Tata Motors Limited
Q3 2020 Earnings Call Transcript

Published: 30 Jan 2020

[Operator:]

Ladies and gentlemen, welcome to the Q3 FY 2020 Results of Tata Motors hosted by Emkay Global Financial Services. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions at the end of today’s presentation. [Operator Instructions] Please note that this conference is being recorded.I would now like to hand the conference over to Mr. Raghunandhan N. L. from Emkay Global. Thank you and over to you, sir.

[Raghunandhan NL:]

Thank you, Stanford. Good evening, everyone. I would like to welcome the management and thank them for giving us this opportunity. We have with us today Mr. P B Balaji, Group’s CFO, Tata Motors; Mr. Guenter Butschek, MD and CEO, Tata Motors; Professor Sir Ralf Speth, CEO, JLR; Mr. Adrian Mardell, CFO, JLR.I would now hand over the call to the management for opening remarks. Over to you sir.

[P B Balaji:]

Thanks, Raghu. Thanks all of you for joining the call. Unfortunately, Ralf was not able to join this particular call. From our side, we also have Shailesh, who Heads our EV business as well as Girish, who Heads our CV business has joined the discussions as well. So without further ado, let me cut to the chase. Like last time, I don't intend to cover every slide. You already have the deck in front of you. I'll draw your attention to the page number on the right corner, right-hand top corner and we will then roll with that.So moving on to Slide 2, which is the standard disclosure. And thereafter, let me move to Slide 3. The key developments and this has been an intense quarter for both JLR and Tata Motors. In the case of Tata Motors, I particularly draw your attention to the almost fully packed agenda that we have had on passenger vehicles as we move to the BSVI beyond New Forever as well as the BSVI and beyond. And the launch of the Altroz with 5-Star GNCAP, the second car from Tata Motors and in India, which is 5-Star GNCAP, and of course, the launch of the entire Tata Universe ecosystem, which has delivered the Nexon EV as well.So Shailesh will talk about that later in the day – later in the call, but these three were exciting. And of course, JLR, the much awaited Defender production commences and a series of product launches starting with F-TYPE begins. And of course, the first was in – infra technology, which was revealed at the CES. So as we had committed earlier, product defensive continues, innovation continues.Moving on to the numbers. It's been a year – a quarter, where I think we had a fair number of challenges that we had to deal with. And in that context, I think delivering an EBITDA of 9.9% for the quarter has been good. Revenue growth, of course, has been negative 7% and an EBITDA of 240 bps and particularly reassuring the free cash flow line at positive INR 4,000 crores for the quarter. In the case of G&A, if I were to just summarize the entire performance of the quarter, the continued recovery in JLR China, favorable mix, and of course India eminently declined despite market share gains, sequential gains and, of course, continued BSIV stock reductions in India. This is a broad factor that actually contributed and of course, the details are there in the subsequent slides as well.I also draw your attention to the last year. At the same time, we had a GBP 3.1 billion impairment that was there. And therefore, that's where a comparable number on exceptional needs to be taken note of. Revenue, if I split the revenue up, you will notice volume and mix price and translation all went the other way and it's almost entirely the decline in Tata Motors standalone is probably what led the revenue to decline to this extent. In Tata Motors, the good part is what we committed the retails will be higher and wholesale is higher than production that continued, and therefore, retail growth higher than the wholesale growth, but suffice it is to say that this growth is not good enough. And overall, we do have a challenge with respect to the market condition, which we'll talk about at a later point in time later in the deck.On the EBIT numbers, moving to Slide 6, the increase in JLR contributed almost 4.5% in the improvement of the overall EBIT number. While Tata Motors standalone totaled about 1.9% out of that. So that the overall EBIT moved from minus 0.1 to plus 2.3 and here, again, we’ll spend a little bit of time later. So with this let me hand this over to Adrian to talk about JLR in slightly more detail, and I'll take it back when I talk Tata Motors. Adrian, over to you.

