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Tata Motors Limited (NYSE:TTM)

F4Q2013 Earnings Call

May 29, 2013 9:00 am ET

Executives

Vijay Somaiya

C. Ramakrishnan - Chief Financial Officer

Ralf D. Speth - Non-Executive Director and Chief Executive Officer of Jaguar Land Rover

Kenneth Gregor

Analysts

Kapil Singh - Nomura Securities Co. Ltd., Research Division

Aashiesh Agarwaal - Edelweiss Securities Ltd., Research Division

Ashish Nigam - Antique Stockbroking Ltd., Research Division

Malika Diakite

Mahantesh Sabarad - Fortune Financial Services (India) Ltd.

Aditya Makharia - JP Morgan Chase & Co, Research Division

Srinivas Rao - Deutsche Bank AG, Research Division

Chirag Shah - Axis Capital Limited, Research Division

Vishal Saraf

Pramod Amthe - CIMB Research

Vijay Somaiya

Welcome to this interaction with the apex management of Tata Motors Limited on the financial results for the year 2012, '13. We have our Vice Chairman, Mr. Ravi Kant; Managing Director, India Operations, Mr. Karl Slym; CEO, Jaguar and Land Rover, Dr. Ralf Speth; Executive Director, Commercial Vehicles, Mr. Ravi Pisharody; President, Passenger Vehicle business, Mr. Ranjit Yadav; CFO, Tata Motors, Mr. C. Ramakrishnan; CFO, Jaguar Land Rover, Kenneth Gregor; and the apex management of Tata Motors and Jaguar Land Rover.

We will begin this interaction with a presentation from Mr. C. Ramakrishnan, to be followed with questions which you may have. Can I request Mr. C. Ramakrishnan to come on the stage and begin the interaction with the presentation?

C. Ramakrishnan

Thank you, Vijay. Good evening and welcome to all of you, and I apologize for the delay in starting the proceedings. Our Managing Director in the Operations, Karl Slym, is expected to join in the next few minutes, with the presentation following the declaration of our results, consolidated, as a standalone for the financial year '12, '13.

To start with, at the global consolidated level, which includes Tata Motors, India; Jaguar Land Rover and our overseas other companies like Daewoo and all our Indian subsidiaries, we report an annual turnover for the year March 2013, of 1 lakh, 88,000 crores, which is up 14% from the previous year, 1 lakh, 65,000 crores. EBITDA margin remained almost steady at 14.1% compared to 14.3% in the previous year. Profit after tax was lower at INR 9,800 crores compared to INR 13,000 crores, some of this in terms of detail, we'll see in the following slides.

For the quarter we just ended, quarter 4 ending March 2013, the revenue was INR 56,000 crores, up 10%. EBITDA margin was 14.9%, up from 14.1%. And profit after tax for the quarter was INR 3,900 crores.

A short while ago, we announced our results, at which time, the Board of Directors, we also announced the declaration of dividend. Considering the overall performance, particularly Jaguar Land Rover, but also taking into account and having regard to the continued challenging operating environment in India, the Board of Directors have taken a prudent view and have declared a dividend of INR 2 per ordinary share compared to INR 4 for the previous year.

The consolidated balance sheet, we remain strong. The net automotive debt-to-equity, which excludes the Tata Motor financing operations, the automotive debt-equity at the consolidated level remains strong and low at 0.24:1. Totally, we have spent about INR 20,000 crores -- INR 21,000 crores on capital expenditure and product development, which is the investment for the future. It remains strong in terms of liquidity and cash balances, which stands at about INR 29,000 crores and we have contributed significantly to the net worth increase in this year.

Coming to Tata Motors standalone in greater detail. The picture here is different in terms of the year just ended. You have seen and we have shared with you the details of the Indian operation for the last few quarters, which has been under significant challenge from a macroeconomic and operating environment point of view.

Net revenue for the quarter was INR 11,000 crores, down 32% from INR 16,000 crores in the same period last year, with a drop in EBITDA margin to 3.6% compared to 9.5%. And a profit after tax -- in the profit after tax line, we report a loss of INR 312 crores compared to a profit of INR 565 crores in the same period last year.

For the full year, the net revenues stood at INR 44,000 -- INR 45,000 crores, down 18% compared to the same -- last year. EBITDA margin was 4.8%, again, down from 8.1.% of last year. And profit after tax stood at positive INR 302 crores compared to INR 1,200 crores in the previous year. But I need to explain that the profit after tax this year also includes a dividend income that we have accounted particularly, notably from Jaguar Land Rover of GBP 150 million during the course of the year in '12, '13.

Standalone balance sheet, compared to the consolidated picture I presented earlier, is slightly at a greater stress even though it is in a broad comfort zone. Net debt-equity ratio for Tata Motors standalone operations is at 0.83:1, still below 1:1. In the India business, we have invested close to about INR 3,000 crores in capital expenditure and product development spend, which is an indication we had given from time to time to you that on an annual basis, we will spend about INR 3,000 crores. Inventory, receivables and payables broadly in line in terms of where we expect them to be.

