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Executives

C. Ramakrishnan - President and Chief Financial Officer

Analysts

Amit Mishra - Macquarie Research

Binay Singh - Morgan Stanley, Research Division

Jinesh K. Gandhi - Motilal Oswal Securities Limited, Research Division

Pramod Kumar - IDFC Securities Ltd., Research Division

Sonal Gupta - UBS Investment Bank, Research Division

Chirag Shah - Axis Capital Limited, Research Division

Mahantesh Sabarad - Fortune Financial Services (India) Ltd.

Tata Motors Limited (TTM) Q2 2014 Earnings Call November 8, 2013 7:00 AM ET

Operator

Ladies and gentlemen, good day, and welcome to Tata Motors Q2 FY '14 Earnings Conference Call hosted by Macquarie Capital Securities. [Operator Instructions] Please note that this conference is being recorded. I'll now hand the conference over to Mr. Amit Mishra from Macquarie Capital Securities. Thank you. And over to you, Mr. Mishra.

Amit Mishra - Macquarie Research

Thank you, Murphy. Good evening, everyone. Welcome to the post results conference call of Tata Motors. To discuss the results today, we have with us Mr. C. Ramakrishnan, CFO of Tata Motors; and the Investor Relations team. I would now request Mr. Ramakrishnan to begin with his initial remarks, and then we can begin the question-and-answer. Over to you, sir.

C. Ramakrishnan

Thank you. Good evening to everybody on the call. Thanks for joining us for the second quarter results announcement of Tata Motors.

At a consolidated level, Tata Motors' consolidated net revenue was up by INR 56,882 crores from INR 43,000 crores in the same quarter last year. EBITDA margin consolidated came in at 16.3%, up from 13.5% in the previous year quarter. Profit after tax was INR 3,500 crores, up from INR 2,000 crores in the same quarter last year. At a standalone, Tata Motors standalone India operations, the environment continues to be very challenging for the business, from an external market point of view and macroeconomic scenario, reflecting the lower net revenue in this quarter at INR 8,800 crores, down from INR 12,000 crores last year. EBITDA margin was 2% compared to 5.9% in the same period last year. Profit after tax was INR 804 crores negative loss compared to INR 867 crores profit in the same quarter last year, but last year's profit also included dividend incomes that we received from Jaguar Land Rover.

Coming to Jaguar Land Rover, JLR had one more quarter of outstanding performance. Net revenue came in at GBP 4.6 billion, up from GBP 3.2 billion same period last year. EBITDA margin stood at 17.8%, up by 3 percentage points from 14.8% in the same quarter last year. And profit after tax was 507 million, up from 300 million last year.

In the India business, as I mentioned earlier, slowdown in the economic activity, low level of transport freight and infrastructure activity, the tight financing environment and diesel price increases impacted the overall demand and resulted in deferment of new vehicle purchases. It particularly impacted our commercial vehicle industry and, therefore, volumes for the industry and for Tata Motors were down significantly this quarter compared to the same period last year.

In this environment, we continued to sustain a strong market share at 56.7%. Similarly, in domestic passenger vehicle industry, that has declined quarter-on-quarter compared to the first quarter of this year by a further 2.6%. In both the segments, competitive intensity in a depressed market has led to higher marketing costs for all manufacturers.

From the company point of view, we introduced several new service offerings for our commercial vehicle customers, particularly the light and intermediate customers with 3-year and 3 lakh kilometer warranty services, and heavy trucks with a 4-year warranty, 24x7 Tata Alert service, attractive AMC rates and other service offerings to the customers.

In the passenger vehicle as well -- business as well, we launched a focused service improvement for our core customers, with several distinctive service offerings. And the 3 broad brand promises, responsiveness, reliability and best value service, which is being implemented across all of our nationwide service network. Exports in this quarter grew 19.1% quarter-on-quarter. And we also launched our products in 2 new markets, Australia and Malaysia in CV. In the passenger -- as I mentioned earlier, in CV, we continued to sustain our strong position in the marketplace at 56.7% in this half year. And in passenger vehicles, for the half year, our market share stood at 6.1%.