[Adrian Mardell:]

Yes, thanks, Balaji, and good afternoon, evening everybody on the line. Let me quickly go through the Jaguar Land Rover details. I think the first thing to note, volumes, retail volumes versus the same quarter last year, actually a little bit lower, 2.3%, profitability, GBP 318 million, a substantial GBP 591 million stronger than the same quarter last year. Our investment down a little bit, just under GBP 900 million. That's probably going to lift up over the course of the next six months or so, but well within our target guidance we've given already free cash outflow, 144 million and cash balance at the end of the quarter GBP 3.9 billion excluding the revolving credit facility.As we go into the volume details, there's a tale of three or four stores. We break this down by region, of course, overall, the 2% lower, but that includes a substantial 24% increase in China. So that's two full quarters of substantial double-digit increases we've had as we signaled last time. So the performance in China was very much what we were signaling when we spoke to you in October. U.K. is down 11% year-over-year most of those are low margin products, a lot of that activity was deliberately taken from the marketplace for that reason. And Europe is 10% lower versus same quarter last year, almost all of that is actually I-PACE sales in the Netherlands. There was a tax change on benefits in kind actually, in January 2019, which drove increases artificially high in comparative quarter that we have for Europe here. So binary, almost all of that would be I-PACE.Next page if you would. This breaks it down actually by vehicle line, you can see there the Evoque continues to be a strong performer versus the same quarter last year. So the new model has landed well as we expected to do, up 30% in the quarter, and Discovery is bought up 9%, but as you will see later, that increase really was driven in December and we'll continue to believe going forward. Range Rover was down versus the same quarter last year. Mostly, again, binary in the Middle East, where as you would estimate there are substantial geopolitical challenges in it. In terms of the PV versus the same quarter last year, this is where you can see the huge improvement, 2.5% negative EBIT last year, 3.3% positive this year.Volume and mix, broadly the same. We do continue to have higher marketing costs. So this is a continuation of the story that I signaled in October although 0.4 of that increase is actually the residual value issue we have on 16 models in BSVI. I continue to believe that is contained to the extended 16 model year period again, exactly the same as we talked about last time. This is where the cost reduction efforts under project charge continued to flow through aggressively manufacturing and material costs, plus our structural cost reductions here. We did have bad news on labor and overhead, which is a throwback to the comment I made last time over the cars in Q3.We also had a very, very strong net exchange number, although overwhelmingly its revaluation of the balance sheet due to the 6% appreciation of sterling in quarter three. But if you look at the contribution cost improvements and the structural cost improvements that broadly adds up to the GBP 300 million profit in quarter. We thought one of the questions we'll get today was how does it compare to the previous quarters. So we thought it would be helpful to lay this out, the 4.8% versus the 3.3% since there's a number of things running around, but broadly speaking volume performance and our CJLR performance is better really in the marketplace is slightly worse, but anticipated to be broadly at this level over the next three to six months.There are increases in manufacturing and material costs. Most of those are binary one-off items. Of course, we're trying to launch the New Defender, which is a piece of that. There were commodity cost increases in the quarter also a piece of that and a payable in our Nitra facility. But they were increases that came through versus prior quarter, but you would have seen on the previous slide that page was still substantially lower versus the same last year. The labor and overhead I've mentioned already as a result of lower build levels although versus last quarter we were more efficient again on lower D&A because the spend is starting to come through slower D&A here.And then the exchange story, which broadly speaking is appreciation, bad news on operating hedging doing the job we'd expected to do and the revaluation of the balance sheet, as I've mentioned already. The commodity hedges that are throwback to the hedges we have in place for those commodity cost increases, which I referred to within the contribution that walks quarter-over-quarter. And you'll notice there that the substantive reason for the EBIT deterioration is actually in exchange. If you go to the next page, it shows our cash outflow for the period £144 million [indiscernible] same quarter last year, we have talked before about balancing our cash profit and investment were a little bit short in the quarter, but there's a huge amount of activity, actually on working capital, significant inventory reductions and also increases in volumes in trade receivables.But at the end of the quarter, we were paying for less supplier