Tata Motors Passenger Vehicles Limited (500570) Earnings Call Transcript

[indiscernible] Another quarter of strong brand and product reactions across the group. We continue to strengthen and augment our EV portfolio in India with the launch of the refresh Tiago and Sierra TV, which has helped to improve our market position over the last several quarters. At JLR, we will continue to see the step-up in launch activities towards the introduction of all EVs over the coming quarters. Next slide, please. EMPV delivered revenues of INR 95,800 crores for the quarter. EBIT margins at 2.4% and PBT for the quarter stood at INR 1,600 crores, down on a year-on-year basis. Richard and I will talk about it in greater detail in the subsequent sections. But in summary, JLR wholesales were down in part due to the assembly, supply constraints and Middle East conflict. In addition, profitability was impacted as market conditions were up year-on-year, partially offset by favorable structural cost and other one-offs. The domestic business delivered strong revenue growth, however, elevated commodities moderated improvement in margins. Consolidated -- next slide, please. Consolidated net debt stood at INR 42,000 crores at the end of the quarter. India business continues to remain net cash positive, while net debt at JLR was GBP 13.6 billion. Richard, if you could take the next section, please?

Yes, of course. So if you could move to the next chart. Thank you. So look, times at JLR are simultaneously both difficult and exciting, exciting in terms of the many amazing cars we're about to launch, difficult that our financial results are not as good as the same period last year. And you can see this below wholesales were down about 10% year-over-year. This is partly caused by the route of legacy cars as we move to the launch of the new Jaguar but also a bar supplier. I'll explain more later. This drove revenue to GBP 6 billion, with EBIT of 2.8%, a positive PBT of GBP 109 million, but a significant cash outflow. It should be recognized that our first quarter results are typically our weakest in cash, in particular, suffers from a seasonal working capital swing. So the results was weaker than we would have liked are not inconsistent with our full year guidance. It will, however, require a strong performance for the remainder of the year. Next chart, so I won't go through this in detail. As per usual, this is the headlines for your future reference. Next chart. So our wholesales, as I've mentioned, were down about 8,000 and about 3,000 lower than we've internally planned as we run out all Jaguar models. Defender remains amazingly strong up again in wholesales was Ranger Range, Range Rover Sport with the cars impacted by the fire at a chassis component supplier that happened early in the quarter and mapped out several days of production that we were not able to recover. Discovery and Jaguar, as mentioned, are the 2 brands we're currently reimagining. On retail, you can see those below. We're down 14.5K year-over-year, and over 5,000 of this is Jaguar run out or Middle East conflict driven. In addition, we did have some temporary quality holds right at the end of the quarter and we deliberately balanced out of lower-margin products to improve mix. Next chart. So regionally, looking at wholesale. The U.S. and MENA are flat year-over-year. Not surprisingly, the market with the biggest correction is China, down 25% year-over-year. All the competitors are finding the China market extremely difficult, and we are also impacted. Our focus there is on keeping discipline on retailer stock days, driving demand generation inevitably and rolling out the last legacy cars to free our retailers from the associated financial burden. We have to get them and us focusing on the big 3 that drive their returns and our returns. Next chart. So this walks our PBT from [indiscernible] 351 million last year to the [indiscernible] 109 million this year. Volume and mix actually wasn't too bad given the wholesale drop as we balanced more into Range Rover, Range Rovers Sport and Defender, which are now 81% of our sales. Tariffs or U.S. duties actually shows favorable as the comparable quarter last year was the one where we paid tariffs at 27.5% before the trade deals came into force. Equally, emissions shows negative this quarter versus the big accrual release that we had in Q1 last year. BME in the second big pop is significantly higher. It's now at 7.1%. China is the most difficult market year-over-year for us given economic and retailer stress and also the effect of the new luxury taxes that came into force after Q1 last year. The U.S. is also remaining high in terms of BME particularly versus a quarter 1 last year, where we deliberately kept sales allowances low in response to the tariff implementation. The next calling industrial operations were hit by higher commodity prices. And the only other significant item is FX or commodities, which is largely the non repeat of an GBP 83 million favorable revaluation gain in Q1 last year, and also unrealized commodity hedge losses as aluminum and palladium reduced from peaks that they have right at the start of the quarter. So next chart, please. Working on to free cash flow. We did generate over GBP 0.5 billion cash profit after tax. But as we near the peak of our investment cycle, it gives a free cash flow pre working capital of negative GBP 352 million. Working capital, reflecting a naturally high production and low sales quarter has built up, those should largely reverse out through the year. For reference, Q4 last year, working capital was GBP 814 million favorable. In the quarter, post working capital, our free cash flow was just under GBP 1 billion negative. Next chart, with 6 vehicle launches approaching 4 imminently and 2 in the pipeline, our investment levels remain high as do our capitalization levels, which was 74% in the quarter. Over the balance of the year, spend is likely to remain similar, but with a shift from engineering to capital as the new facilities come online and we start series production of those 4 cars I mentioned. All right. So then let's move on to a business update for next chart. The challenges our industry face globally are intensifying, but they will know, I've explained them before. so I won't repeat them here. What I want to focus on is our response. And as explained at Investor Day, we know we have to intensify our efforts on costs. But we also know this is an industry where you cannot shrink or save yourself to success. You have to grow and leverage scale. So we're setting a goal of 10% revenue growth per annum and focusing on the U.S. market for a significant part of that. Remember, the U.S. has 40% of the world's millionaires as has a propensity to SUVs where we're strong and has a strong affinity to our brands, Range Rover Defender and Jaguar in particular. On costs, our focus is the ex works cost of our cars, royalty and our fixed cost base and are intended to save GBP 1.7 billion in this space will give you a much more detailed update as part of our Q2 results. All of this is aimed at bottom right at building even greater resilience into our business model to allow us to navigate whatever lies ahead. And on the next page. So you can see an indication of the progress we're making in our strategy. If you look at the bottom left-hand side, this is a trend in our average sale price, continually rising and centralize further as we launch our new products. Should be in 18 months or so, well north of GBP 80,000 per car would and therefore, north of $100,000 per car. In the middle, you can see our progress on customer metrics by the J.D. Power appeal study. Defender wins each segment and JLR ranks 3rd out of 18 manufacturers. And on the right-hand side, probably one of the key metrics of luxury across all consumer segments is the ability to hold value, and Range Rover Defender and #1 in their segments of the states with Range Rover and Range Rover Sport #1 in the U.K. So our existing cars are a great embodiment of our strategy. Next chart. And it's not just the existing cars. After a relatively [indiscernible] period, our product range is about to get a major uplift, 4 launches 2 more in the way. The 4 or below in the last stages of testing or in prebuilt down the production lines, Range Rover and Range Rover Sports Electric come later this year, the radical Range Rover GT, which is bottom left, and Jaguar Type 01 early next year. The cars are fantastic, the excitement of the teams is electric. And I'm sure they will help us drive both the top line and the bottom line of our company results in years to come. With that, I will hand back. Thank you for your attention.