Jaguar Land Rover volumes were at 101,900 vehicles, up 31.6%. And vehicle volumes was 102,600 vehicles, up 21.1%. EBITDA came in at GBP 823 million, with an EBITDA margin of 17.8%, reflecting higher wholesale volumes, richer product mix supported by launch of the new Range Rover Sport, volumes of new Range Rover and Jaguar F-TYPE and a richer geographic mix. And we also had about GBP 89 million (sic) [GBP 79 million] of local incentives for the European-only market, accounted as income in this quarter.

Free cash flow in Jaguar Land Rover for Q2 was GBP 430 million, and for the half year, GBP 89 million, both of which are after capital expenditures and product development spend of GBP 657 million in this quarter and GBP 1.2 billion for the half year. Strong balance sheet in Jaguar Land Rover, with cash and financial deposits at GBP 2.7 billion, and further strong liquidity supported by undrawn long term committed credit facilities aggregating GBP 1.3 billion. We have received rating upgrades from Moody's following a similar upgrade from Standard & Poor's in Q1. We showcased Jaguar C-X17 Sports Crossover concept at the Frankfurt Auto show, which is a lightweight aluminum architecture for future Jaguar products, starting with a new smaller sedan in 2015.

From a regional point of view in sales. In this quarter, North America represented 16% of our global sales; U.K., 18.2%; Asia Pacific, 4.8%; Europe, 17.2%; China region, up at 26%; and other overseas locations, 17.8%.

Looking forward, from an India business point of view. In commercial vehicles, we continue to -- we expect the economy will continue to remain subdued throughout this financial year, which will keep our sales of commercial vehicles under pressure. Competitive intensity will continue, resulting in higher marketing costs.

A couple of positives. The above average monsoon should hopefully lead to better rural consumption demand. And some of the government approvals for projects that have been postponed or stalled have started coming in which, hopefully, should generate further demand for our products. JNNURM Phase 2 orders should also drive some bus volumes. From a company point of view, in commercial vehicles, we will launch new products in Prima range, Ultra trucks and offer product refreshes in both small commercial vehicles and pick ups. We'll continue to expand the export potential for our vehicles.

In passenger vehicles, we have mentioned earlier about the focus in 4 -- across 4 major pillars, all of which are continuing to be pursued very aggressively: an intense product focus, world-class manufacturing practices, enriching the customer experience -- purchase experience and providing consistent excellent quality of service. We launched the CNG emax versions of Nano, Indica and Indigo; new product in the hatchback segment; new compact sedan and refreshes on all the existing products. We will continue to avail opportunities in passenger vehicles also for the export markets.

In our Jaguar Land Rover business, we hope to continue to build the sales momentum with the new Range Rover launched last year, Jaguar XF Sportbrake and Jaguar F-TYPE. We completed the successful launch of the new Range Rover Sport and other new derivatives. We'll also be launching the world's first premium diesel SUV hybrids in the Range Rover and Range Rover Sport. The business will continue to invest in more new products and new technologies for meeting consumer and market requirements and regulatory requirements and further build on manufacturing capabilities in the U.K. and elsewhere. As we mentioned earlier, our product development and capital expenditure this year in Jaguar Land Rover is expected to be in the region of GBP 2.75 billion, and we expect to generate strong operating cash flows in order to support this investment.

With this brief overall comments, I'll stop my presentation, and turn it open for other things -- any other questions you may have. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] The first question is from the line of Binay Singh from Morgan Stanley.

Binay Singh - Morgan Stanley, Research Division

My question is on the Jaguar Land Rover side of the business. Firstly, on the current EBIT, could you shed some light as to what is the GDP [indiscernible] rate that you would've used during the quarter? Because we've seen a sharp depreciation in the GDP. And within that, could you shed some light on what other options the company has? Is it possible to raise prices or we will see sort of an adverse impact of that on margins in the coming quarter? Second question is again on gross margin side of [indiscernible] if you look at raw material, you could see they have actually -- variably, expenditure has gone up in this quarter, which reflects some bit of an adverse mix. Could you tell us what -- where did that impact came from?