part if we didn't build because as I've already referenced. Investment is GBP 892 million in the quarter. You'll see versus prior year reductions in all places, including significantly lower capitalized R&D, as you would expect than we previously signaled. In terms of our liquidity, obviously, much stronger at the end of the quarter, GBP 3.9 billion worth of cash in our bank accounts, excluding the revolving credit facilities and I'll talk more about the debt position going forward. Thank you.The strategy. Okay. I mentioned Defender. You'll see there, December is the 20% increase versus the prior year. So as the vehicle becomes more available in more markets, the comparative year-over-year performance has improved. The Defender vehicle, of course, job one did happen on the 8th of January, as we indicated in October it was going to happen. Start of sales still continues to be spring as we indicated previously also the orders are still much stronger than a normal profile for the vehicle. I picked up my vehicle yesterday. It is sensational. Next one. CO2 Emissions, we're still signaling the compliant portfolio in 2021. Of course, I talked before about the measurement system changing, you'll see there the detail of how we become increasingly compliant at lower levels, all of the 2020 signals are still got green ticks on them.Overwhelmingly, of course, customers will need to accept and take these products. So we're watching carefully the acceptance of our PHEV and our BEV sales over the course of the next 12 months to ensure that we can be compliant through sales of compliant vehicles. Those vehicles are in place. In terms of Project Charge, as I signaled last time, we were going to exceed the target within this quarter, and we did quite substantially, actually, to date, GBP 2.9 billion worth of cash savings have been generated from the program. You see the split there, significant increase in Q3 investments and working capital, particularly the levels were a lot lower at the end of December than they were at the start of the financial year and then another $200 million on cost and profits as shown mostly on that previous slide, which I broke down the year-over-year data on.What we're doing going forward on Charge? Well, we are continuing. We're calling it Charge +. The plus is an extra fiscal year. We're going through to March 21. We're signaling here the value we expect to be able to get over the next 15 months broken down by an expectation of an improved 400 million position in Q4 and then 700 million more in 2021 fiscal year. This is the program. I also indicated last time that most of the program would shift to EBIT and a variable profit focus. So six of the eight large work streams we are continuing with are those, although, of course, you would expect us to want to continue our inventory discipline, which has been excellent in the quarter and our reduced investment spend, which continues to apply the rigors and, therefore, the under spend levels, we expect to continue going forward also, although investment will peak in the next six months or so.Just wanted to draw your attention to one last item in this section, a significant piece of the FY 2021 improvements on Charge + will be material cost. We have a huge amount of initiatives in place to lower the spend within our vehicles. We are doing really well. You will see some benefits of that in quarter four to a normal closeout of our deals with suppliers, but we expect to do even more in 2021 fiscal year. We've laid out a bit more detail there. So you can see the approach. We've effectively got the car breaks down into 34 component or commodity categories and each one is having a thorough review. We're in the phases of the first nine at the moment. We will obviously bring you more details on that program as we go forward.And finally, this page is pretty much as we've said over the last six months. As indicated last time, FY 2020 is around 3%. I do have to warn that, obviously, the position in China is evolving and developing. And you have seen over the last six months, a significant improvement in our China operation. So, there is a big care point about, obviously, what happens from the China market. All of our thoughts now go out to the people, the friends, the families and the communities we know in China, which, of course, is paramount consideration here. Next year, FY 2020 we believe will be in the 3% to 4% range, as previously indicated. Investments, I am signaling the full year number is going to be lower still, up to $3.6 billion is the new number for this year. The guidance for next year is still GBP 4 billion.And then we do remain confident on achieving our plans. I do mention here, you see the Corona virus, again, which will unfold over the next several weeks. But of course, we'll focus, continuing to launch in the exciting products and the breakthrough technology. You saw there the eSIM technology with Defender, which enables software-over-the-air on the move, while live streaming, which is pretty neat, improved PBT and cash flow, of course, and then deliver the charge program, which fundamentally has underpinned the turnaround of this organization over the last 18 months. I'm very proud to say, finally, the Annual Investor Day we're announcing here to be the 18th of June.

