Tata Motors Limited (TMCV) Earnings Call Transcript

I hand over to Mr. Ramanan. Over to you.

Thank you, Sneha. Good evening, and welcome to Tata Motors Q2 FY '27 Earnings Call. Thank you for joining us today. I'll be taking you through our financial performance for the quarter. and the half year ended September 30, 2026. Safe harbor statement, this is the regular statement that we have given. And like last quarter, our primary numbers represent the stand-alone financials, which include joint operations with Tata Cummins, consolidated results follow later in the deck. There is no change in the reporting [ Perimeter ] was this quarter. [ Fred Tiger ] continues to be consolidated as a subsidiary as it was in Q1. With that, let me take you through the highlights of the quarter. On products at Prawaas 5.0, we unveiled our next-generation passenger mobility solution, including the launch of new Ultra Prime and Starbus Prime range. We also showcased our next-gen aggregates portfolio at Bauma CONEXPO India 2026. We have won the Best Truck of the Year at the Logistics and Transport Award 2026 in the UAE recognition that comes alongside a very strong quarter of export, which I will cover under the volume section. We signed an MOU with Drivn to offer innovative leasing and financing solution for our electric commercial vehicles, easing the total cost of ownership conversation for fleet customers. We collaborated with Petronas to pilot a scalable used oil recycling model, extending the circular economy work we began with HPC in the last quarter. During the quarter, we also partnered with Welspun Renewable Energy to develop a 86-megawatt wind solar hybrid project. A quick update on Iveco transaction which has progressed in line with the time line we shared last quarter. We obtained all required regulatory clearances completing the condition to launch the offer. Consequently, the acceptance period opened on 7th September 2026 and will close on 26th October 2026. On 9th October, we increased the offer price from EUR 14.1 to EUR 14.40 per share in consideration of the slight delay in completing the offer related to the original time line. This was a goodwill gesture from the company and EUR 14.4 has also been declared as a best and final offer. On 16th October, Iveco EGM approved all offer-related resolution as of 22nd October, approximately 35% of shares have been tendered. As typically seen in tender offer process, a significant portion of shares tend to be tendered towards the very end of the acceptance period, particularly in the final 24 to 48 hours. We therefore remain confident of a successful completion of the open offer. Subject to the offer conditions being met, settlement is expected on 30th October 2026, and Tata Motors will pay the offer price for the share standard. We will come back to you with an update on Iveco once the offer is settled. Q2 wholesales were at 1,35,100 units up 42% year-on-year, plus and up 24% sequentially. Growth was once again broad-based with every segment in double digit. HCV was up 41%. ILMCV was up 24%. All commercial cargo and pickup was up 27%, CV Passenger, up 31% and International business was up 177%, close to 2.6x over last year. The step-up in International business that you see is driven by the Indonesian order, where deliveries ramped up sharply during the quarter. On top of the steady export trajectory we built through FY '26. For the half year, wholesales were at -- sorry, 24,384 -- I apologies, 24,380 units, up 35%; HCV up 32%; ILMCV up 20%. Small commercial Pickup, again, a double-digit growth at 30%, and CV Passenger was up 26%, and the International business was up 114%. The next few slides over the stand-alone business, including the joint operations with Tata Cummins. The financial highlight, this slide summarizes the stand-alone financials, including the joint operations with Cummins. Volume momentum translated into 42% revenue growth. Revenue for Q2 was INR 23,900 crores. EBITDA was about INR 2,800 crores, up 31%, at a margin of 11.7%, while EBITDA margin was down 90 basis points Y-o-Y. It held flat sequentially despite a commodity headwind intensifying further during the quarter. I will take you through the margin of [indiscernible]. EBIT margin was at 9.7%, down 50 basis points Y-o-Y. EBIT at INR 2,300 crores. Profit before exceptional items was at INR 2,700 crores, up 51%. So an absolute profit growth has again outpaced volume growth. Free cash flow was at INR 4,600 crores against INR 2,200 crores in Q2 last year, an improvement of INR 2,400 