Thank you, Richard. Anish next slide please. The demand environment in India remained robust, and the strong traction that we saw on the back of new launches and [indiscernible] over the last 2 quarters has continued to play out. We saw a 46% jump in volumes year-on-year. Our monthly volume run rate used to average about 45,000, 50,000 not so long time back. And it has now consistently scale to greater than 60,000 and perhaps could have been more if it hadn't been for some of the supply side constraints we have had to contend with. Nearly 2% improvement in market share on a year-on-year basis, establishing us as a form#2 player on registrations. The mid Asia crisis has clearly altered consumer preferences towards greener fuels. And you see the clear shift in EV mix up to 19% in Q1. And actually, we exited at 23% in June and July. Next slide, please, Anish. More on EVs, volumes have doubled over the last 1 year. And at June exit was tracking 15,000 a month. Over the last 20 years, we have proactively refreshed and augmented our portfolio which has helped maintain and grow our market share upwards of 40% despite increased competition in this space. Next slide, please, Anish. India business revenues at INR 18,000 crores grew 65% year-on-year, but the gains were nearly entirely offset by the key commodity increases we saw on a quarter-on-quarter basis. EBITDA margins were flattish at 4% year-on-year with EBIT margins at PBT improving due to the higher scale of the business. Next slide, please. We're going to focus on the EBITDA margin walk this quarter instead of the usual PPT walk. As the absolute movement we've seen this quarter does not really reflect some of the structural improvements we have seen in the business. While margins have remained flat at around 4%, we had significant gains coming from fixed cost leverage and another 2% material cost reductions, but it was entirely offset by 6% commodity impact we saw on a year-on-year basis. The commodity impact in Q1 was 4.5%, and we are expecting another 3% plus residual impact to flow into Q2. We've already taken a 1% cumulative price increase across April and July. And while we will be taking calibrated increases to the rest of the year, A large part of the setup for commodities will have to come through accelerated commercial reductions. PLI accruals for the quarter was INR 313 crores and came largely from Nexon EV at [indiscernible] refreshed portfolio and new launches are under various stages of certifications, which we should see materializing from Q3. And the combination of price increases, cost reductions and BLI should see us step up margins in H2. Next slide, please. CapEx at INR 1,300 crores for the quarter. This is still tracking last year's trends, but we will see it step up as we execute our next post phase of growth in line with our Investor Day guidance. Next slide, please. FCF at INR 1,100 crores for the quarter, while the operating cash profits have been subdued due to the commodity impact, favorable working capital releases has helped us maintain strong liquidity for the business. Shailesh, if I could ask you to take the next two slides.

Thank you, Dhiman. Let me begin with the broader industry perspective in quarter 1 FY '27. The passenger vehicle industry remained on a strong footing during the quarter with volumes crossing 1.3 million units, which was supported by a healthy demand environment following the GST 2.0. While the industry reported a robust growth of 24% year-on-year it is important to recognize that part of the seed growth number also reflects a relatively low base in the corresponding period last year. While volumes will continue at a strong level throughout the year, growth rates are likely to moderate and due to a higher pace. At the same time, the industry continues to see higher growth in greener power trades, that is CNG and EV. The structural shift in the industry mix is gaining momentum as EVs and CNG vehicles together now account for 31% of industry sales as in quarter 1 highlighting the increasing pace of consumer adoption for these 2 [indiscernible] In particular, we remain the fastest-growing segment in the industry, registering 77% year-on-year growth. EV penetration continues to increase every month as the industry exited the quarter with 8% penetration in June '26. This increasing mainstream adoption of EV is also supported by greater participation by OEMs, also the expanding product choices and improving customer sentiments and also the enabling policy environment. At the same time, the