[P B Balaji:]

Well, thanks, Adrian. Let me quickly ramp up the Tata Motor's standalone domestic number here. Wholesale were down 25% combination of both market as well as system stock reduction. You recollect that we did not talk about INR 3,400 crores of inventory system stock last quarter, so we have done another INR 3,800 this quarter. And this is now both at our end and the dealer end. At the same time, revenue is down 33% fundamentally with an increasing competitiveness as well as VME increases that you're seeing in the market because of the disposal of BSIV sock.EBITDA at 1.1% down 800 bps [indiscernible] fundamentally led all of the M&HCV decline of 48%, which obviously impacts the mix. And the net one-off expenses also was about INR 155 crores for the quarter. Free cash flow is an area that we were consciously all of last quarter, something that we would want to turn that number and make it positive. Happy to report that we landed at INR 2,400 crores of positive free cash flow for the quarter and most of it driven out of our working capital improvement that we had committed to. The interesting piece as far as M&HCV decline is concerned that the market shares are being increasing sequentially as well and year-on-year basis as well.So we are now saying, okay, fine, we just need the market return beyond this. PBT bridge, if you were just call out, it's fundamentally led out of volume mix and net pricing, and we talked about the VME piece as well. Every other line item, we have managed to keep it under control and the overall performance fundamentally linked to lower volumes as well as mix in VMEs. On Slide 29, we show the amount on quarter-on-quarter has moved. You will notice that a slight pickup in volumes, offset by a higher VME. And of course, last quarter, had the one-off that was there in the PBT write-off and that if you offset it this time around the total number actually starts increasing. So overall, what we can control as costs, I think we kept a tight leash for we can control the share we have managed to secure. We just need the volumes to start coming through as well.Free cash flow is positive, as I called out bulk of it coming out of working capital changes. And this is something that we intend to keep a tight leash going forward as well. Investment spending is about INR 1,300 crores. We expect to end the year at INR 4,500 crores inline with what we have seen last time, all of it mainly into BSVI and new products, and you've seen the product offensive that happened earlier in January and in top quarter as well.CV’s overall numbers, as you see the market share increase coming through in M&HCV and ILCV because the – recently, what we are starting to observe is that we're starting to see enquire, starting to increase, replacement demand and hopefully in government’s trust funds and infrastructure investments are expected soon, should help demand. Realizations are starting to increase as well starting in December and early indications have been seen. So it does give us a lot of hope as we look into Q4, but this trend should continue and we gradually work our way or the problem that we are at.On the priorities for us, I think the entire focus of the team is on BSVI transition. The ecosystem viability, dealer performance, profitability that has come through quite well for us and we continue to keep it that way and being enjoyed to tap the demand recoveries are number one focus at this point in time. And retail is being more than wholesale something that we called out and we continue to report on that particular fund that we're in the right track. On the commercial vehicle piece on the EBITDA number, in particular, there is a one-time impact of the wholesale tax ratio of 2002 to 2005 – 2006, I mean, and the law didn't change thereafter, so this issue is down.We have settled this over the indirect tax dispute and that’s had a one-time impact of close to about 3% on the EBITDA number. And on top of the other issues of VME and make something that does play out here. On the BSVI update, it's a rich pipeline of intervention that is there. I think our products are ready and we will be starting to hit the market in the coming days. And the March is going to be the month where we'll be shifting gears completely there, which requires the new fuel also to come in. And as a team, the obsolescence management is very much under control and we hope to land obviously on that particular front.And our entire focus is on getting field ready, which also is now more or less done and dusted and we then go to the next level into the dealers’ mechanics as well. And so we are in a good place. And the key thing that we want to follow-up on BSVI and we've already seen that in passenger vehicles and that's what we’ll play out in CV as well. This is not just about compliance; it's about adding value and going beyond. And therefore, this adding value to be in any form may to improve TCO, increase earnings, value enhancements, whatever it may be, but the consumer needs to get excited about our BSVI product, and that's how we intend to play that. And I'm sure you would want to have Girish talking about it later as well.On the PV side, again, retail is 35% higher than wholesale. This is now completely refreshed product portfolio. We have also cleaned out the distribution network in its entirety as of end of Jan. And we're also very, very excited about the product offensive including of receiving a 5-star Global GNCAP, which we talked about earlier. And we have seamlessly transitioned into BSVI this month to build up again. And our systems stack with a multi-quarter low, very, very heavy on both CV and PV at stock level. And therefore, the ability to win get back on our momentum is pretty high.On the revenue, on the overall P&L on the CV or the PV side growth down 19%, EBITDA margins at minus 3.6%, a significant improvement from last time, again coming on the back of the one-off write-offs that was there and now we're starting to trend back into where we ought to be, but not good enough needs to breakeven and go forward as well. But the good part on the PV side, the contribution margin continues to improve and in the Turnaround 2.0 momentum is starting to come back again and we are starting to pick up volumes.And the BSVI range you saw it in the – on the press on Jan 22, every one of our products has been relaunched. And we are probably the only one in the world who has done it in this intensity as account right across and now the sales starts from here onwards. And in particular, what we'd like to call out is there's a commonality in approach be it on the design benchmark, be it on the safety call out that we have done, we have 5-star GNCAP in Nexon and Altroz, 4-start Tiago Tigor, which is we want to be best-in-class safety in any category that we want to play. And of course, not just in compliance, we would want to go beyond BSVI on all things, connectivity, so we have no intelligent real-time that coming onboard. And the whole thing is about the pleasure of driving. So clearly an all-encompassing full blast launch is how we plan to do. And this then brings in the new phase of PV as far as Tata Motors is concerned.And therefore those EVs which I’m sure Shailesh should talk about it. And why don’t I just hand it over to Shailesh because he has just come back from the Tata Engineering this month. Shailesh do you want to talk.