C. Ramakrishnan

These questions are fairly detailed for addressing in this call. Maybe we need to take it offline separately. But just an overall response to the action taken, as far as ForEx is concerned, quarter-to-quarter, between first quarter and second quarter, there is some marginal impact due to ForEx in the financials between April to June and July, September quarter, which impact negatively the margins by about 0.8%. Otherwise, compared to the same period last year, Q2 last year to Q2 this year, not a significant impact on the quarter. I already mentioned in my opening presentation about GBP 80 million in this quarter, which we received as incentives for -- in -- from between the U.K. and elsewhere. As far as material consumption is concerned, it is difficult to comment on a quarter-to-quarter basis. It's just influenced by several factors, including product mix, and the relative mix of supply, as you rightly mentioned. But overall, we see material costs being very much under control. And hopefully, the richer product mix will help the overall margins favorably.

Binay Singh - Morgan Stanley, Research Division

Okay. Can you just give exactly actually that cadence continues in the environment, the average GDP you all see, it actually would help you during the quarter?

C. Ramakrishnan

I would not be able to comment on this in this call.

Operator

The next question is from the line of Nashin Jalan [ph] from Nomura Securities.

Unknown Analyst

So you mentioned that on JLR, there was a local incentives of GBP 79 million, I'm just want to check, what was this number in last quarter, and how sustainable these local incentives will be going ahead? That is my first question. And my second question is, you have mentioned the PBT on JLR that taxes has come down to 24% due to the new carriers. So should we expect a similar level tax rate going ahead? I mean, what will be your guidance for the full year tax rate?

C. Ramakrishnan

On the first question, there is no tax incentive that is there in Q1 of this year. And in terms of sustainability, I expect this will be an annual feature, depending on the time that is settled, that it will come in the respective quarter. However, last year, the same quarter, as I said, in Q1, there is no tax incentive element. But on a comparable period, Q2 of last year had [indiscernible], it's about GBP 35 million, GBP 40 million, Q2 to Q2. As far as the tax structure is concerned, as you are aware, we don't pay cash taxes in the U.K. We only accumulated carryforwards that we have. Yes, including the deferred tax and the cash tax payments, the taxes will continue to be at a marginal rate overall, including deferred tax and cash taxes.

Operator

The next question is from the line of Jinesh Gandhi from Motilal Oswal Securities.

Jinesh K. Gandhi - Motilal Oswal Securities Limited, Research Division

A couple of questions. The first pertains to your net automotive debt on consolidated and standalone vehicles. And second question pertains to your assessment of the impact of this reduction in Kupang and Shanghai?

C. Ramakrishnan

On the first question, I think you talked about net automotive debt both in a consolidated level and standalone level?

Jinesh K. Gandhi - Motilal Oswal Securities Limited, Research Division

Right.

C. Ramakrishnan

The net automotive debt at the consolidated level was of about INR 14,000 crores, and that standalone, Tata Motors standalone level was higher at INR 19,000 crores, which actually means, in JLR, the net automotive debt is negative. In terms of debt equity, net debt-to-equity ratio, the consolidated level was 0.5:1, and at standalone level, it was 0.9:1. Your second question was on -- relating to the quarter per shipment in Shanghai. Yes, it has some impact on the local demand, but overall, our volumes in China continue to be strong. So a large market, it's a huge market with plenty of potential.

Operator

The next question is from the line of Pramod Kumar with IDFC Securities.

Pramod Kumar - IDFC Securities Ltd., Research Division

So my first question is actually a clarification on the local incentives. Is it right that it would have been adjusted against other expenditures in this quarter?

C. Ramakrishnan

No, it is accounted into revenues, under the revenue.

Pramod Kumar - IDFC Securities Ltd., Research Division

Under the revenue line. That would mean that our realization for that, on a quarter-on-quarter basis, would have seen a decline at JLR, despite having China at 26% of volumes, which is the highest ever, and also having the Range Rover Sport coming in. So if you can just -- I know there's a bit of currency impact but is it beyond -- it's entirely because of currency or does it like also got to do with variance to variance slippages?