When you look more [ph] at the details, commercial vehicles, our overall market share for the year stood at 59.5%, marginally up from about 58-plus percent in the previous year. Commercial vehicle is obviously impacted by the slowdown in the economic activity, overall macroeconomic situation, sluggish infrastructure investments in the country and relatively high interest rates more or less throughout the year. This has particularly affected the medium and heavy vehicle segment, which is down nearly 30%, 40% for the industry year-on-year. The small commercial vehicle segment remains strong.

Overall, the competitive intensity has definitely sharpened in the commercial vehicle space. We introduced, from the company, several new products and variants across the medium and heavy, and other variants of the smaller vehicles. We also introduced several initiatives for better customer support and better customer relationship.

Passenger vehicles, our volumes declined 31% year-on-year, 229,000 vehicles compared to 333,000 in the previous year. It has been a challenging year for the passenger vehicle industry as a whole. Following many years of significant growth, the industry remained -- overall industry remained flattish during the financial year. And during the last quarter, actually, the industry posted a decline of about 13% in the last quarter. Within this flattish performance in the passenger vehicles, the SUV segment showed some sharp and impressive growth, and not in the other segments.

There are pressures on marketing costs, competitive intensity, which we felt and all our industry colleagues also felt. Our market share was about 8.9%, lower compared to the 13% we had in the previous year. We have managed our inventory pipeline, particularly with the dealers, which had gone slightly higher during the year, that inventory correction is taking place. And we will continue to focus on building the brand strength over time, introduce refreshed products, and enhance the sales and service experience of the customers in our showrooms.

In terms of the international business, from the India operation, our exports, we saw a decline of about 20% from 63,000 vehicles to about 50,000 vehicles, both cars and commercial vehicles. These exports were supported by specific markets like Nepal, Thailand and South Africa and the MENA region. Our larger markets, Sri Lanka and Bangladesh, continue to decline, which has resulted in overall decline in the total numbers.

In terms of some of the other highlights on the operations, we achieved highest-ever sale of the Ace family at over 325,000 during this year. And cumulatively since launch, Tata Ace family has crossed 1 million mark, which is a significant milestone for the commercial vehicle industry. We expanded the market share in the light commercial vehicle range by 200 basis points to 62%. Our Jamshedpur plant, which has been the mother plant and our first plant, rolled out its 2 millionth truck during this year. We have introduced new products in the heavy truck segment. We also launched in our passenger vehicles stylish, technology-savvy and best-in-class flagship passenger vehicles showrooms in Mumbai and Delhi for superior customer experience. We've launched the Safari Storme, Manza Club Class and Vista D-90, which have been received relatively well in the market.

Turning to Jaguar Land Rover. It has been a very satisfying and very pleasing performance overall. For the full year, the turnover was GBP 15.7 billion, up 17% compared to last year. EBITDA margin for the year was at 15.2%. And profit after tax was lower, particularly if you recall, in the last year on 31st March 2012, we took credit in terms of accounting adjustment for deferred tax asset which is not available. It was a onetime effect last year.

For the last quarter, January-March quarter, net revenue was GBP 5 billion, up 22% compared to the last year. EBITDA margin came in strong at 16.9%, close to 17%, up from 14.6% in the previous year. And the profit after tax followed the same explanation I gave a short while ago.

Continued strong revenue and EBITDA performance supported by volume growth, richer markets and richer product mix. Partially, the EBITDA margin was offset by the increasing depreciation and amortization charge on the P&L account below EBITDA and the exchange devaluation of our loans. PBT is also affected, down to the PAT during the deferred tax credit accounting we did in FY '12.

For the year, Jaguar Land Rover has a net free cash flow, after spending on products and CapEx, a free cash flow of about GBP 595 million after a product and CapEx spend of about GBP 2 billion.

In terms of balance sheet, a strong balance sheet. Gross cash and liquid funds stood at about GBP 2.8 billion on the balance sheet in terms of cash and liquid funds. In addition, we have undrawn, unutilized, committed lines of credit of about -- close to about GBP 900 million, adding tremendous strength in the balance sheet for future requirements for Jaguar Land Rover. The gross debt was GBP 2.1 billion. Therefore, if you set off each other, at a net debt basis, JLR is negative. Capital expenditure and product development, I mentioned earlier, was about GBP 2 billion and positive free cash flow after that spend of about GBP 600 million.

Overall, volumes in Jaguar Land Rover grew by about 18%. And in terms of market mix for the year, financial year '13, China region accounted for about 21.4%, up from 17% last year. North America stood at 17.5%, almost at the same level as last year at 18%. U.K. was 18.3%; last year was 19.7%. Europe came in at 21.2% compared to nearly 23% last year, and other markets.

In terms of some of the highlights in Jaguar Land Rover performance, I already talked about the year-on-year growth and EBITDA margins, et cetera. During the year, in July 2012, Jaguar Land Rover declared the first dividend since acquisition for Tata Motors, the equity dividend of about GBP 150 million. In terms of product launches, the new -- all-new Range Rover received several awards and recognitions and have been received extremely well and creating excitement in the marketplace. So has Jaguar F-TYPE in terms of awards, recognition and the market recognition.