[Shailesh Chandra:]

Yes. So as far as quarter three is concerned, we were a market leader with 47% market share. And which takes us to a market share figure of 43% year-to-date for this financial year. And this has been on the back of the success of the newly launched Tigor EV, with extended range of 213 kilometers, which has been received very well by the fleet segment. It is now the highest selling EV in India year-to-date Tigor EV. Also, we unveiled first EV build state-of-the-art Ziptron technology. And the first product that we launched day before yesterday is the Nexon EV with a certified range of 312 kilometer.We had also done a media drive for this Nexon EV, and the verdict that we got from most of the media people is that it's the most promising EV available in the market. And we have been receiving very strong bookings and response from the customer. We also had worked on the Ford Eco system around the Nexon EV. And there are five other Tata companies who have participated in this ecosystem. Therefore, Tata Power has already installed nearly 100 public charges across five cities. And by this financial year end, we are targeting to do about 300 in these five cities.Taco has localized the battery pack. And going forward, we have plans to also localize motor for us. Chroma, we have tried to do a very innovative concept, which is the store-in-store concept for giving an immersive experience is to experience for Nexon EV. And these tools therefore, book and book test drive, as well as the car if the customer is interested in.Tata Chemicals has also been working with us for cell manufacturing. And we are going to start the pilot plant in Dholera, in Gujarat. And we also Tata Motors Finance which has been working with us on different kind of financing solution for fleet, as well as personal segment buyers. The focus for the next six months is going to be, continue to develop the fleet segment, which has been the bread and butter of the electric vehicle segment in the last nine months. We are going to scale up our demand for Nexon EV and also work on the supply also because the response in the market has been very strong.We’ll also work with Tata Power to accelerate the process of public charging networks in the five cities and the focus at least that we have identified. And we also announced that in the next two years, we would be introducing total of four vehicles, which includes the next one we need and the work will be on in the next six months itself. And we are also working on the localization of critical EV components in line with the phase manufacturing plan of saving program. And of course, we will continue to focus on improving the profitability through direct material cost reduction efforts.

[P B Balaji:]

Thank, P B. So basically, the entire strategy of running proactively playing out as we had indicated and these are the specs of the new cars that you hold debt, and happy to talk about it in the Q&A if we need. Motorfinance has started its division is starting to improve in the market with respect to collections. We had a quarter, where AUM was at INR 37,000 crore rupees. Our disposal has obviously slowed down as the M&HCV business, in particular, started to slow down. Funding has not been an issue. We have been raising funds. And we managed to securitize in the last nine months, almost INR 3,000 crore rupees of book that we had and the record is very reassuring that the collections are now starting to increase from December 2019. We had a very good December and we hope to continue that even January seems to be trending, right.So, I think we are starting to see this business coming back and all the stress is fundamentally related to the M&HCV portfolio. All other portfolios, be it ILCV, be it small commercial vehicles, passenger vehicle, the GMP and PVD trends are quite comfortable. It is fundamentally medium and heavy commercial, where you’re not worried, because these are strategic accounts and we expect to see them coming back pretty soon.On the net debt side, just a quick flash on the – how the bond issuances have performed both in JLR and TML, reassuring to see the YTMs on the bonds in both JLR and TML trending the right way and the performance of the business starts improving and as well as some of the more macro impacts like Brexit started to come off.And we have also had an issuance in JLR of almost £1.6 billion and EML had an issuance of – had funds coming in of almost INR 1,500 crores this year, this including the private equity. So funding situation is extremely solid. And overall, net automotive debt is now down about INR 45,000 crores to INR 50,000 crores earlier in September. And maturity is in a very good place as well. Overall, liquidity for JLR is £5.8 million in last year. And Tata Motors stand-alone at INR 10,200 crores. So we are well-funded and adequate in liquidity.So moving on to the outlook, I think there's other ones, which are normal, the only thing I can draw your attention to is China and India. Where I think in China, the coronaviruses is developing as we speak, with a – you also need to look at it, they don’t able to get visibility of what the situation on the ground is with respect to not just the demand, but also the extended supply chain. And that is something that we need to keep a close watch on.Next week should be better in terms of information as people come back gradually from their Chinese New Year. India, of course, a sharp economic slowdown and the turnaround is something that we are seeing on that front. In that context, I think there's no – broadly no change to the outlook that we have put out there, where for JLR, we are looking at an EBIT of around 3% for the year. And of course, the coronavirus is something that we could have some impact, we need to watch that.And of course, the delivery of charge plus of 1.1 billion going forward is something is a free power for that business, apart from, of course, the traditional launching of exciting products and the cash flow. Tata Motors, I think, the medium to long-term plan, the fact that now sequentially, they're starting to see improvement. We are reassured but of course, the key one is the immediate term, what happens to the market demand, post BSVI migration. For the next six months, we do expect to be in a fluid situation, and let's see that after what happens.So with that, let me stop. And if I go to the next slide, these are the two critical dates where we expect to see you in person. Tata Motors India would have on 12 June in India and JLR 18 June in the UK and look forward to seeing you there.So let me hand you over back to Q&A.