C. Ramakrishnan

Can you just give me a moment, I stand corrected, just 1 second. My apologies. And I stand corrected. The tax incentive has been accounted as other income and net financial is other expenses, not under the revenue growth. I stand corrected. My apologies for...

Pramod Kumar - IDFC Securities Ltd., Research Division

Yes, otherwise, the relations would have been very, very -- and logically not possible, as in...

C. Ramakrishnan

Thank you for asking the question, that gave me an opportunity to correct myself.

Pramod Kumar - IDFC Securities Ltd., Research Division

No, fair enough. That's fair enough.

C. Ramakrishnan

If you could perhaps go to your second question?

Pramod Kumar - IDFC Securities Ltd., Research Division

Yes. My second -- no, I actually didn't start on the second one. But as it pertains to the standalone business here, given the kind of slump in the industry between, what, in the last 4 days, other 3 commercial vehicle players have reported their numbers, and I think things are looking pretty much difficult, given the fact that the September quarter had a steeper decline at the industry level versus the June quarter. What's your reading, actually, in terms of when do you see a possible recovery in the commercial vehicle cycle? And given that fact, how would you look at your -- the CapEx funding at the standalone business and also -- and bringing even further, debt equity of 0.9 at this point of time. So is there a chance that you're okay with it going beyond 1 also to fund the CapEx?

C. Ramakrishnan

It's a good question. As far as the macro environment is concerned, we see, I said in my opening remarks and my opening presentation, we expect it will continue to remain quite challenging from a macro point of view, at least, for the next few quarters. I think it will be at least 3, 4 quarters before we see some impact on our industry, commercial vehicle industry. Even if the macroeconomic activity improves, I think it will take some time for existing trucking capacity utilizations by the operators before there's any significant or foreseeable impact on new vehicle demand. I think we'll continue to see a challenging period for some time now. What we can do and what we are doing internally as a company is to strengthen our product line-up, ensure that the market is well-supported in terms of anticipating the requirements and producing the right product for the market at the right time, strengthening our product portfolio, improving the reach and the quality of work provided to the customer's purchase experience, also with the experience in our leadership and enrich the service offering and enrich the -- and deepen the connect that we have with the customers. In parallel, the company is also significantly and aggressively focusing on internal cost reduction measures. These are occasions when the focus is brought out very sharply, whether it is material costs or operating costs or other -- each line item of expenditure, we are significantly focusing on cost reductions and making the operations much more efficient. But these are more from a company point of view, but going back to your question in terms of macro environment, we see it as challenging, at least, for the next few quarters. And operating costs, marketing costs also will increase, will continue to remain high. And I don't mean increase further, but I think they'll continue to remain high with the type of intensity of competitive pressures and the market incentives. In terms of capital expenditure, we are -- in this industry, we definitely need to continue to invest for our future. We have a very large product line-up between commercial vehicles and passenger vehicles. We also have small commercial vehicles, light to intermediate range, medium and heavy commercial vehicles. As well, in passenger cars, with entry level hatchback and sedans and SUVs and UVs. So in terms of product refreshes, new technology, new product offering, new segment products, the capital expenditure in products, there, our focus will be quite intense in the coming years. I've given guidance from time to time that, on average, for supporting and enriching continuously this line-up of products, we would need to spend, on an average, about INR 3,000 crores annually in investment for the future. Most of it or nearly all of it will be in product development and the new technology and new product offering related. We will not have a very significant increase in investment and capacity and manufacturing except for capability increases -- capability enhancements that we introduce to new products. But your question I think also related to funding for the capital expenditure. We have the sufficient borrowing capacity and borrowing line arrangements for being able to fund the capital expenditure to the extent it needs to be funded. Yes, the balance sheet leverage is somewhat higher than what we have indicated as a preferred range year-over-year. I have gone in requesting for a range between 0.5 to 0.75 in terms of net debt-to-equity ratio. We are at 0.9 at this point of time. Hopefully, the recoveries and the improvement in cash from operations -- cash generation for operations over time should set this right. We also undertake certain measures to try to strengthen this as early as possible.