A brief snapshot in terms of our other overseas subsidiaries. Tata Motors Finance, net revenue up to INR 2,800 crores; operating margin at 16%; and profit after tax, INR 309 crores, up from INR 240 crores in the same period for the last year. Our IT engine -- design and engineering subsidiary company, Tata Technologies, again, a significant improvement in the performance, INR 2,000 crores turnover compared to INR 1,600 crores. And profit after tax, INR 300 crores compared to INR 200 in the previous year. Tata Daewoo, however, had to recognize and make a onetime provision for some of the court cases, which has been decided against the company. It's not a Tata Daewoo phenomenon, it's a phenomenon that affects the overall industry in Korea. We had to provide for that under Korean GAAP. So as for the Korean GAAP numbers, in view of this, Tata Daewoo has reported a loss for this year.

TML Drivelines, which earlier was HV Axles and HV Transmissions, which we have merged to form TML Drivelines and supports our medium and heavy commercial vehicle, showed a decline in performance reflecting the overall trend in the commercial vehicle truck sector. The profit after tax was INR 79 crores, down from INR 190 crores in the same period last year.

Looking forward, as far as Tata Motors is concerned, the external environment and the overall economic operating environment in the country continues to remain stressed. And this will impact overall demand being -- continuing to be under pressure in the near future. We expect the small commercial vehicle segment demand will remain strong. Competitive intensity will result in increasing marketing costs across products and ranges.

From the company point of view, we believe we have a strong understanding of the domestic market as reflecting in many of the segment-creating products and such that was welcome in the marketplace that we have demonstrated over the past. We have a very wide -- the widest and a compelling product portfolio. We have a strong brand pull in terms of the overarching Tata brand, and our product brands and customer support; one of the widest distributions in the Indian market and huge economies of scale in our businesses. We do have this strong points. We will continue to upgrade our products, value-added services and solutions for our end customers.

In the passenger vehicle, we have -- apart from the competitive intensity and the lower overall industry growth, we have also underperformed from the company point of view. Various initiatives are under aggressive implementation in terms of time lines and targets to achieve significant performance improvement. We will focus on regular product refresh. We will focus on enhancing significantly the customer experience and engagement, both on sales and after sales. We will focus on improving the distribution presence, as well as effectiveness. And internally, we will continue to focus on cost effectiveness and quality enhancement initiatives.

Future product pipelines, Prima range, Ultra range of LCVs, ACE variants, Nano variants, a refreshment of the car models across our portfolio. We will also focus on expanding our export footprint from India.

Jaguar Land Rover, looking forward. As in the recent past, Jaguar Land Rover will continue to focus on product development, investment in new products, refreshment of the existing products and new technologies, and as well as build capacities to meet the growing volumes. We will expect to increase the momentum on account of the new Range Rover launch, Jaguar XF Sportbrake and other new derivatives, and successfully launch the F-TYPE and the new Range Rover Sport and other variants this year. We'll focus on profitable volume growth, managing our cost and improving efficiencies.

We have planned future investment in new products, technologies and manufacturing capacities. As I mentioned earlier, the product development spend and CapEx spend is likely to be increased further. And as we have shared with you earlier, it's likely to be around GBP 2.75 billion in the current year, March '14. We'll focus in the medium term on strong operating cash flows to support the products -- product development expenditures and CapEx. As I mentioned earlier, we have a strong balance sheet that we can draw upon for any future requirements incrementally. And we will focus on expanding the manufacturing footprint in China through our JV, which is under way.

I'll end this presentation. With the management team here and my colleagues, we'll be happy to take any questions you may have. Thank you.

Question-and-Answer Session

Vijay Somaiya

We will begin the question-and-answer session. [Operator Instructions]

Unknown Analyst

In this quarter, you reported a very strong margin, especially on the JLR front. Is this a sustainable margin? And if you can throw some light on that, if there is onetime expenses or income included in the current quarter's number?

C. Ramakrishnan

I want to refrain from predicting the margins for the future. We would hope to maintain strong performance. As I said earlier, we will focus on improving our product volumes growth and the profitable growth. The margin for Q4 is definitely on the higher side. There have been benefits on account of exchange rates, et cetera. The overall profitability in Jaguar Land Rover is helped or affected by multiple factors: foreign currency movements, market mix, regional mix, product mix, et cetera. Our target would be to maintain a healthy profit margin going forward. I don't want to get into a precise number forecast. I missed the second part of the question. Can you repeat that please?

Unknown Analyst

Any onetime income or expenses included in this number?

C. Ramakrishnan

There have been some write-offs in the exchange valuation, et cetera, but nothing very significant. The exchange valuation has been there in the quarter, maybe off, those things, we will share the details with you and the details will, in any case, will be available in what we publish on the website. Ralf, would you like to add anything?

Unknown Analyst

Hi. There's been a lot of concern around China and kind of slowdown in China from a general macroeconomic standpoint. Can you give some color on how are you seeing demand in China and how do you expect that to trend for the rest of the year?

Ralf D. Speth

So the demand for Jaguar Land Rover in China is very strong. We grew by 48% last year. And so you can see that we are in high demand. We have a very solid product portfolio. So China is now the single biggest market, close to European -- to Europe. Europe is the biggest, still the biggest region. And there is a, let's say, a certain spotty approach that China will overtake Europe this year. Overall, the economy slowed down. Yes, but there is still a healthy growth in the market and we deliver 79,000 units to China. The overall market is round about 15 million cars, so there's a lot of headroom and a lot of opportunity to improve our performance in China.

