Tata Motors Limited (TMCV) Earnings Call Transcript

Hello. CFO, Mr. GV Ramanan is unable to join today's call, personal exigency in the family, send his regrets for being unable to attend. In his absence, I will be taking you through the financial highlights section of the presentation, following which Mr. Wagh will give the business and strategic overview. We will then move to Q&A. [Operator Instructions] With that, let me begin with the [indiscernible] highlights for the quarter. Before we go into the numbers, a quick word on safe harbor. Consistent with our last quarter presentation, our primary numbers represent the stand-alone financials, includes point operations with Tata [indiscernible]. Consolidated results follow later in the deck. Unchanged to note this quarter, freight type is now included as a subsidiary following the increase in our stake in May 2026. That, let me take you through the highlights for the quarter. [indiscernible] building on the momentum we saw in the second half of last year. On the SCB pickup front, we launched the AS Gold Plus XL. [Audio Gap] For the Indonesia order of 70,000 units of [indiscernible] and Ultra T7, we initiated deliveries during the quarter. We also crossed a major milestone with our Lake plant crossing 10 lakh commercial vehicles in cumulative production. We also partnered with HPCL on a scalable circular economy model for used automotive lubricants. And the Tata Motors Foundation's integrated Village development program has now reached close to 200 villages nationwide. Next slide, please. There were 2 significant corporate actions in the quarter. On the Iveco transaction, regulatory approvals are now in the final stage with only 1 approval pending. All information requests have been addressed, and we expect the final clearance by the end of August '26. On that basis, the tender offer is expected to be launched in early September '26, with closure expected by early November '26. On Freight Tiger, we acquired an additional 18.1% equity stake in May '26 for around INR 96 crores, taking our total holding to approximately 63.6%. Freight Tiger is now a subsidiary and the intent is straightforward. We are bringing fleet [indiscernible] and Freight Tiger together so that it gives us an end-to-end digital ecosystem across the logistics value chain, covering both the trucks, ecosystem and the trip ecosystem. The next few slides cover the stand-alone business, which includes -- do with Tata Premis, let me start with the volumes. Q1 wholesales were approximately 1,87,000 units, up 26% year-on-year, a robust quarter and one delivered through a period of heightened geopolitical tensions. It's important to note that this growth was broad-based across every product line and each in double digits. HCV had 26,400 units, up 22%, ILCV at 17,100 units, up 16%, SCV pick up at 38,300 units, up 35%; PV passenger at 18,700 units, up 23% and exports at 8,100 units, up 35%. This slide summarizes the stand-alone financials, the volume momentum we saw in the last page translated into a 23% revenue growth for the quarter. It stood at INR 19,300 crores. EBITDA was INR 2,300 crores at a margin of 11.7%, down 60 basis points Y-o-Y. This moderation is mainly commodity led, and I will take you through the walk on the next slide. EBIT margin was 9.4%, down only 20 basis points and PBT before exceptional items was INR 2,100 crores, up 26% Y-o-Y. So despite the margin moderation, absolute profit growth has kept pace with revenue. Free cash flow was INR 1,100 crores against a negative INR 1,800 crores in Q1 last year. That's a swing of almost INR 2,900 crores. I will also cover the drivers for that shortly. Net cash stood at INR 7,100 crores as of June 30 against INR 7,500 crores at March end. And this is after the INR 1,473 crore dividend payout during the quarter. Auto [indiscernible] continued to be strong at 68% on a trailing 12-month basis against 72% for FY '26. Investment spending INR 500 crore for the quarter was in line with plan. So this is the walk from PBT before exceptional items of INR 1,635 crore in Q1 of FY '26 to INR 2,057 crores in Q1 of FY '27. And what you see below that is the EBIT margin grid. Volume and mix contributed to INR 336 crores and realization was a further INR 402 crores. The price increases that we took during the quarter have largely been passed through. And together, we've added 140 basis points to EBIT margin. Variable costs were the principal headwind at INR 649 crores or 340 basis points. This is primarily commodity inflation, steel, aluminum and copper are flowing through into material cost, consistent with the headwinds that we flagged when we closed FY '26. Other fixed costs contributed positively at 180 basis points. This is operating leverage on a larger revenue base. FX and other items were neutral to margin. Net of all this, EBIT margin moved from 9.6% to 9.4%. And in summary, operating leverage and improved realization have absorbed almost all of the significant commodity headwinds. Coming to free cash flow for the quarter. FC was INR 1,114 crores against a negative of INR 1,796 crores in Q1 of FY '26, a swing of about INR 2,900 crores. Going through the walk, PBT before exceptional items of INR 2,057 crores, noncash items were INR 247 crores. On tax, the INR 500 crore outflow compares with just INR 20 crores in Q1 of last year. As flat during the full year results, cash tax is now a recurring item for us. With that, we arrived at a cash back of around INR 1,800 crores. CapEx roughly about INR 554 crores lower than the INR 639 crores in Q1 of last year, but in line with our investment plan. But the decisive difference year-on-year is efficient working capital. This quarter consumed only INR 232 crore as against INR 3,474 crores in Q1 of FY '26. Next slide? Total investment spending in Q1 was INR 515 crores. At approximately 2.7% of revenue, this sits comfortably within our guided range of 2% to 4%. This completes the stand-alone numbers. Now let me turn to the consolidated results. Consolidated revenue for Q1 was INR 20,700 crores, up 19% Y-o-Y. EBITDA was INR 2,300 crores at 10.9%, down 90 basis points and EBIT was 8.5%, down 80 basis points. This was due to the same commodity dynamic that we discussed at the stand-alone level. EBIT before exceptional items was INR 3,000 crores, up 81%. This includes a mark-to-market adjustment on our investments in Tata Capital. Consolidated free cash flow was INR 400 crores against a negative of INR 2,000 crores in Q1 of FY '26. And net cash stood at INR 13,500 crores as on June 30, as against INR 13,700 crores at margin, maintaining a strong liquidity position through the quarter. With that, let me hand over to Girish to take you through the business updates. Over to you, sir.