Pramod Kumar - IDFC Securities Ltd., Research Division

And so just to clarify, we still haven't done a onetime restatement of our fixed assets as per IFRS -- is it, before we shift to IFRS? Because once you do that, the debt equity will automatically come down to as a percentage -- I mean, as a ratio?

C. Ramakrishnan

No, we have not done that.

Pramod Kumar - IDFC Securities Ltd., Research Division

Okay. That -- also provide some cushion in that sense?

C. Ramakrishnan

There's a time for that. We'll see it at that time.

Operator

The next question is from the line of Sonal Gupta from UBS Securities.

Sonal Gupta - UBS Investment Bank, Research Division

Just coming back to this CapEx question on India, I mean, is there a scope to cut CapEx, I mean, INR 3,000 crores? And does that include your product development expense that you show as expense in the P&L?

C. Ramakrishnan

It does not include the product or for the expenses, [indiscernible] in the P&L, but it does include product or the expenses that is capitalized. As you know, whatever we invest for future product development, we capitalize and amortize for the commercial life of the products. But there are some expenses in product development, like some minor modifications or support ongoing products in terms of any design changes or value engineering, et cetera, which gets charged off in the period. INR 3,000 crores does not include that component, but any major product investment or new product development is included in that INR 3,000 crores. But as far as accounting is concerned, as far as your first part of the question, which is about the cutback in capital expenditure. Given that, as I said earlier, part of this is going into new product development, product refreshes, and the launches and the annual refresh of our products. I think in the near term, if you look at the next 2, 3 quarters, for any automotive company, it will pull back on its product development. Later investment will be somewhat limited in nature or not at all, because many of the products could be halfway through or more than halfway through. If you take, let's say, a longer term call, next -- over the next 3 to 5 years for a cutback, it may also be a question of sequencing or postponing that cutback. Because in this business, you have to continuously invest for our future, it's the backbone of our future. The largest scope, I would say.

Sonal Gupta - UBS Investment Bank, Research Division

So because where I'm coming from is if you include the product development of CapEx of INR 3,000 crores plus product development, plus interest cost, it's like INR 5,000 crores. And the only time you in fact got close to that sort of an EBITDA number is in FY '11, when you had I mean, obviously, the CV market doing extremely well, plus your passenger vehicles business was of much bigger scale. So I mean, I don't see that -- I mean, it's sort of difficult to forecast you getting back to cash breakeven even in a 2- to 3-year scenario, unless you see the CV industry probably pulling back almost 100% on some things? So I just want to understand, so from a medium-term standpoint, how do you see this and I mean, how do you see your -- I understand that in the near term, you can raise more capital in your Singapore subsidiary -- I mean, holding company, et cetera, but longer term, how do you see this getting to this INR 3,000 crores sort of a number?

C. Ramakrishnan

I think it's actually primarily triggered by operational improvement, both in terms of a top line and bottom line growth, as well as running a tighter operation, working capital improvements and generating cash from operations. That will be a primary driver for this. Secondly, I think in reality, I think the balance sheet will continue to remain somewhat more leveraged than I would like it to be for some more time. I think there'll be a correction over a period of time. In [indiscernible] restructuring that you talked about, I think will bring some relief on the standalone balance sheet and that we need to look at some further restructuring options.

Sonal Gupta - UBS Investment Bank, Research Division

Okay. But and just another question on the light commercial vehicle side, we've seen your numbers sort of clearly for -- I mean, going down very significantly in the last few months in the quarter, while the second largest player has not really seen that sort of an erosion in terms of -- they are still showing growth in the light commercial vehicle space. So I just want to understand, I mean, how is your market segment different but I mean, what's really happening as to why your LCV sales are going down so much?

C. Ramakrishnan

LCV, I think, is including a frankly larger definition, including the light and the small commercial vehicles, kind of difficult -- aggregating all of them together. Quarter-to-quarter, we will see some movements in terms of market share performance and related performance, but overall, if you take within that subsegments, I think we are doing fairly strongly and at a steady state level in terms of market share in our small commercial vehicle range that is in this family of vehicle. The company lost some market share in this quarter. And light commercial vehicles, which are what we used to call traditional light commercial vehicles, 4 to 7 times, I think, again, it remains fairly steady and strong. So for each of these, we're now going to have a specific approach.