Unknown Analyst

Hello, this is Vkesh [ph] from Kota [ph]. I just wanted to know what are the product plans of JLR on the launches on F-TYPE, when it will hit different markets and also [indiscernible]. And also, some sense on how the incentive levels are moving, and especially China, on the products, especially Evoque, if you can give some sense.

Ralf D. Speth

Sure. Evoque is in very high demand. It's a very solid profit with a very good product substance and a very good drivability, high quality [indiscernible], and therefore, the product is in high demand. Last year, we sold more than 130,000 units, and I guess, we can achieve these kind of volumes also this year. Overall, we are going to launch this year 8 new products. The F-TYPE, this stunning F-TYPE, it's a sports car, which has unbelievable drivability, will be 1 car. But all of the other ones, for instance, the all-new Range Rover, all-aluminum product, is a very convincing product, and therefore, based on these strong products, we are convinced that we can continue our success story.

Kapil Singh - Nomura Securities Co. Ltd., Research Division

Hi, so this is Kapil from Nomura. Just wanted to check your growth expectations for various markets for Jaguar and Land Rover, if you can share some thoughts on the luxury car industry in particular?

Ralf D. Speth

Overall, around the world, we see a totally different picture. Europe is, definitely at the moment, in a certain critical situation. But you should know that despite the crisis, we could increase our volume last year by 18%. Now, this year, it looks like that it becomes even a little bit tougher. On the other hand, we see a light on the horizon coming up in the U.S., where the overall volume forecast is -- are going up. China stabilized and is growing further, and although the overseas markets are -- see high demand, a higher demand. Now South America is becoming also stronger, but also Russia is on this kind of recovery path. Overall, around the world, we are cautiously optimistic. But it's also quite clear, we cannot predict economy, we cannot predict the future and there might be the very famous flex point around the corner, nobody knows about it. So -- but if it continues that way, I guess then we can, with a solid economy, can look also in a solid future.

Aashiesh Agarwaal - Edelweiss Securities Ltd., Research Division

Hi, this is Aashiesh Agarwaal from Edelweiss. So we had a couple of questions pertaining to emissions. If you could help us understand, there was this emissions -- Environmental Protection Agency of U.S.A. had issues on emission norms, which apparently has affected model year 2012 onwards. If you could help us understand where our products are specifically in terms of emission vis-à-vis those regulations, and your sense on the China emissions, and I have a couple of more questions on that [indiscernible].

Ralf D. Speth

In terms of emissions, and if you calculate it the other way around, in terms of fuel consumption, whatever you take, at the end of the day, we have fulfilled the requirements. There are totally different schemes in the market, whether you go to U.S. And even in U.S., you have different ones, in between the states and California, for instance, or you go to China or than or to the rest of the world. And we have set up a program that we really fulfilled all this kind of emission. And 1 issue, 1 product for instance, will be that we are introducing as a world first, an SUV diesel hybrid this year, and that will give you the evidence that we are really on track.

Aashiesh Agarwaal - Edelweiss Securities Ltd., Research Division

So if I could just take this further, to understand, currently, where do we stand vis-à-vis where we are supposed to be in terms of emission, based on our footprint. This is speaking with regard -- specific reference to U.S. So based on our footprint and the core weighted average footprint that we have for the entire fleet, where would emissions be and where is it required to be? And -- because my sense is that we are falling a little short over there. If you could just throw some light on that and how do we intend to take it forward? I understand that part of our strategy is regarding downsizing the engine and having lower number of cylinders, so the Jaguar 2 liter. If you could also help us understand how -- where the Jaguar 2-liter model vis-à-vis in terms of what it is emitting vis-à-vis what it is supposed to emit?

Ralf D. Speth

At the moment, please be assured that we fulfill all these kind of requirements. We are where we should be. And to give you another example, it's not only the engine, but it's also the overall drivetrain. And as you know, we also introducing the world-first 9-speed gearbox in an SUV. So you will see, we are absolutely on track from a technology point of view. Also in the future, in the near future, I don't see any problem fulfilling these kind of requirements, neither in the U.S. nor in China.

Ashish Nigam - Antique Stockbroking Ltd., Research Division

This is Ashish Nigam from Antique. So the Range Rover Sport launch in Manchester, a fairly extravagant launch. So how much, in your view, did that adversely impact margins by this quarter?

Ralf D. Speth

Yes. The launch is always something different, but we are exactly on our track to fulfill our own forecast. And that means the vehicle is launched in a very good way, but we don't speed up. We want to have quality, quality, quality first. And whenever we have got the quality, we will also ramp up the volumes. Whenever we have got quality, volume will come on its own.

Ashish Nigam - Antique Stockbroking Ltd., Research Division

And just a follow-up on that, I mean, your margins have increased by 300 basis points almost quarter-on-quarter. So how much -- is it possible to quantify how much was currency and how much was product mix?

Ralf D. Speth

No. I only can echo the word of C.R., who already highlighted that, yes, we have -- we are very eager to have a healthy margin and, at the moment, really not capable to deliver you this kind of split you want to have of the margin, but maybe you can do it afterwards with the experts. C.R. can -- they can do it.