operating environment remains challenging, supplies chain constraints persists in select areas and commodity inflation continues to be a stress point across several key inputs and you've already mentioned about the quarter 1 impact and what potentially we can see in quarter 2. These remain important areas of focus for the industry and sustained actions will be required to mitigate their impact. Coming to our performance. Quarter 1 has been a strong quarter for TNPV with industry-beating growth across both PV and EV segments. We delivered overall wholesale volumes of about 182,000 units, which was a growth year-on-year growth of 46%, twice the pace of the broader industry growth. As a result, we further strengthened our position as the #2 rank player in the industry improving our market share by 200 bps year-on-year to 14.3%. Importantly, this performance has been broad-based with strong demand across our key name plates, in particular, Punch and Nexon emerged among the top 3 highest selling models in India during quarter 1. We also strengthened our portfolio competitiveness through focused product launches. We launched Tiago [indiscernible]. which enhance the styling and [indiscernible] ensuring greater aspiration for the hat segment? And in EVs, we launched the Tiago EV face lift, which strengthened the value proposition in the EV entry segment and also launched the all-new Cira IV to further expand our portfolio in a key high-growth space. These launches have been received very positively in the market and have contributed to a healthy increase in kings. Coming to our performance, we delivered our highest ever volumes of over 34,000 units in the quarter and sustained market leadership position. Now roughly 20% of our sales came from EVs in quarter 1 actually in July, it went up to 24%. And we have a strong EV order book as we scale up production. This momentum has continued into July as we exceeded 15,000 EV units for the month and increased our EV market share to 2%. Next slide, looking ahead our priorities remain clear and consistent. Demand environment in the industry seems positive, and we see a clear opportunity to continue our industry-leading volume growth. But at the same time, we must work on enhancing profitability through disciplined execution. From a demand perspective, the outlook remains encouraging, supported by demand momentum we continue to see in the market which will be further strengthened by the upcoming festive season. Our immediate focus will be to sustain growth momentum on the back of our healthy order pipeline. And in addition, we will continue to launch new product interventions such as refreshes in a timely manner to sustain customer traction. We will also continue to capitalize on the industry's shift towards greener powertrains. We will take key actions in terms of product and trend and initiatives through which we'll strengthen our market shares in these high-growth segments. The third priority is to quickly elevate supply side constraints, which have been present in certain sections of our portfolio. We have already undertaken several debottlenecking actions and capacity expansion initiatives, particularly across some of the critical suppliers. We have seen positive momentum on this front in the past few months, and we will continue to drive actions to ensure that we are able to service the customer demand more effectively, enhancing our profitability will continue to be one of our central priorities. The external environment has become more challenging due to elevated commodity levels. While these headwinds may persist in the near term, our focus remains firmly on mitigating their impact through levers that are within our control. Accordingly, we'll accelerate cost reduction initiatives across the value chain and focus on expediting PLI for new products that we have launched. We will also undertake calibrated pricing actions wherever necessary balancing market positiveness with sustainable profitability. And in summary, we enter the coming quarters with a positive outlook. The market continues to offer attractive growth opportunities. Customer adoption of green mobility also is accelerating, and our product portfolio continues to strengthen. So while we remain conscious of supply chain and commodity related challenges, our focus remains on disciplined execution and profitability enhancement. These actions position us well to continue growing ahead of market while delivering sustainable [indiscernible] over the medium time. Back to you, Dhiman.