Operator

The next question is from the line of Rodman Zuul [ph] from Bernstein.

Unknown Analyst

My question is in the JLR accounts, we see currency positives in the recent -- most recent results of GBP 73 million. I was just wondering if you could clarify that in the -- or the nature of that? And also my next question is, in the next quarter, given the rises in the pound value and also the decline in emerging market currencies, do you see a significant currency headwind in Q3 and Q4?

C. Ramakrishnan

Sorry, it's slightly long, this question. Can you -- are you talking about the currency impact in this quarter?

Unknown Analyst

Yes, there was a positive GBP 73 million.

C. Ramakrishnan

Yes. There is a mark-to-market of our -- is the book that we have.

Unknown Analyst

Okay, that's the hedging. So -- okay. But you mentioned there was a slight headwind in Q2. Can you let me know where that was booked? Is that elsewhere? Is that part of this?

C. Ramakrishnan

I think we are talking about 2 different things. If you take the revenue numbers in terms of our trade transactions, in terms of export in total over a period of time, the dollar-pound parity with exchanges, compared to last year, we have had some hit on the top line. The GBP 73 million that you're referring to is more in the hedging book mark-to-market valuation gains in the quarter. And I lost track of your second question. Was there a second question or?

Unknown Analyst

Yes. The fact that the pound has been quite strong, it's 1.6 to the dollar, and you have major markets in Brazil and Russia where the currency has been quite poor. I'm just wondering if you see major headwinds going forward from these currencies?

C. Ramakrishnan

Yes, in some of the markets, the strong pound definitely affected. And some of these markets, for example, it may -- it will impact -- each of these are relatively small in terms of percentage of overall global sales of JLR. But yes, that currency impact on JLR business is always there. We have talked about it in the past. It's a business that we have 20% sales in the U.K., with almost production in the U.K, therefore, 80% is being sold out outside U.K. So currency impact will definitely be -- and we need to be really watchful and careful about that.

Unknown Analyst

Can you cite any other currency other than the dollar?

C. Ramakrishnan

No, most of it is in dollars.

Operator

Next question is from the line of Amin Padami [ph] from Deutsche Bank.

Unknown Analyst

So my question was, on your capacity at JLR, what would be your total capacity? And if you could also break up the capacities in the different plants?

C. Ramakrishnan

I think at the current level, we are fairly full up on capacity in terms of the headroom to where we think we are. I'm not sure immediately on this call, I'll able to share the current rate of capacity, [indiscernible], but the information should be made available.

Unknown Analyst

Okay. And just another clarification, you mentioned that the incentives in U.K. have been deducted from the other expenses in the JLR accounts?

C. Ramakrishnan

It is the U.K. -- actually, that's some part in U.K., some part in other markets as well. So not all of it is U.K.

Unknown Analyst

Okay. But the accounting sequence, is that being deducted from your other expenses?

C. Ramakrishnan

Yes and no. All of other income but in terms of financial summary for the European disclosures, there's -- other income is then netted off against the group of other expenses in the release.

Unknown Analyst

Okay. But your revenue line in the JLR does not even factor that in?

C. Ramakrishnan

No, it doesn't.

Unknown Analyst

Okay. But in your consolidated accounts, is it part of other operating income because your other operating income has really shot up in this quarter? Constant number?

C. Ramakrishnan

Yes.

Operator

The next question is from the line of Hamesh Nishal [ph] from GM Financial.

Unknown Analyst

So I just wanted to get a sense on if you can share with us the regional, let's say, how the demand outlook you think is panning out, especially if you look at, let's say, the China and U.K. particularly? And in terms of our Chinese -- and our network expansion, can you share some highlights as to where are we and how we plan to go forward in, let's say, by that time, are your manufacturing unit starts functioning from next year?

C. Ramakrishnan

Well, I would not venture a guess on numbers, outlook, et cetera, but overall...

Unknown Analyst

Well, it's not just number, I mean, directionally you can give some thoughts.