Malika Diakite

This is Malika from Bank of America. Sir, all of your CapEx plans for this year, I just wanted to check what the strategy is in terms of capacity expansion? Was this investing on new products? And my second quick question is, Chinese media has been speculating recently on an ultra luxury tax, what impact do you think it will have on the Range Rover in China?

Ralf D. Speth

Overall, we are investing, as you have seen, around about GBP 2.7 billion in the product creation process, in people, in products but also in facilities. It's a very healthy and very aggressive plan in order to deliver future products, in order to become an even more stable business in the future. In that context, we are, as I mentioned earlier, we are launching, for example, this year, 8 new products, and you have seen some of them already. Further more will come in the future. Overall, over the next 5 years, we are up for delivering more than 40 new product, which is a quite healthy development.

Mahantesh Sabarad - Fortune Financial Services (India) Ltd.

This is Mahantesh from Fortune. Firstly, a question on your local business. You had launched this car buyback guarantee. Any color on that? What's the progress of that? That's number one. Number two, I have a separate question actually for -- or from the finance point of view. There was GBP 118 million ForEx MTM loss recognized in the JLR IFRS accounts. How will that play out in the next, let's say, a quarter or 2? You have already had 1 month gone by since the results were declared.

Unknown Executive

So I'll try and answer the first question, which is on the Manza buyback guarantee. This has been very well received in the market. This highlights our quality initiatives, which we have done, and puts our commitment out there where we are sure that the quality we now bring to the marketplace will underwrite the resell value. So this is an assurance which we are giving to our consumers out there that as we go forward, the quality of our products are significantly better, and that's the attempt from our side and that's been very well received by the consumers. I'll hand this over to C.R. for the second answer.

Mahantesh Sabarad - Fortune Financial Services (India) Ltd.

Before you hand it over to C.R., just a follow-up. Why not on the Vista? Why not on the Aria? This current scheme? So what's the financial impact of this Manza guarantee scheme that you have?

Unknown Executive

So you will see a number of initiatives come from us, as we go forward. The Manza buyback is the start of a journey. Thereby, we will assure our consumers of our better quality coming out from our factories. The financial impact is not significant. It's already factored into our calculations.

C. Ramakrishnan

I can't really help you with an answer for the second question. I couldn't quite get it. Mahantesh, would you mind repeating the second question?

Mahantesh Sabarad - Fortune Financial Services (India) Ltd.

There was a GBP 118 million ForEx derivative loss of -- I don't know what the components of that loss, but how will this play out over the next 2 quarters? Because, obviously, it's going to fluctuate with the currencies. And we have already been 1 month from the results there, so there would have an impact out of that GBP 118 million into the comps already. What is that?

Kenneth Gregor

Yes, the -- just to be specific, as you rightly point out, within the results, for the full year to March '13, there's an GBP 108 million of foreign exchange revaluation. The biggest elements of that are the revaluation of our dollar-denominated debt. So we have a fair amount of that. We have euro payables, and we also have some foreign exchange currency options in dollars and in euros, and those get revalued through the balance sheet each quarter. This particular quarter, sterling weakened from around about $1.60 to the dollar at the end of -- pound to dollar at the end of December 2012 towards closer to $1.56, sterling to the dollar at the end of March 2013 and that caused the negative revaluation that you see here. It's fair to say it's a non-cash item in the quarter in which it arises. If you followed the results over the past 4 to 8 quarters since we've had the dollar-denominated debt and since the business has been recovering, you would have seen that we actually get positive and negative revals each quarter with this particular amount not being unusual. So revaluation can go positive, as well as negative. So I think we call it out separately in the results, so you can see it. And I think as analysts, I'd suggest, you have to take it in your stride.

Mahantesh Sabarad - Fortune Financial Services (India) Ltd.

What would have happened in the 1 month that we are through in this quarter? What does that GBP 118 million become [indiscernible]

Kenneth Gregor

Yes -- no. It's just C.R. is just suggesting to me. From a 1 month perspective is -- what I'm trying to say is, each quarter, you could expect -- and each month, you can expect, as exchange rates fluctuate, you'll see fluctuations up and down. Those fluctuations up and down that happen in the month are not cash-related. You should look at this as being related primarily to that long-term dollar-denominated debt that we have on the balance sheet, and that matures over periods of 4 to 9 years from now.

Aditya Makharia - JP Morgan Chase & Co, Research Division

Yes. Hello. This is Aditya from JPMorgan. I just wanted to check on the India car business. A large part of the inventory correction is over sales. So we have been de-stocking at the dealers' end as well. How do we see our car business ramping up from here? Any new platforms you can talk about?

Unknown Executive

So you rightly pointed out that our wholesales in the last quarter have been significantly lower than our retail sales. So that is one of the reactions we have done to correct in the marketplace with our dealers and the channel -- our situation so that the business remains viable and flexible, as we go forward. So to a large extent, this has been done. We are now at a position where we can react very strongly to market opportunities as they come up. In fact, by the end of next month, we will be announcing a series of launches and a lot of people will be invited for that as well. So we will be launching a number of refreshes and new variants, which will start our next level of activities in the Indian market.