Thank you, Shailesh. Anish you could go to the last concluding slide before we move on to Q&A. Implications from global geopolitical developments and the luxury segment trends continue to be a key monitorable for us. This is an important transition year at JLR as it expands its portfolio into BEVs with the expected launch of the 4 exciting new products in the coming months. In India, we focused on carrying forward the growth momentum and we will remain financially prudent with increased focus on accelerated cost reduction and calibrated price increase for offsetting the insuring commodity price impact. [indiscernible]

Richard, we'll start with your first question on JLR and then there are a couple of questions there for Shailesh. The first one from Shidhar a[indiscernible] broking, we spoke about a couple of factors which impacted wholesale volumes in Q1. I think the question is whether we are behind some of those statutory issues. And how do we look at volume recovery in Q2 and Q3. The second question, if you could also guide towards the production ramp-up plan for Jaguar Type 01.

Yes, ofcourse. So the Middle East, if you look through the numbers there, it was relatively flat in terms of wholesale, but down about 1,400 units of retail during the quarter. As traffic through the retailer network was reduced. And also, to be honest, we had trouble getting some of the vehicles to the retainers anyway. The world is slowly adjusting to the new situation in the U.S. We, along with other manufacturers are finding new routes into the region that avoid us having to go through the Strait of Hormuz. So I think progressively, the world will adjust. And obviously, we all hope that at some stage soon, the situation will normalize, and we'll be able to use the routes that we were previously utilizing. But I think as I said, I think the world is adjusting to a new reality in the Middle East and adjusting relatively fast. In terms of Jaguar wind down. Yes, Jaguar was about 1,500 units down versus last quarter in terms of wholesale. We are wholesaling the last vehicles that we have in stock, over the next 3 to 6 months. And then the new Jaguar Type 01, which by the way, is absolutely fantastic. And we've just revealed some pictures of the interior that will start production early next year. It is not going to have any material impact on wholesales for us in FY '27 it will come through in FY '28 along with the biggest impact of the Range Rover GT. The supplier fire, yes, that's done. That was early in the quarter. It locked out our production facility in Solihull, which is the one that produced the Range Rover and Range Rover Sport for several days. The issue is now fully resolved. And yes, that's now ended.