Thank you, Sneha. So let me begin with the VAHAN share, the registration share. So we saw 100 bps improvement in VAHAN share on a sequential basis. And as compared to FY '26, there was a growth of 170 bps. We further strengthened the position in heavy commercial vehicles 256.3, [indiscernible] saw a slight drop essentially due to the supply chain challenges that we have seen, especially in the western zone. And we also had 110 bps growth in VAHAN share in small commercial vehicle and around 490 bps growth in CV passenger, which is buses and vans, so this is on the back of the tenders that we had won. Moving on. As far as fleet utilization is concerned, this is our data from the fleet age that we have deployed now almost on 1.2 million vehicles. So the fleet utilization improved 1 month in Q1. So it improved from April to May, May to June. But the Q1 fleet utilization remained slightly below that of Q1 of last year. But this is also on the back of a very high volume, which was sold in H2 of last year. So it is just slightly below that of Q1 of last year and not about not a concern at this juncture. But what remains healthy is the significant growth in e-way bills as well as diesel consumption, which the continuous growth in utilization of the vehicles and the freight, which is available for transportation. Moving on. So the industry saw healthy momentum with the wholesale volume growing almost 18% on a Y-o-Y basis, and our volumes grew by around 26% in the same period. As I spoke on the earlier slide, e-way bill generation shows a very good growth of 12.4%, which does indicate healthy freight available for transportation. Net utilizations improved month-over-month, although Q1 FY '27 is slightly below that of Q1 FY '26. Diesel consumption also grew overall positive positive markers for the industry. Our businesses, starting with trucks, we have a Y-o-Y market share gain. Due to volume growth, especially in heavy commercial vehicles on the back of the new product launches that we spoke earlier. In buses and vans healthy market share growth driven by not just higher retails in all segments, but also delivery on the government tenders that we had won in the previous quarters. During the quarter gone by, we also won orders for 562 units across multiple segments. In small commercial vehicle, we did land -- launch a new product, which were spoken in the first few slides. And in addition to that, the ramp-up in our ACE diesel LNT and ACE Pro EV are supporting the volume growth. Intra-brand continues to do well and intra EV has also been launched and has started doing well. Of course, currently, we do have some supply chain challenges, especially on intra EV. The Parts and Services business continued to grow in double digits, strong growth trajectory. And I think we were able to maintain uninterrupted diesel exhaust fuel supplies, despite the crisis that we had in terms of availability of technical grade urea due to the Middle East crisis. And this also led to, therefore, increase in the volume and revenue from the dev supplies in Q1. Fleet Edge now installed base grew to more than 1 million vehicles and the subscription renewal performance has improved dramatically on a Y-o-Y basis. In the International business, we initiated deliveries against the Indonesia order, and we had around 2,000 vehicles being shipped in Q1. And post that, we have been ramping it up consistently. And we've been able to demonstrate a 35% Y-o-Y growth despite very few numbers being shipped to Middle East. On sustainability and the EV business with the launch of intra EV and also the 55 ton EV tractor and the increase in diesel prices, which happened in the of the last quarter, we have seen the TCO parity of EV with respect to diesel and the gas vehicles is being reached earlier and therefore, they are becoming more attractive. And as a result, the EV volumes grew almost 3x on a Y-o-Y basis. And in fact, in SVC pickup, the EV penetration reached double digit in the months of both May and June, and that continues to improve further as we get into Q2. Therefore, we had more than 3,200 retails on SVC EVs in Q1, which alone is almost 4x growth on a Y-o-Y basis. On EV trucks, both I mean the heavy commercial vehicle tractors and [indiscernible], there is a very strong interest of the customer, robust engagement and the customers are looking forward for these kind of decarbonizing solutions. We also now have around more than 850 electric buses orders. This is a combination of orders from private customers as well as a few tenders that we won tenders from Chennai, Ahmedabad, Hyderabad and the state of Orissa. Our Smart City business, which operates electric buses has now covered more than 99 crore kilometers and maintains the spotless performance in terms of uptime and safety. Moving on. As we look ahead for Q2, for the overall business I think 2 things we have to manage actively. First is the commodity inflation, which continues to be there, which will be managed through, of course, first client of attack is cost management, but we've also taken a price increase on first of July. And in addition to that, we've also seen some supply chain challenges especially due to increase in demand in almost all the auto segments, be it 2-wheeler, 3-wheeler, 4-wheeler, commercial vehicles, tractors, I think we have seen healthy growth all across as a result of which some of the part categories like sheet metal, casting, forgings have become a constraint to address this. A lot of debottlenecking actions have been taken place to more in the pipeline, but this has already enabled us to improve the throughput towards the end of Q1 and of course, in Q2. On the demand generation side, we will continue to accelerate the growth to the new MY '26 portfolio, the higher payload trucks and of course, with heightened interest in the factory electric vehicles. EV passenger, we still have around 4,500 government orders on hand, which we will continue to deliver during this quarter. And as I spoke, there are 850 e-buses orders also on hand. In small commercial vehicle, we will build on the demand which is being seen for both the Ace and intra-brand families and also build on the shift which is happening towards EVs and build on the market share gain. In Parts and Services, we continue to bring in innovative offerings, especially on services, which leads to improved demand not only for the products, but also for the parts. We are also taking quite a few actions on supply chain, some debottlenecking and also the fulfillment chain, which will improve our delivery of parts to the customers. On international business, we will continue to leverage increased demand from non-Middle East markets, especially in SARC, [indiscernible] Africa and also increase the throughput towards Indonesia. So that's the plan for the quarter ahead or the quarter that we are already into. Now over to you for the questions.