crores, which I'll walk you through shortly. With that, net cash stood at INR 11,300 crore as at September 30, against the INR 7,500 crores at March end and INR 7,100 crores at June end. And this is after the dividend payout in Q1. The auto ROCE was 65% on a trailing 12-month basis against a 68% at the end of Q1. Moderation largely reflecting the lower margins over the last 12 months. Investment spend was INR 600 crores for the quarter against INR 700 crore in Q2 last year, and this is in line with the plan. Coming to the Q2 EBIT walk. This is the walk from PBT before exceptional items of INR 1,758 crores in Q2 FY '26 to INR 2,660 crores in Q2 FY '27 with the EBIT margin bridge grown underneath. Volume and mix contributed around INR 1,159 crores, improved net realization, a further INR 1,017 crores. Together, these added 230 basis points to EBIT margin. Variable costs were the principal headwinds at INR 1,416 crores, [ 590 basis point ] impact. This is the commodity inflation, which was flowing into the material cost. Other costs contributed positively at 20 bps even though they were higher in absolute terms by INR 214 crores, depreciation, product development were favorable by INR 13 crores, employee cost was higher by INR 88 crores and other expenses by INR 139 crores. This is operating leverage on a 42% larger revenue base. FX and other items added 30 basis points or INR 350 crores, other income of INR 118 crores, lower finance cost of INR 134 crores and a ForEx gain of INR 24 crores and INR 79 crores of other items, including PLI incentives. Net of all this, EBIT margin moved from 10.2% to 9.7%. To summarize, a 590 commodity headwind has been almost entirely offset by operating leverage, cost efficiency and improved realization. Coming to free cash flow for the quarter. FCF was at INR 4,600 crores against INR 2,210 crores in Q2 FY '26 and INR 5,721 crores for the half year. If you look at the Q2 walk, PBT before exceptional items stood at INR 2,660 crores and noncash items was around INR 389 crores. Tax was INR 762 crores against INR 337 crores in Q2 last year. And as I said at the full year results, tax is now a recurring item for us, and it will scale with profit. That gives us a cash profit after tax of INR 2,287 crores for Q2, which is up 26% Y-o-Y. CapEx was INR 483 crores, broadly in line with last year and with plan. Working capital released INR 2,679 crores in this quarter. With that, payable and acceptances released around INR 4,786 crores on the back of a strong volume ramp-up while inventories absorbed around INR 1,717 crore and receivable around INR 622 crores, both of which reflect the build for the Indonesia order and the higher run rate going into the festive season. I would want to mention here that part of this working capital release is timing related and will partially reverse as payables normalize as we move forward. Investment spending -- total investment spending in Q2 was INR 597 crores against INR 686 crores in Q2 FY '26, taking the half year to around INR 1,112 crores. Search and development in Q1 were INR 339 crores, INR 209 crore capitalized and INR 130 crore expense for H1, [indiscernible] was INR 616 crores. Capital and other investments were INR 258 crores in Q2 and INR 496 crores for the half year. at approximately 2.5% of revenue. This remains comfortably within our guided range of 2% to 4%, and we continue to invest steadily in line with plan. Coming to consolidated financials. The consolidated revenue for Q2 was INR 25,300 crores, up 36% Y-o-Y. EBITDA was INR 2,800 crores, up 31% at a margin of 10.9%, down 40 bps. EBIT margin was 8.9%, up to 20 basis points. So at the consolidated level, we have actually expanded EBIT margin supported by operating leverage and share of profits from JVs and associates. Profit before tax before exceptional items was INR 1,800 crores against a loss of INR 550 crores in Q2 FY '26. The comparison started by the mark-to-market on our investment in Tata Capital, excluding the mark-to-market, underlying PBT grew strongly and in line with the stand-alone trend. Consolidated free cash flow was INR 3,000 crores against INR 2,000 crores in Q2 FY '26. Net cash stood at INR 15,900 crores as at September 30, against INR 13,700 crores at March end, which includes the Tata Motor Finance Holding gross debt, net of the market value of its investment in Tata Capital. This puts us at a very strong liquidity position going forward in H2 FY '27. With that, let me hand this over to Girish to take you through the business update. Over to you, Girish.