Thank you, Richard. Shailesh, moving on to you now. I think there are a couple of questions lined up on EV bookings, raw material prices and price increases, I'll start with the first question is from [indiscernible] from Axis despite such strong raw material advance we've only taken a 1% price increase. We've taken only a 1% price increase. Do you believe that customers are -- what do you see the price sensitivity that customers had despite demand being so strong?

It's a fair question. See if ideally, we would have liked to have transferred all the price increase in the market. But unfortunately, we don't even an absolute world where we have no relative measures or benchmarks to look at. Unfortunately, every car that we have, we compare with the competitive set and what price increases they are taking. And therefore, we have to be around that to ensure that we don't lose on the competitiveness of each product. So that has been broadly the reason why it has been 1% as of now. But from an approach perspective or strategy perspective, we are very clear that to whatever extent we are able to accelerate and increase the cost reduction effort, whatever residual is left, we will pass it on to the market. And therefore, you will see more frequent but progressive increases to ensure that we are able to compensate for the margin loss that we are suffering as of now. But taking a steep increase at this stage, will definitely impact the competitiveness less of volumes. And that's what we have to be [indiscernible] regard it. So that's the only background of why we have taken 1%.

Shailesh the next question, what are the inventory levels at the dealers? And what is your outlook on production amongst the supply challenges?

Yes. So inventory levels are right now around 30 days. We had an increase last month as we were able to produce steady more. Now we have to significantly increase the inventory because these are not at comfortable levels ahead of the invested period. So we are really expediting our efforts on the supply chain side to ensure that ahead of the festive season, we are able to build a healthy stock for a high retail in October. But we are, as compared to the production that we were able to do in April, May and June, which was a lot affected because of labor issues as well as geopolitical issues I think last month, if we had no rainfall issue in Sanand where we lost 5 days of production, you would have seen a much better number than 63,000. So hopefully, from this month, we will be definitely seeing 65,000-plus production closer to 70,000 is what we are targeting for. But in the coming months, it should be more closer to 70,000 is what we are trying to achieve. Let's see. I mean there are always surprises in the environment, and we will deal with that.

Shailesh I will be staying with you for another 2, 3 questions before I go back to Richard. The next question again from Kapil. What is the kind of volume growth and margin outlook that you can provide for FY'27.

So far in quarter 1. And also, I would say that if you take growth even in the last financial year, we were twice the industry growth rate. In quarter 1, the industry grew by 24%. We grew by 46%. We would like to keep that kind of momentum going forward. So I would definitely be targeting higher double-digit growth in FY '27. Margin outlook, as I said, that we have to offset all kind of commodity increases that we are seeing through a combination of price increase as well as cost reduction. So we would try to neutralize the headwinds that we are facing through these 2 actions.

Okay. Shailesh, the next question, this 1 is on EVs. Is the EV booking on a rising trend, even on a month-on-month basis from April and what's the kind of inflows are you seeing now?

Yes. So it has been actually increasing because there have been new launches also, as you would have seen in new refreshes, which came after April also Tiago EV, for example, and Sierra EV also got launched. So if I compare with actually the pre mid-east crisis, which was Jan, Feb, whatever was the average bookings that we used to get, that has gone nearly 3.5x of that. Of course, we are not able to supply even close to those numbers. But every month, you would be seeing we are ramping up our capacities, say, see 4 months back, we were doing about 9,000 a month production now. We have last month, we crossed 15,000. And hopefully, in the coming months, this should further increase. So we are trying to overcome the gap that we have as of now between the demand that we are getting and the supply.

Thank you, Shailesh. Kapil, your last question, I think I've already answered what was the price hike in Q2. We took a price hike of 0.5% each across April and July. And I think on the commodity pressure, also I mentioned it was 4.5% in Q1, and we are expecting another 3% hardening in quarter 2. Richard, I'll hand it back to you now for a couple of questions, 1 from Dimity City. Has the JLR FY '27 guidance being dropped? Or does it still stand? And with focus on North America, do you [indiscernible] localize some production, but we assume lower margins on any incremental volumes that you sell through.

