be at 14%.

Now, that 14% has relevance only if you know what the realization is going to be and it is a mix of a million things. So, how should we think about this?

I mean, should we think about profit per car remaining where it is for the next few quarters as you’ve guided or is it 14% of an unknown number?

Or is it fairly the last part or is it 14% on?

14% of an unknown number.

It’s convenient for me to say it will be 14% of an unknown number. First of all, I think what may be the press might have reported and what I said was, the question that was put across a short while ago was in the same period last year, you had almost 17% margin and this time, you are talking more about 14%.

There’s a question on the sharp drop and will you get back to 17%, et cetera. To that, Ken had responded saying that 17% was an exceptionally strong quarter.

And it’s not appropriate to compare or target that as a steady margin. Margins will be more steady-state in this region.

I don’t think he picked the number and said margins will be at 14%. I think, directionally, in terms of range, I think we are at the current ranges which is more real state, rather than 17% which is a combination of several things last year.

There is a context in which the response was given. Back to your other question which is profit per car, I can’t on this call contest whether it has the second lowest in recent history because I don’t have the numbers right in front of me.

I’m finding it a bit difficult to explain margins and predict margins every 90 days. It’s a combination of far too many things.

Sure.

If you take the next few years, as our product launches happen and we have many, many more models in the marketplace than we have had historically. And in the same time, we have lesser platforms.

The per platform extraction of value in our entire product strategy improved significantly. That is the major play on the margin.

In this business, you will have a very positive influence on account of operating leverage as our volumes increase. Then the regional factors like China and other more attractive regions growing much sharper than other regions and of course there is the currency.

So, there are number of things in which margins can be improved in a business like Jaguar Land Rover. Apart from operating efficiencies, material cost production, the internal efficiencies.

A lot of these can also be affected on the negative side with the marketing spend, launch cars, marketing discounts which are more a function of how the market is behaving at a particular point of time. So, every quarter is becoming difficult to have this margin discussion in detail.

But generally I would say the 17% was more of an exception than we are today. We would hope to improve on it but I can’t give a guarantee that it will be always upward.

Sure. A follow-up question...

Just a long-winded answer to your short question.

The other question I had was on – in January, when you sort of guided for the margins and higher CapEx. There was also this statement that you expect free cash flow to be – probably be negative next year.

Now, I just wanted broad attention that go into that statement because I’m assuming that when the management made the statement, you are fairly aware of the strong growth that you saw in January in the retail volumes of – and wholesale volume of JLR and probably had – expected a similar run rate for the next year as well. So you have a very strong volume run rate.

You have a fairly – rapidly improving mix both in terms of product portfolio as well as geographic portfolio. And you still expect a £2.75 billion of CapEx and R&D, free cash flow to be probably negative so I’m just a little confused there.

No. I think our guidance was also, to some extent, based on the fact that we are increasing our spend from £2 billion to £2.75 billion which is the other broad assumption you need to keep in mind while there are a lot of positive factors that you talked about in terms of volume or mix and region growth and the strong January outlook that we had at that point of time, but to base next 12, 14 months cash forecast based on one – 15 days, 20 days trend in January would have been somewhat inappropriate.

Secondly, it could also be affected due to pressure on margins. We have to – we operate in several different geographies.

I think ours is a balance to onsite. There’s a probability that free cash flow could be negative, particularly the capital spend is increasing quite sharply year after year.

And lastly, was there any assumption of working capital change, because I think for the first time in many quarters we’ve seen some deterioration in working capital in JLR?

So working capital a bit played a role in this quarter, but I don’t think that plays any major role in the negative free cash flow for next year. It is almost remaining flat.

Okay. Thanks, sir.

Good evening, sir.

Good evening.

Sir, my first question is on the domestic passenger vehicle business. We were looking at targeted dealerships for particular production, maybe the UV segment.

So how are you moving on those plans? How many dealerships have you added in those categories?

Are you talking about the exclusive dealerships?

Yes.