Thank you, Ramanan. Let me begin with the market share story. So overall, our H1 VAHAN market share stands at 36.2%, which is 110 basis points higher than the FY '26 level, reflecting an improvement in overall market position on a Y-o-Y basis. In heavy commercial vehicles, we continue to maintain a strong leadership position in H1, market share at 55.7%, improving by 50 basis points over FY '26. In ILMCV, H1 market share stands at 36.3%, and a good part of this also has been due to supply chain constraints in this particular segment. Then coming to SCV Pickups, the trajectory has been positive, with H1 market share improving to 27.6%, so it's an increase of 130 basis points over FY '26. CV Passenger registered H1 market share of 41.1%, up 500 basis points over FY '26, reflecting a strong momentum across the segment. Overall, we have gained market share, and our focus in H2 will be to improve on these gains. Moving on, regarding fleet utilization, this is our internal data using the [ fleetage ]. And fleet utilization remained broadly stable to improving gradually during the quarter indicating sustained operating intensity across the fleet. The freight rates also strengthened during Q2, providing support to transporter economics. From our discussions with the transporters, the profitability had seen some pressure at the beginning of the quarter post the diesel price increase. But gradually through the quarter, it has started to recover. So looking at all these together, the utilization, freight rates and the recovery in transporter profitability indicate a relatively stable operating environment for the fleet operators. Let me now talk about the industry. So Q2 saw a healthy momentum in the commercial vehicle industry, with the industry offtake growing 28.4% year-on-year, while our volumes grew at 30.5%. Freight activity remained robust through the quarter, recovering from the monsoon led slowdown in July, supported by stronger infrastructure execution, improved mining output, festive inventory stocking and automotive dispatches. The broader operating indicators remains supportive with healthy e-way bill generation reflecting increased goods movement and consumption demand and the fleet utilization input progressively through the quarter. As we enter Q2 or H2, the underlying demand environment still remains healthy, supported by, of course, the overall level, the GDP growth, but Therefore, that leading to increased freight availability, stable fleet utilization, infrastructure activity and consumption-led moment. Beyond the near term, we remain positive on the structural outlook of the CV industry. It is supported by the economic growth, and therefore, increasing road freight, infrastructure development and the replacement demand. Talking of the specific businesses. So the key takeaway from Q2 is that the growth momentum was broad-based across the portfolio, with healthy performance across trucks, the passenger carriers and small commercial vehicles, alongside strong progress in our International business as also the downstream businesses. International business was a strong growth contributor during the quarter with volumes growing 177% year-on-year, mainly supported by the Indonesia order as well as the momentum across our other International sites. In Parts & Services, we continued the healthy trajectory, sustaining growth in the aftermarket business, improving spare parts penetration and strengthening the customer uptime proposition. Our Digital business is also progressing well, with fleet age renewal rates improving, thereby strengthening the recurring digital revenue opportunity. The e-bus operations in Smart City also continue to scale by maintaining more than 95% fleet uptime across the major operating fleets, demonstrating the progress we are making in building this business. Coming to sustainability, the EV momentum built further and remained strong in Q2, with overall EV volumes growing 143% year-on-year. Within this, the small commercial vehicle EV retails crossed 4,400 units in Q2, registering a 2.9x year-on-year growth. And this was also constrained by the supply chain and availability of some of the imported aggregates, otherwise, it would have been more. EV trucks continue to see improving customer traction and adoption. In e-buses, as I mentioned, in Smart City, the operations continue to do well with more than 95% of time. We have now covered more than 64 crore green kilometers since inception. So overall, the quarter saw broad-based momentum across the core vehicle businesses, international business, downstream businesses and with the focus remaining on disciplined execution and profitable growth. Now looking ahead in Q3 and maybe beyond. Our priority is to leverage the healthy demand momentum while balancing pricing, cost efficiency and supply readiness to drive profitable growth. In Trucks, we will capitalize on healthy demand through portfolio actions focused on improving customer productivity, payload and the total cost of ownership. In CV Passenger, we will capture opportunities across institutional and passenger mobility, including state transport, school and staff transport, while progressively scaling electric buses. In HCV Pickups, we will build on the portfolio enhancement and increasing EV adoption supported by resilient last mile and e-commerce demand. In Parts & Services, the priority is to build a larger and more resilient aftermarket business by improving customer uptime offerings and expanding service reach. In International business, we will continue to diversify and scale across geographies by maintaining disciplined execution across channels, products and markets, while navigating geopolitical volatility. On Iveco, consolidation will begin next quarter with immediate priority being to ensure a seamless transition. Overall, the Q3 agenda is about sustaining growth momentum while maintaining discipline on profitability, execution and readiness for the next phase of the business. Thank you.