We have a few questions which have come in already in the queue. The first one is from Raghu. Congratulations -- Raghu from Nuvama. For full year, do you expect double-digit growth in domestic CVs? and second question on exports, how do you see the full year outlook for Indonesia order? How do you see dispatches in FY '27 and '28?

So thank you, Raghu. I think very early to talk about H2. It appears that Q2 will also see a healthy double-digit Y-o-Y growth. I think it will be very interesting to see how the market pans out from September onwards, especially when we do a Y-o-Y comparison because last year, as you recollect, post the GST rate correction, the market really picked up from the month of September. But I think the kind of growth that we have seen in July, it will probably be safe to say that Q2 will end up with a double-digit growth. Now coming to Indonesia, I think we are ramping up the supplies quite significantly. And yes, I can only say that the 70,000 orders will certainly be supplied over a period of 2 years, FY '27 and FY '28.

The next question from Kapil. So Kapil is also asking about demand outlook, which I think you just addressed. On EVs, what is the EV demand outlook? How is the response bring to intra EV? And what is our capacity? On costs, is there more cost pressure ahead? And will the price hike in Q2 cover it? And again, Indonesia order is something which we've already answered. So maybe you can take these two.

So I think on EV, as I said, Kapil, of all, thank you. On EV, yes, the demand outlook is quite positive. I already gave you the number of orders that we have for the electric buses. In addition to that, I think as a part of PM bus [indiscernible], there are a few more newer tenders, which are also on the way. So we are quite positive on that. SCV pickup, which is completely in the retail market is, in fact, doing very well. And as I said, the TCO parity of intra Ispro has become very attractive with respect to or in comparison to their ICE brothers. And therefore, from that perspective, I think the demand will remain strong and will continue to grow. In terms of capacity of intra EV, actually, our in-house capacity is not a challenge at all. What has happened is not only our electric vehicle demand has gone up, which is leading to a therefore, cascading increase in demand of cells from China. But even within China, the share of electric vehicles has further gone up, which has led to increased demand on the cells. And this is something which is currently a bottleneck. And the lead time for the demand or lead time for getting the cells in India and converting into batteries is currently pretty high. But I think we have placed higher set of orders already around 2 months back. But towards the end of this quarter, I think we should have supplies completely bottleneck from the perspective of the demand as we see. Now coming to costs. Is there more cost pressure ahead? Yes. There is further cost pressure ahead of us. In terms of commodities, a few of the commodities, steel, rubber, et cetera. And it is our endeavor, of course, to ensure that the price hike and our own internal cost management actions enable us to tide over this of commodity challenge. The net price hike in July, so Kapil. I mean, we have taken a 2.5% increase and very confident that it should pass through as we progress during the quarter. On the Indonesia order, I think we have already answered in detail. So we can move to the next question.