Nano, Nano exclusive and UV exclusive?

Yes, sir.

I’m quoting some numbers off my memory.

Right, sir.

We have over 100 – nearly 150-plus in terms of Nano exclusive dealership across the country.

Right.

And about 30, 40 UV dealerships.

And how do we – Nano taking cover from (inaudible) sir?

What we wanted to achieve was to see if we can provide a more focused experience in the dealerships for the particular product line, particularly in localities and regions, the attraction for that particular product, for example Nano and more etcetera.

Sure.

I think we have to see the experience and the business model in each of these dealerships.

Okay.

And see how we can take it forward. We would like to take it forward further, but we also need to see how and what type of experience both from a business point of view and from the customer point of view.

Right.

And has proved to be quite positive and there’s a chance we will improve on it further.

Right. And sir, on the passenger car business in particular, is there any market share target that we have in our mind, maybe for the next three years time period from the current 10-odd-percent?

Have you set a...

Not very long ago. If I take two, three years ago, I think we have gone up to 16%, 17% market share.

Right.

There’s no reason why we should not reach there or go beyond.

And slide 19 doesn’t mention any new model launches. It’s mentioned about refreshers.

So is the passenger car segment not working on any new models?

The slide is more meant for the near term.

Okay. Okay.

Okay. And last on the JLR side, I just wanted to understand from you, what is the current demand capacity, I mean the kind of production that can we expect on an annual basis now, and what can it be though for the next year?

I’m not going to respond on the next year potential capacity.

Okay, sir.

Current year, if you’ll take for example about the last quarter of last financial year, I think we did close about 90,000 – 95,000 vehicles for the quarter.

Right.

And if you’ll take it – that on an annualized basis, the capacity would have been about 350,000-370,000 for this fiscal year, and we have been investing further in expanding and creating further production capabilities across our plants. And I think you may have heard the reports Ken mentioned in a short while ago, that three of our facilities – across the three factories, we are running nearly three – corporations across all the three facilities.

Right.

So we are running practically full up on capacity.

Okay.

And then the run rate of last quarter.

Right.

350,000-370,000 is that about where we are today but, of course, we are working on increasing it on an ongoing basis.

Okay, sir. Okay, thank you very much, sir.

Hi, sir. Sir, I just wanted to understand more sense on the CV business.

Last time we saw a sharp down cycle was seen in FY 2009 where we saw for two quarters similar kind of decline in MHCV segment. But at the same time at that point of time we saw significant price increases led Tata Motors and margins down very sharp from around 2% level, 1% to 2% to best to 10% in these two quarters.

This time again, margins has slipped down to below 2%. So, when do you think we can see volumes come back and pricing come back for us.

And you know that translate into better margins.

I’ll try to answer this in many different ways. If you’re talking particularly in terms of medium and heavy commercial vehicles, it’s not that from Tata Motors we can – we have a magic wand and volumes go up.

It’s extremely dependent on the external macro economic conditions, the industrial output in the country, the capacity creation in the country, infrastructure, mining activity and so on. Current quarter is looking no different.

It’s continuing to be somewhat damp in terms of overall demand at the industry level for medium and heavy commercial vehicles. I think a lot was different on the turn and outlook externally, how it changes.

And once we see some actions and specific projects and steps and policies and everything falling in place, given a couple of quarters, I would expect the volume should start to improve – the overall demand to improve. I’m afraid I can’t give you more.

And last thing sir, volumes were difficult to predict, but how do you see a scenario on the pricing and margin side because that is where we’ve been – you know what, there is the possibly Tata Motors will be the one to take the call for us.

Pricing – in terms of product pricing, we have been, on an average, increasing the price across our range by about 1% each quarter. That trend will continue, but given that the market situation and the volume and the overall demand situation, I think the competitive pressure and the variable marketing and the count level are running quite high today.

So I think the net margins will continue to be under pressure for some time.

And you don’t see a scenario where the discount’s reduced going to help if the volumes remain at this levels?