Aditya Makharia - JP Morgan Chase & Co, Research Division

Just another question. Probably, with the currency weakness we're seeing in the JPY -- and similarly, currencies, in general, are weakening. Do you expect any sort of pricing pressure in key markets like the U.S.?

Ralf D. Speth

No, we don't see this at the moment. So it's not calculated in.

Unknown Analyst

I have a follow-up question. Basically, it's related to your new Range Rover Sport. The pricing on the new Range Rover Sport is not as significant as the new Range Rover [indiscernible] significant price increase on the Range Rover, but that is not this case for Range Rover Sport. Can you explain -- are you looking for more volumes in that segment? What is the strategy around that?

Ralf D. Speth

The Range Rover is a very special car for very special customers and delivers unbelievable product substance and so is a Range Rover Sport. For a very special segment, we assume that we really can achieve higher volumes and can deliver an unbelievable -- not only good looking, but also, from a technology point of view, an all-aluminum basis with the product substance and the drivability, a very special product in the market. And therefore, we are really optimistic we'll also get a high demand from all our potential customers around the world.

Unknown Analyst

And finally, on Evoque and Range Rover, can you share what is the waiting period of the orders in hand currently, if you can share that?

Ralf D. Speth

It depends on the variants, it depends on the specification. Yes, there -- you have to wait a little bit, but I'm happy to take your order, and we will try to make it as quickly as possible.

Srinivas Rao - Deutsche Bank AG, Research Division

Srinivas Rao from Deutsche. Have the -- I mean, over the last 4 years, the resurrection, if I may say, of JLR has been quite, quite stunning. What probably we have not seen in recent automotive history in terms of a marquee. Dr. Speth, you've been with the BMW in the past when it tried to kind of get there. I would like to actually know from you, in the next 5 years, what are the biggest challenges for JLR? Particularly, the bigger players are kind of carpet bombing with all products and all derivatives in the next 5 years. I mean, we have seen very aggressive product launch schedules and volume ambitions by the big majors. In that context, what is the next big challenge for JLR, actually?

Ralf D. Speth

[indiscernible] we are trying to do our work and to deliver solid products really for our customers. Now the most critical element in that context is definitely, overall, the economy. If something, as I mentioned earlier, [indiscernible] comes out of the corner, then I guess we -- but not only we, but the complete industry sees another challenge. If we can continue in a more solid economy then I'm also quite sure the Jaguar Land Rover can deliver a solid performance and we go for sustainable and profitable growth.

Srinivas Rao - Deutsche Bank AG, Research Division

So my second question is, are you -- I mean, do the norms for niche manufacturers is not yet an out for a -- particularly, for the European, so to say, EU? For the mass market company, it's down by 25% further by 2020. We have heard statements from CEOs that it would be very difficult to achieve that with only the conventional IC engine technology. But JLR, at least, my personal perception, is probably a bit behind in terms of the newer drivetrain technologies. Is that, a, a concern? And, b, do we expect -- should we expect you to spend more in things like hybrid systems or electrical systems or electrical drivetrains?

Ralf D. Speth

Overall, the definition of a niche market play is still at 300,000 units in Europe. So that's, at the moment, fixed until maybe the processing is about the totally new regulation and the totally new scheme. And we -- you will see more hybrids coming. And as I mentioned, we are going to introduce as a world-first a SUV diesel hybrid. And personally, I'm -- at this very moment, as you know and as I more or less highlight since years that I am not a big fan of the poor electric vehicle because, at the end of the day, we want to do something with these kind of initiatives for the environment, but also for the society and those criteria are not fulfilled with poor electric vehicles right at the moment. And I hope that also the government bodies think about it, calculate it through, calculate it on a lifetime basis and then introduce this kind of technology whenever they are mature. At the moment -- the better technology at the moment is not mature enough.

Unknown Analyst

Sir, hello. I had a question on your depreciation and amortization for Jaguar and Land Rover. There has been a steep increase for this quarter. So I just wanted to check if this is like -- there is some one-off element there as well, or should this be taken as a steady run rate?

C. Ramakrishnan

As we had explained in the past in our interactions, the depreciation and amortization line item in Jaguar Land Rover P&L will keep increasing. In the recent past, we have significantly stepped up our capital expenditure and product development expenditure, and these will get amortized through the P&L at an increasing pace going forward. That's the effect of what we are investing for the future and the exciting pace of new products that Jaguar Land Rover has launched and is planning to launch. I can't recall any material one-off items in that line item this year, nothing very significant or material to highlight.

Unknown Analyst

Okay. And so, just sort of a couple of follow-ups more...

Ralf D. Speth

Just give me a second, please. I just want to add, if you really want to see the real performance of Jaguar Land Rover, look at the EBITDA line, then you'll see the performance, and the performance also increased not too badly.

Unknown Analyst

Sir, on the -- we've seen some steep decline in raw material cost to sales. So I just wanted to check, apart from the factors we have talked about, has there been some decline in raw material cost per se as well? And what is the outlook for the same going forward?

C. Ramakrishnan

I will say that we don't see a -- there has been no significant moment one way or the other. They have been fairly steady. There have been benefits in terms of product and operating efficiency improvements.