Yes, the next again from Raghu. On eTruck sales, how is profitability different from the ICE trucks And how much is the EV revenue and PLI for the quarter?

So there is another question in terms of higher payload trucks. Okay. So there is -- okay, Raghu, there is one question from you in terms of higher payload trucks. So yes, I think the acceptance in the market is very good. And this is, therefore, leading to market share gain gradually. Now let me say because you have asked a question whether it is giving a double whammy of market share gain and contribution margin improvement. I think in commercial vehicles, the customers do take time to build a trust in a vehicle, although they have a trust in the brand. And for any new vehicle, I think they kind of watch as to what is happening. But at this juncture, I must say that, yes, it does make a positive business case for them. These new product high payload trucks. The next question you have asked is utilization for HCV tipper is relatively lower than HCV cargo. Is there any Worries? No. So Raghu, this is quite characteristic from the beginning of rainy season, the tipper utilization does go down. And towards middle of September, it starts picking up again. In many cases, it also starts picking up from 15th August. So it depends on the rainfall activity. So this is not something to be concerned about. You asked about the growth in other expenses is much lower than the revenue growth. So that is the operating leverage, Raghu, and we will make all the efforts to get this leverage as we go ahead. There was one more question you said from him.

Yes. On e-truck sales, how is profitability different from ICE trucks?

Yes. So see, this is something that I also addressed during our Investor Day. That first is our endeavor is to sell all the vehicles with PLI benefits, although I must add that off let the regulators are taking a pretty long time in giving the certificates. And therefore, in specific cases to meet customer commitments. I think we have started delivering the vehicles in certain cases. But otherwise, our endeavor is to deliver with full PLA. So profitability will be different from ice trucks because the scale is pretty low. But I think as the scale improves, and we have higher localization. And I think from -- in some quarters from now, we should see even sell localization happening gradually. With that, I think we should get back into a good position, Raghu.

We have a few questions on e-mail. So this one is from Pramod Kumar, UBS. This congratulations team on the strong volume and profit performance. This question is, on the pricing environment, are we reaching the limit for price hikes given the sharp surge in steel and rubber and how is the discounting been across segments?

So I think this is a very delicate balance that we have to achieve, and this is something that I said in Q1 also that our first line of attack is to see how much cost we can contain, how much cost we can negate, but beyond that, I think we have no option but to increase the prices. I think what has helped us, I must say, is model year '26 that we launched across the portfolio with improved efficiencies and therefore, improve TCO. So it helped us to a good extent in terms of stabilizing the new prices. whether it has reached the limit, it's very difficult to answer in a binary manner. But I can certainly say that the price increase cumulative price increase during this year has been quite significant.

Yes. Another question from Pramod Kumar, can you comment on the current demand environment, July has been very robust despite monsoon, what is driving this demand surge and whether it will be sustainable?

So as I mentioned earlier, Pramod, I think the underlying demand fundamentals are pretty strong, right? We saw e-way bills, diesel consumption, fast-track collection. I think all the indicators indicate a very high movement of goods, which means I think the underlying freight available is pretty robust. And we've also discussed that I think this remains directly correlated with the GDP growth. So once the GDP growth is quite robust, what it is today, it also leads to equal an amount of freight growth and that then leads to higher demand. So I think at this juncture, yes, I think despite the inflation which is happening in the products as well as the fuel prices, you've seen the demand remaining quite robust. Patrick?

Let me just check. I don't see any other -- okay. Another question from Kapil. How is the EV financing scenario and have historical resale value concerns been addressed?

The EV finance -- retail financing has been improving month-over-month. And I must say, more and more financials are having confidence in the technology, in the product. And in most cases, we are also offering warranties battery warranty especially, which is higher than the tenor of the loan, which is giving a very high comfort to the financials. And more and more financials I meet, I see a lot of comfort amongst them in funding EVs because their book quality is quite robust, quite okay as far as EVs are concerned.

Yes. This is [indiscernible], Elara. On the demand side, is it replacement demand that is driving the growth? And can you also share some flavor on large fleet operators versus the small operators -- standbys?