At least we haven’t seen it so far in January and February.

Okay. And sir, in initial question, you were mentioning about retail market share being at 60% against below 50% for wholesale.

Can you just elaborate more on that point? And has that actually happened because of dealer inventory reduction or if you could put some more light on it?

Our dealer inventories had been under control steadily for the last few quarters. You haven’t seen dealer inventories going up in the past, nor as any sharp reduction currently taking place for our dealer inventories and that’s why our wholesale and retail mix has been fairly balanced consistently in our commercial vehicle business.

But if you’re talking about market share, we are talking about related performances in reference to the market and competition. There has been some mismatch in – and there is inventory correction there as well.

For us if there’s no inventory correction, so the market share will be higher only if there’s huge, huge buildup in dealer inventory by completion. So, do you think that that what has been happening?

If it makes sense, yes.

Okay, sir. That’s all for myself.

Thanks a lot.

Yes. Thanks for the opportunity.

Most of the questions are answered. But sir, if you can give us the capacity utilization for the domestic business for different segments, that will be very helpful.

If I start on the commercial vehicles side, we continue to remain quite high in terms of small commercial vehicle range in terms of capacity utilization.

Right.

In fact, I think I had mentioned in one of the earlier calls, we are investing in expanding the capacity further on the Ace and its family, so the capacity utilization is very high in that part of the business.

Okay.

Medium and heavy commercial vehicles, that our capacity utilization was at about 70% earlier, has fallen to more like 40%, 45% now.

Right.

If you’ll take on the current rate.

Right.

In passenger car vehicles – passenger and utility vehicles, that remains on an average at around 50%.

50%, right? And is it possible for you to give the capacity utilization for the Nano plan?

Nano will be somewhat lower. We created capacity on an average about 25,000 per month.

You know our current run rate.

Yes.

That’s lower than the average that I’ve talked about for the passenger vehicle business.

So I’m just extrapolating about the safety plant. Right now in the third quarter, our utilization was 50%, 55%, and if the fourth quarter happens to be the similar or a disaster, that’s what the outlook is.

Any sense you can give, what’s the breakeven for that plant?

That’s not really difficult to – that’s not very easy to define in terms of breakeven point for a particular segment of the business.

Okay.

I would stay away from that.

Okay. Thank you, sir.

Yes. Good evening, thanks a lot for the opportunity, sir.

Sir, my first question was a clarification on your treatment of incentives and commissions at JLR. Just want to understand, are they from the net sales for respective models out there, part of the other expenditure line?

The variable marketing expenses, incentives, commissions, et cetera are – reduced from the top line.

Reduced from the top line. And the fixed marketing expense will be in the other expenditure?

That’s right.

That’s right. And sir, just the outlook on your standalone CapEx because you did mention that you have the aspiration of getting back to 16% market share in PV, and also need to prepare for increasing competition in MHCV.

So I just want to understand, is there any upsizing of CapEx as standalone entity as well?

No. My earlier indication was on an average, we would spend about INR 3,000 crores in the domestic business on new product investment, technologies and CapEx.

My guidance would remain broadly the same, year to year it may vary between INR 2,500 crores to INR 3,000 crores but it will be in that range.

Okay. And sir, on China, just wanted to understand what is the current dealership count what we have on JLR and what is the target for this – by this year-end in terms of the number of touchpoints?

In terms of touchpoints – in terms of number of dealerships it will be well over 100 today, 120 and 130. But if you talk about touchpoint, the dealership may have more than one location and operation I think to be much more closer to both.

Okay. And in that case what will be the year-end dealership targets, sir, or the current 120 to 130 or the target you have for the year-end.

I just want to understand how much of the market is yet to be tap in terms of – in JLR China.

Sorry, I don’t know that I have a number readily for you to give in terms of target before the end of the year, the number of dealership in China.

But we continue to look at expansion in terms of the number of...?

Of course.

Okay. Okay.

So, fair enough. So, fair enough.