Kenneth Gregor

What you do see in the quarter -- quarter 4, you do see the benefits of the richer product-to-market mix in the quarter, the new Range Rover contributing to that and China contributing a slightly larger proportion of sales. And therefore, what happens when you see that is, when you divide all the costs by 100, the proportion of raw material, which is basically the material cost of the car, has moved favorably because of that improvement in product-to-market mix.

Unknown Analyst

Okay. And just finally, we've seen a INR 150 crore share of profit of associates for this quarter compared to INR 6 crores last year. So I just wanted to understand where is it coming from?

C. Ramakrishnan

That's the adjustment from minority interest you're talking about? It's primarily the improved performance of our Fiat joint venture.

Unknown Analyst

What is the holding you have there, sir?

C. Ramakrishnan

It's a 50-50 joint venture between us and Fiat.

Unknown Analyst

So it -- so we've made a INR 300 crores gross profit in that...

C. Ramakrishnan

It's one of the main items there. That's right. The joint venture has performed definitely better on the bottom line this year.

Chirag Shah - Axis Capital Limited, Research Division

Chirag from Axis Capital. First, on the India business, the q-on-q improvement in item to sales, is that attributable to product mix improvement, lower discounts or commodity prices? Lastly, what would be primary factor for that?

C. Ramakrishnan

If you don't mind, can you repeat the question?

Chirag Shah - Axis Capital Limited, Research Division

Yes. If I look at quarter-on-quarter, there is a good improvement in item to sales ratio, it has declined, which has aided the margins improvement by 70 bps. Is it attributable to better product mix sequentially or by lower discounts or it's more to do with the raw material cost benefits?

C. Ramakrishnan

Frankly, it's a combination of all of this. Ken mentioned a short while ago, for Jaguar Land Rover, if you take 1 line item and compare, it's both in terms of containment of marketing, fixed and variable marketing expenses, better realization on account of improvement in the product prices we have done succeedingly over each quarter and -- it will be a combination of all of this.

Chirag Shah - Axis Capital Limited, Research Division

Even for India business, raw materials have been stable, raw material prices, is that right [indiscernible]?

Unknown Executive

That's true.

Chirag Shah - Axis Capital Limited, Research Division

And second follow-up question, you mentioned on JLR, you are looking at introducing 8 new products. Can you elaborate? You have highlighted a few of them. Is it possible to highlight others?

Ralf D. Speth

Again, we talked about the Range Rover Sport, which is really an all-aluminum vehicle, another one with a very high performance and very good product substance. We are going to launch the F-TYPE of Jaguar, and we will also, over the rest of the year, step-by-step introduce the one or the other. And whenever it's appropriate, whenever we can talk more about it, we will really try to come back. I hope we also can surprise you. And you know that we have the Frankfurt Motor Show this year, and we have to have some vehicles for the Frankfurt Motor Show so we shouldn't talk about it now.

Chirag Shah - Axis Capital Limited, Research Division

Last question. I wanted to understand your strategy on Germany. Over the last 12, 15 months, we have seen some good growth coming in Germany for you, on a low base. Is it more to do with more dealers being appointed and sales being recorded to dealers or -- and what are your ambitions on the German market over the next 3 to 5 years?

Ralf D. Speth

So overall, in Germany, it's a tough market. Not only that, the main premium car manufacturers are located in Germany. But also, you'll see that the economy at the moment is becoming more and more critical because, at the end of the day, Germany has maybe to bail out the one or the other country in Europe, and that will also have certain indications for our customer group. Nevertheless, we are strong, as I mentioned earlier, in Europe and the main country is Germany. We grew by 18%. We have our European sales team based in Germany, and they are doing a very good job. So that is the new products, especially, for instance, the XF Sportbrake and the all-wheel drive XF, the all-wheel drive XJ, we can deliver growth.

Chirag Shah - Axis Capital Limited, Research Division

And on the...

Vishal Saraf

Hello, sir. This is Vishal from...

Chirag Shah - Axis Capital Limited, Research Division

Just a follow-up. On the Land Rover side in Germany, what products are doing well? Because even that is witnessing 20% growth, if I look at the -- over the last 3, 4 quarters now.

Ralf D. Speth

If I understand your question about -- because it was -- it's an issue with the -- if I caught it in the right way, all products are doing well in Germany. Even the Defender is highly sought after and is a very good product contributor in Germany. Is it the question -- what is the question you are talking about?

Chirag Shah - Axis Capital Limited, Research Division

Yes, sir. Thank you.

Vishal Saraf

Hello, sir. This is Vishal from SBI Mutual Funds. You said you ended this year -- we have already seen possibly last part of the CapEx being done both for Range Rover and the Range Rover Sport given that they're both on the same platform, thus we have already seen significant capacity expansion for you. So going ahead, are we already past the peak in terms of investment? And given that we have already increased the guidance next year for both classification and R&D, can you help us understand some more on where this expense is likely to be incurred?

Ralf D. Speth

In terms of Range Rover and the Range Rover Sport, quite clear, the peak is more or less over. Nevertheless, there's always a new peak because we are investing even more in the future, and we never want to stand still.

Vishal Saraf

So can you help us understand more of where this GBP 2.8 billion you're talking of will go? Some more color into some of the projects on -- some other details?