Okay. So on the first point, I think I mentioned during what I covered. The results in Q1 were not 100% where we wanted them. They're not inconsistent with our full year guidance and those results don't imply that we have a need to change that guidance. On North America, look at our scale, it doesn't make sense for us localizing existing production of existing vehicles into North America. So for example, we sell circa 30,000 defenders in the U.S. each year, but we can never localize it into a local plant in the U.S. efficiently at 30,000 units or even at 50,000 units. So our approach to North America, I think we announced earlier, is we've signed an MOU with Salantis looking at producing vehicles which are specific to the U.S. market in North America. So that's our approach. We know we need to get some production, let me say, the right side of the tariff barrier, but it makes no sense for us just duplicating production of our existing vehicles. So we're going with new vehicles, new segments, Defender brand U.S. produced.

Thank you, Richard. I'll ask you to take the next question to with all the road shows and marketing that you're doing towards the Type 01 model, can you give us any indication of what's the kind of response you've got so far?

Big smiling faces. Everybody that sees the car and particularly everybody that has the opportunity to drive it or get driven in it comes out with an enormous smile. It is really quite impressive. Our engineers have done a stunning job turning what is an exceptional design into a sports car of exceptional quality. So yes, we're pretty happy with Type 01.

For the next question is also for you. I think everyone has seen the kind of hardening of commodities in India. Almost 4.5% this quarter, but I think we've not talked about any raw material impact in JLR if you could give some color around it.

I'm glad that was the question because I thought why was JLR RM. It's referring to me, Richard Molyneux. Why was our hit so low? There's a couple of things. So for us, the biggest exposures are aluminum and, let's say, palladium, copper and a couple of the others. But actually, in the quarter, aluminum prices came off, there were about $3,500 a tonne at the end of March. They were about $3,150 a tonne at the end of June. So although they remain high during the quarter, some of our key commodities came down in price. We also have a hedging program on those, which mitigated some of any moves. Also, though, to be fair, some of our contracts react on a quarterly basis. So we would expect to see some of our prices, which are in Q2, reflecting the raw material prices in Q1. So I would expect to see a little bit of an extra hit from that effect. But that's fundamentally the logic there. Aluminum, which is our biggest exposure because most of our car is aluminum rather than steel, actually came down during the quarter.

Richard, I'm going to ask you to take the next question too from Kapil. What is the impact of -- what is going to be the impact of rising EV mix on JLR margins? And if you could throw some color whether they're going to be expected to be accretive or dilutive.

Where we're looking at it at the moment, we expect them to be at least neutral. As I think I've mentioned, we're not launching mass market EVs. We're launching Range Rovers with an EV powertrain. And those EV powertrains are absolutely perfect for the cause they represent a Range Rover is supposed to be quiet and powerful. That's exactly what the bed is. So we're not pricing these at a discount. We expect to price them to be at least margin-neutral -- and if you think of the EMA cars, these are the smaller cars, of which Range Rover GT is one. They are replacing vehicles, which are at the end of their life and relatively low in terms of margin. So versus the cars that the Range Rover EV and the subsequent EMA cost would be compared to, I would expect, again, those to be at least neutral, if not accretive.

And just to add to that, Richard, Kapil, one of the key things for us since this brand-led and [indiscernible] The key thing to watch out for is how from a volume perspective, how much is it adding to the overall volume? So that the level of cannibalization is minimal. And that's how we are seeing in the expressions of interest that is there in terms of overlap that we get. And for us, don't forget that we are -- from an operating leverage perspective, it is huge for this business. So therefore, the more we are able to now prove that this is not cannibalized, and we're able to step up volumes on the right product, then that flows all the way to the bottom line. So therefore, for me, EV is absolutely the key thing to watch out for is not so much variable margins, which Richard has already explained. But even more powerful would be the amount of cannibalization that we are getting. And therefore, if that's going to be minimal, then we are absolutely up on our way.

Sticking with you, Richard. The next question from Joking from Haidong Securities. That's about -- this is on China. And given that our current revenue from China is 13%, are we expecting -- how do you see that share kind of evolve is that -- are we expecting it to go up or down?