And a final question on the group consolidated cash flows. How would you see them for the next couple of years considering the CapEx subsiding in JLR and the current slump in the domestic business?

I think cash flow will remain somewhat under pressure. And I think we have already said that with the increase in CapEx in JLR, JLR business could see some possibly negative free cash flow.

The domestic business, I expect that the business will turn around at some point of time with the external economic improvement. We remained fairly okay in terms of overall balance sheet, leverage and borrowing.

We are under one in terms of debt-to-equity ratio. Even the consolidated level we are at...

0.37

0.37 and then domestic business we are couple of 0.8 which is slightly higher than what I would have like to see. But in terms of overall leverage and liquidity we are fairly okay.

Okay. Fair enough, sir.

Thanks a lot and best of luck.

Good evening. Thanks for the opportunity.

This is Aashiesh Agarwaal here. Sir, my question is first – to some news article that we had seen saying that since you are cutting the production, the vendor health, vendor financial health is under the question and there could be some support program that you may run for them.

Could you throw some light on this sir?

You’re obviously talking about the domestic India business.

Absolutely, sir.

In India where vendor bases have been there are many of them are completely reliant or significantly reliant on us for their business and the relationship that has remained strong over a period of time. In ups and downs in the business, we have worked together.

So, when the whole market is down and everybody is under pressure, if there’s any specific support or help required at the vendor level, we will definitely extend that. It does not necessarily mean that a financial package is being put together or whatever.

In many cases, we work with the vendors to help them to reduce cost or help them improve quality or help them improve their operating efficiencies, et cetera. And such help and collaboratively working with our vendors will always be there.

Sure. So it’s not about financial package there, it would be more in terms of process improvement.

It will be – it may take differentiate on a case-to-case basis. There’s no major announcement I have to make.

It depends on a case-to-case basis. We have seen certainly external situation in the external environment, the whole industry is severely affected and the medium and heavy business is affected and the passenger cars, we see cooperative intensity and low volume and across most manufacturers low – relatively low levels of capacity utilization.

Naturally, in terms of the backward process, the supply chain is affected. I think all manufacturers including Tata Motors will have to see how we can find more and more ways of working together with our vendors today.

Sure. Thanks.

And my next question is with respect to JLR, I see that raw material cost for vehicular decline by about 5.1% during the quarter sequentially. Will this also be because of mix of models in variants?

Mix of models, I would slightly expand that, it’s partly a model mix and the thing is for all to be a regional – because we are taking percentage to top line. So it can be a function of...

Dividing my raw material cost by the number of vehicles sold...

Yes. So, it can again be influenced by any of these factors.

Sure.

So if you sell one product in the UK versus the same product in China, the passengers...

Okay, got it, thanks. And then last question if you could just throw some light on the mission requirement with respect to U.S.

So across the fleet, where would we be on the weighted average emission and efficiency and compared to where we are, if you could just throw some light on that, sir?

Sorry, I don’t think I have the exact answer. I want to be correct in responding to you.

I am afraid you may have to drop it but later I can respond separately.

Okay. Second, sir, in terms of – from what I understand is that there is a gap in terms of what are the required, vis-à-vis where we are, this is across the board?

There are some credits that you may have to purchase which can be accumulated or the debits maybe accumulated. How do we account for this emission debits that we may be generating if at all?

The question of accounting for it at present doesn’t arise because across the different regions, I don’t see a situation where we are buying debits or credits in any significant way to be explaining any accounting impact of it. And we are fairly okay in terms of the emission amounts in the near term.

The hesitation for me to answer your question is when you asked specifically about U.S. going forward over the next five, six years, I can’t answer that readily, but we don’t have a concern of not meeting the amounts of paying penalties at this point of time or in the near term.

Sure. Sir, much appreciated.

Thank you so much.

Yes. Thanks, sir, for your time today, and thanks everyone for joining the call.

Have a good evening.

Thank you very much, Yogesh. Thanks.

Thanks.