Sneha?

Yes. So we'll get into Q&A now. But a couple of questions which are common across -- which maybe I'll start off with that. So one question is how much more of commodity pressures expected in the next quarter? And if you could talk about the price hikes that we've taken so far.

Yes. So commodity inflation actually continues to be a major headwind. And beyond that, of course, we keep monitoring the oil prices, but commodity inflation has already been paid out over Q1, Q2 and even in Q3. We see that happening again. And on a Y-o-Y basis, the commodity cost impact has been almost 540 bps. On a quarter-on-quarter basis from Q1 to Q2, it has been 200 bps. We expect a further commodity cost increase in Q3 in the range of around maybe 150 to 200 bps depending upon where some of the major commodities do secure. Within that, I would say steel and rubber, we continue to be the largest driver. Steel, in fact, all of you know that is already at a 52-week high with almost 40% growth on a Y-o-Y basis. Rubber, this remains the input. We expect to stay elevated for some time. Supply is tight and [indiscernible] in synthetic rubbers are also increasing. So we are watching it closely and factoring it in our planning. On pricing, fee, as you are aware, we have taken already 4 pricing actions during the year, around 1% in January, around 2% in April, 2% to 2.5% in July. And then from first October, we have taken another 1% to 2% increase depending upon the segment. There has been a significant amount of price increase that has been taken through the year. It certainly doesn't cover the commodity increases that we have seen, but as we have been saying, I think our first line of action has always been to see what we can do on the cost side, which is what we've been doing, and we are trying to balance this demand momentum with very measured pricing actions. I think that's where we are from an overall basis. If I may also upfront address the demand question because kind of few of them have asked about demand. I think we are now into 3 weeks of October and the demand momentum continues. But as we've been saying, the Y-o-Y growth rates will taper now because post-GST rate rationalization, the demand had picked up in last year third quarter. Last year, third quarter saw 21.5% growth on a Y-o-Y basis. And we expect that even this Q3, it appears that we will see a very high single digit or beginning of double-digit kind of a growth for the overall quarter. Maximum growth within this is likely to be in intermediate light medium commercial vehicle, certainly double digit. CV Passenger also will see a double-digit growth, but heavy commercial vehicles and small commercial vehicle, are likely to now see a single-digit growth, but even that on a higher single-digit side. So I think that's what we see as the likely demand growth. However, I must say that we have to closely monitor both the demand headwinds as well as tailwinds. I think on the headwinds, as I said in the beginning, diesel prices will continue to be a very important [ monitorable ] and also the interest rates, I think a 25 basis point hike has already been taken. So this, of course, will not dent the demand much, but it remains important monitorable. So sorry, a longish answer, but it probably addresses some of the underlying questions.

So getting to the more specific questions. So this one is from Kapil, Nomura. On the Indonesia order, what is the delivery plan for FY '27, FY '28. And is there any visibility if there will be repeat or newer orders in FY '29? Or there may be a decline in LCV exports after FY '28.