Ralf D. Speth

You principally asked me now for the complete product portfolio and the product blend for the future. Please understand that we'll only talk about these concrete projects whenever we are closer, but we also can tell you more about a project that we also then, at the end of the day, can deliver and also sell the products.

Vishal Saraf

Even on the capacity side, you'll not be able to help us understand what new capacities or -- are being added over the next, say, 12 to 18 months in terms of physical assets?

C. Ramakrishnan

If I can slightly give a different version of the answer. We talked about an overall spend in the region of about GBP 2.7 billion. Approximately half and half between product development CapEx and assets investments, the CapEx that we would traditionally talk about. The product development will be mostly on design, engineering and development of the products. And the other half CapEx will, of course, include, I would say, roughly half in terms of manufacturing, both capacities and capability and improving the versatility in the plants, as well as the investment in the engine plant. And half of that half would be on assets, CapEx required for the new products. I hope that helps.

Vijay Somaiya

Last 2 questions. Yes, Srinivas?

Srinivas Rao - Deutsche Bank AG, Research Division

Sir, on the India business, you have talked about the CapEx guidance generally about INR 3,000 crores, capacity expansion of -- you would be assuming is quite low for [indiscernible] that is unlikely to see any capacity requirements. Is it safe to assume that a large part of that CapEx is for product development for the passenger vehicle platforms? That would be my first question. Over the next 3 years -- so basically what I'm asking is, are you going to spend about $1 billion on passenger car R&D over the next 3 years?

C. Ramakrishnan

We had provided guidance earlier that, annually, our CapEx will be in the range of about INR 3,000 crores, and we are short by INR 9 crores this year. It was about INR 2,991 crores or so. Our guidance continues to be in that region, INR 3,000 crores, plus minus each year, depending on the timing and phasing of the various plants. We have a very large product portfolio and a very wide portfolio ranging from Prima trucks to Ace and Magic and ranging from Safari, Sumo to Nano with newer products that we are definitely looking at. Some of these, like Tata Ace and its family in particular, also require investment from time to time in capacity expansion. The wide product portfolio that we have requires constant refresh. The newer platforms, both on the LCV and Prima and commercial vehicles, as well as the Ace, are versatile platforms capable of multiple versions. I've chat with you earlier, some of these platforms could go upwards of 100-plus variants potential based on the demand. So we have to plan for these. And given the competitive intensity and the maturity of the market, we have to increase the intensity and the pace in which we introduce refreshers and create concept excitement in the market. I would expect, going forward, the spend proportion between commercial vehicle and passenger car -- earlier I had mentioned 50-50, I think it will be tilted more on the passenger vehicle front slightly higher and maybe lower in the case of commercial vehicles because we have our investment in -- basic investment in Prima and with the new platform LCVs behind us, it will be more a question of exploiting those platforms. So the spend percentage on passenger vehicle-related requirements would be slightly higher. Karl, would like to add in that?

Vijay Somaiya

Last question, please.

Pramod Amthe - CIMB Research

Hello, sir. This is Pramod from CIMB. You made up a large provision for the pension liability for JLR employees through the reserves. I wanted to know this is as on what date and what is the current status or current gap if you evaluate the same for the current period? And, three, when is the next due date for this evaluation?

C. Ramakrishnan

I could answer in 2 parts. Purely, from an accounting point of view, the funding deficit recognized in this financial fiscal year is a little over GBP 600 million, as you rightly said, into the reserves and adjusted for the net worth of the company as of March 2013. This is as per the IFRS accounting standards. As far as the funding deficit, in terms of our discussion and agreement with the pension trustees are concerned, the discussions are on at a fairly advanced stage, near conclusion stage, but we'll not be able to comment on that at this point of time. If you go back a few years ago, we had mentioned that the funding deficit agreed with the trustees were about GBP 400 million to be funded over a longer term period, about 7 or 8 years at that time. Since then, the actuarial factors affecting the deficit have moved differently. The longevity has increased. The discount rates and the inflation rates have moved differently. So we expect the deficit to be funded -- into the fund will be significantly higher than what we had last time, but the funding plan would similarly be over a 7- or 8-year period. In the next few months, we should be able to conclude that.

Chirag Shah - Axis Capital Limited, Research Division

If I can ask 1 question...

Vijay Somaiya

Yes, Chirag, last question.

Chirag Shah - Axis Capital Limited, Research Division

Just on the CapEx in product development. Say, beyond FY '14, how should one look at? Is it right to assume that the CapEx portion could actually come down from GBP 1.25 billion given your investment schedules are meeting what you are looking at -- the lumpy impact would more weigh [ph] in FY '15? And on the product development side, is it right to assume there's GBP 1.2 billion to GBP 1.3 billion of R&D spend you're indicating would be stable in that sense?

C. Ramakrishnan

We have, at this point of time, indicated for the current fiscal year, '13, '14 year, the product development spend will be in the region of about GBP 2.75 billion, looking at the plans and the potential, more than looking at this as a spend, I think we should also look at it as an opportunity for growth and opportunity for then catching the value available in the market. If I look at it from that point of view, I think it will be safer to assume that this spend will remain at that level at least for the next 2, 3 years.

Vijay Somaiya

Thank you, ladies and gentlemen. I would request you to join us for tea. Thank you.

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