C. Ramakrishnan

Yes, let me finish. But in terms of overall outlook in that sense, I think we are also benefited by successful launch of our products. Evoque continues to remain strong in all its markets. The Range Rover that we launched last year have continued its momentum well into this year and continues to remain strong in terms of demand and order book, et cetera. The Range Rover Sport is not fully launched. We are in the process, so -- and similarly, in the Jaguar line-up. So my comment is somewhat to be taken in the context of, like I say, in the successful launch of products in the last 12, 18 months. We do see strong momentum. We hope this strong momentum will continue. I don't mean to necessarily comment on the overall demand situation for the automobile in those market, but I'm talking more from a Jaguar Land Rover point of view. The other factor would be the new -- the product launches and successful introduction of new models. The second question was, well, specifically related to Chinese network. I think I have shared that before. We have about 130 strong dealer network in China. We'll definitely hope to increase it over a period of time. It may go up to 200 or so in the next year or so, next year, 2 years.

Unknown Analyst

Next 1 to 2 years, you are saying?

C. Ramakrishnan

Yes.

Unknown Analyst

Okay. And the second question was about the CapEx add at JLR, which you mentioned at about GBP 2.75 billion. Does this guidance remain intact for next 2 years or is it only for, let's say, FY '14?

C. Ramakrishnan

It is -- the guidance we have given was specifically for FY '14, financial year '13, '14. We said it would be in the region of GBP 2.75 billion. We're also looking at -- constantly, at new opportunities -- new opportunities in the marketplace, and as soon as the plans are final, we'll let you -- I'll give a fresh indication of what it is likely to be for the future. The GBP 2.75 billion I had mentioned earlier, I think around Jan, February of this year, we'll give guidance in terms of the net financial year, but GBP 2.75 billion was specific for '13, '14.

Operator

[Operator Instructions] the next question is from the line of Chirag Shah from Axis Capital.

Chirag Shah - Axis Capital Limited, Research Division

Firstly, a housekeeping question, if I look at and add into sales at this consolidated level, sequentially, that's reduced but if I look at standalone results, as well as JLR IFRS, our [indiscernible] sales have sequentially gone up. Is it more to do with Indian GAAP versus IFRS accounting of JLR?

C. Ramakrishnan

Sorry, I'll park the question at this point in time. I think I will communicate with you separately.

Chirag Shah - Axis Capital Limited, Research Division

Second quick question is this 1.5 billion your CapEx for this new Jaguar platform. How much of that -- will all those be capitalized by us? Is it possible to give some indication toward that?

C. Ramakrishnan

No, I don't think that I'll be able to comment about product capitalization or product expenditure capitalization specifically. The one point I believe investment in the new platform has given us an indication for what we are doing on the Jaguar product line-up. I don't think I'll be able to split it in total this year, how much next year, how much in -- a drop? I won't be able to get the total of details.

Chirag Shah - Axis Capital Limited, Research Division

Okay. Fair point, sir. And then lastly, on the tax rate. In the U.K., how one should look at the tax rate? The tax rates for the company going ahead? Because it does keep on varying.

C. Ramakrishnan

In terms of guidance, you see, we started -- we also took deferred tax credits in one of the earlier -- and as we explained in some of the earlier calls. The deferred tax, I don't think -- and the cash taxes, I think the overall effective tax rate, both cash and noncash deferred taxes, I think will more or less be -- maybe slightly below the marginal tax rate. Slightly below marginal tax rate.

Chirag Shah - Axis Capital Limited, Research Division

So last thing, just a clarification on this GBP 80 million local incentive that you have got, can you just help us understand? Because this number, if we look at versus last year, it has more than doubled. So how does this flow or what are the conditions you need for this kind of number? And how one should look at this number going ahead?

C. Ramakrishnan

This basically relates to, I mean, incentives you get, which makes it into the overall volume numbers in different markets, partly to do in U.K. and outside markets. So depending on the volume and the excess repaid, this is likely to see some changes year-to-year. Last year, it was GBP 40 million, and this year, it's about GBP 80 million, GBP 79 million.

Chirag Shah - Axis Capital Limited, Research Division

Yes. So the jump is significant. From the -- for it to -- linked to volumes, a fair point?