So see, as we have said in the last analyst call also Indonesia order to a large extent, will be delivered over 2 years, so this financial year and the next financial year. And currently, we are supplying at the rate of anywhere between 4,500 to 5,000 a month. The total order is almost of 70,000. We are, of course, using this opportunity to see how we can strengthen our presence in this market because 70,000 is a significant opportunity. So a lot of actions are being taken on retail financing tie-ups, distribution and service setups. And like you have asked, yes, we will certainly leverage this opportunity to bring in some of the other segments. What I would also like to mention is, International business from Q1 to Q2. Non-Indonesia business has also seen a healthy growth and this has been because some of the markets, especially Sub-Saharan Africa, Nepal, Sri Lanka, I think these stabilized post the immediate impact of the geopolitical issues, which was seen in Q1. So we will continue to leverage some of these demand hotspots to see to it that even the non-Indonesia side of the business continues to grow.

Next question is from Raghu, Nuvama. Congratulations on strong results. For Iveco, do you see any holder to reach the 80% threshold.

See, let me give a larger perspective on this Iveco transaction. So the whole of Iveco transaction continues to progress well. and in line with our expectations. We have put forward our best and final offer of EUR 14.4 per share. and have been encouraged by the positive and constructive engagement with the key stakeholders. The recent extraordinary general meeting of Iveco Group shareholders at which all resolutions proposed by the Board were approved represents another important milestone in the process. As is typically seen in tender offer processes, a significant proportion of shares tend to be tendered towards the very end of the acceptance period, particularly in the final 24 to 48 hours. We, therefore, remain confident of a successful completion of the acquisition and look forward to bringing Tata Motors and Iveco Group together. So that, I think, should give you a fair bit of understanding of where does the whole transaction line out. Sneha?

Yes. Next question again from Raghu. Fleet utilization levels are lower on a Y-o-Y basis in HCV trucks, ICV cargo and SCVs? Do you see any concern on transport sentiment?

See, actually, the fleet utilization started on a weaker side in Q2. But through the quarter, the fleet utilization has consistently improved. And therefore, while there was a sense of turned attention on this factor at the beginning of Q2. The gradual increase during the quarter has given sufficient confidence that utilization remains in a good pace.

Just give me a second. Again, from Raghu. In EVs, after factoring the PLI benefits, how are margins different from ICE?

So I think we have answered this question in the earlier calls also, and after the PLI, we are happy with the margin structure currently, but we continue to improve on these further we certainly want to get prepared for the post PLI environment.

Our export margins accretive. There is a sharp increase in export share in the product mix.

So our International business is certainly margin accretive. However, the Indonesia business is all related to the light commercial vehicle and below portfolio. And therefore, it is more of ASP dilutive, right? That is average selling price dilutive. But overall, our International business remains margin accretive.

Next question from UBS, Vedant, how are you looking at -- okay, this is something we picked up. Sorry, just give us a second, yes. so from Vedant, could you give us a sense of your average steel procurement cost in Q2 FY '27 on a per tonne basis. That's a very -- yes, I think we will go on to one other question. Okay. Were ASPs flat? And what are the average discounts in Q2 versus Q1?

Yes. Okay. So see, actually, our domestic ASPs have gone up on a Q-on-Q basis as well as a Y-o-Y basis. The reason why you see the ASP is flat is, as I mentioned, is a higher amount of light and small commercial vehicles. being exported as a part of the Indonesia order. So the increase in domestic ASP was in a manner of speaking, compensated by the higher volume percentage of light and smaller commercial vehicles in Indonesia.

We also have some more questions on e-mail. So this one is from Amyn Pirani. How is the financial health of the truck operators, some CV financial NBFCs have highlighted deterioration in asset quality and credit costs in the truck segment as well as challenges in MSME segments in rural. Are we witnessing anything at our end?

So Amyn, with whatever interactions we have had, we have not heard of any concern in this regard. But of course, it's not that we have engaged with all the financials off late. But most of them, otherwise with whom we have engaged, I think they are in a good place. Regarding the transporter profitability, as I said, quarter 2 started on a weaker wicket in the sense that transporter profitability did drop because of the diesel price increase. But gradually, it has got passed through depending upon the kind of contracts, the transporters will have. And gradually, during the quarter, the profitability has also picked up.

This one is from Gunjan, BofA. How are we placed on capacity? Is there any need to add capacity for trucks and series of buses given that the growth has been quite strong.