C. Ramakrishnan

Volumes, definitely, are really rich because the taxes in U.K. and in many places is a function of both volume and sort of the average realizations. As average realizations improve, that also will trickle slightly back to [indiscernible].

Operator

The next question is from the line of Mahantesh Sabarad from Fortune Equity Brokers.

Mahantesh Sabarad - Fortune Financial Services (India) Ltd.

C.R., I had a question related to the same incentive. I presume it is in the nature of duty drawback incentive that the U.K. government is offering you. Am I right in my assumption?

C. Ramakrishnan

No, as I said, partly, it's, in the U.K., a small part and partly, in other markets.

Mahantesh Sabarad - Fortune Financial Services (India) Ltd.

So if it is not in the nature of compensation for -- because we understand it as a duty drawback, which is meant to be a compensation for import duties. So going forward, if your import content within U.K. is going to fall because you're going to have localized engines or engines made in-house now, will this incentive start falling off as we go forward into the years?

C. Ramakrishnan

No.

Mahantesh Sabarad - Fortune Financial Services (India) Ltd.

And -- okay, my second question, then, pertains to the balance sheet Note 7, which talks of actuarial valuations on pensions, which has grown to about INR 2,500 crores as far as the first half is concerned, with the significant impact coming in this quarter of INR 1,500 crores. I would assume it is pertaining to JLR and, in equivalent pound terms, appears to be GBP 200 million for the first half. Can you explain what -- why this significant jump quarter-on-quarter, as well as year-over-year?

C. Ramakrishnan

Well, it's difficult to discuss, in a brief way, the actuarial valuation business. It was influenced by a number of factors in terms of financial, some of it's pricing, discount rates, interest rates, yield on securities and asset portfolio that we have. And the other actuarial assumptions relating to life expectancy and so on. This is the net valuation difference that you've seen this quarter. It's likely to see some changes quarter-to-quarter and year-to-year based on any of these actuarial valuation. It's a large part, so even a small movement tends to have this impact. As I said earlier, going forward, maybe over a period of time, I think 2010, '11, we started the -- different benefits came in Jaguar Land Rover for new recruitment, so over a period of time, the pension structuring in JLR will change.

Mahantesh Sabarad - Fortune Financial Services (India) Ltd.

Because this GBP 200 million, out of GBP 8,700 million in terms of percentage, erode significantly -- this is a significant number, and if that kind of provision...

C. Ramakrishnan

But you do actuarial valuation in your net present value over a period of time, you take into account the future period depending on the life expectancy of existing members, and retired members will continue to be members of the fund.

Mahantesh Sabarad - Fortune Financial Services (India) Ltd.

But the major impact is due to the discount rate, right?

C. Ramakrishnan

Discount rate and a whole host of other things, inflation rate increases...

Mahantesh Sabarad - Fortune Financial Services (India) Ltd.

And with the, let's say, the taper being off the table and interest rates start moving up and inflation moving up, how does it affect your...

C. Ramakrishnan

And the flexibility pricing.

Mahantesh Sabarad - Fortune Financial Services (India) Ltd.

I'm saying that discount rate eventually going up? How does this affect the net liability, directionally speaking?

C. Ramakrishnan

There are 2 things to take into account. One is that the coverage increase and liability may come down. But the yield on new investments also may come down a bit so it's just...

Mahantesh Sabarad - Fortune Financial Services (India) Ltd.

But you are a net liability, right?

C. Ramakrishnan

Yes, that's right. And this coverage, most certainly, have a slightly positive impact. But in this case, the asset valuation, the net GAAP may still not be included so much. I think that the asset value also may come down.

Operator

Ladies and gentlemen, that was the last question. I would now like to hand the floor back to Mr. Amit Mishra. Over to you.

Amit Mishra - Macquarie Research

Yes, thank you. On behalf of Macquarie, I would like to thank the management team of Tata Motors for giving us an opportunity to host the call today. Thank you very much, sir, and thank you all participants for being there on the call.

C. Ramakrishnan

Thank you very much. Thank you.

Operator

Thank you. On behalf of Macquarie Capital Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.

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