[Operator:]

Thank you very much, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Yogesh Aggarwal from HSBC. Please go ahead.

[Yogesh Aggarwal:]

Yes, hi. Couple of questions for me. Just related to JLR, it seems the input target in Europe has further – I mean, it has changed – I thought it used to be 132 grams for 2021. And it has now changed to 156. So has there been any change in the way the portfolio has so the requirement is different. And then related to that, this year, see, there is a feeling that some of the OEMs will defocus on the larger vehicles to achieve the CO2 requirement, and you guys need to be comfortable? Is there a scope to gain some market share in the larger SUV space in Europe? And then lastly, anything on I-PACE, seems like numbers are not ticking up either in U.S. or in China, so anything around I-PACE? And how do you see I-PACE ramping?

[P B Balaji:]

Adrian, you want to take that?

[Adrian Mardell:]

Yes, certainly I’ll take that, let me start off with the last one, if you wouldn’t mind. So I-PACE volumes are very sensitive to incentives within government, you’ve seen that particularly within this quarter versus the prior year, Netherlands, particularly Netherlands is actually in the quarter are 1000 units lower in the same quarter last year is benefitting, from 4% to 13% in January 2019. So that's a really large illustration of the marketplace is currently thinking about our I-PACE.And there are of course benefits in current changes, which are going to actually kick-in in April this year in the UK. And we expect our UK volumes off the back of that to increase. Now in terms of the targets that we actually have set, we know we've talked to you before about the actual target setting regime having changed.So we are actually showing it here versus the 156W LTP level in 2021 calendar year, we think we'll be compliant against that. But the big point here is it really does depend on the acceptance of the customer with the product that we have made available. We've also shown on this page, all of the actions we're taking on whole portfolio to make electrification available to all of our customers and potential customers from M&HCV.And if you remember, we showed last time M&HCV itself drives the 12% reduced CO2 level to a PHEV. And if you remember from the last time, a PHEV will drive a 70% reduction in the CO2 level. And of course the BEV is a 100% reduction.So the vehicles are available for the customers to buy. The incentivization really does drive that tipping point of excess demand. We are expecting improvements in the UK market going forward from April. And you can see there on the pages, there's a huge amount of other activities happening with our engineering factories with smaller, smaller ICE engines of the MLA platform being using lighter weight materials. And several other things allow thousands of engineers are working on.I think the big unknown over the next 12 months really will be the acceptance of not only the I-PACE which you asked about, but the other PHEVs that we bring in place. Don't forget the Discovery Sport gets a PHEV in the first quarter of next fiscal year, that is our biggest selling product. So the response from the consumers and customers to Discovery Sport will be huge in terms of our position over the course of the next 12 months, but the cars are available.Could you repeat your middle question if you wouldn't mind, please?

[Yogesh Aggarwal:]

So I was wondering, there are two things happening. There are some launches like X7, Q8 in the larger SUV space, but there is a thought process that to achieve, that’s easier to target. Some of the OEs will be focused on the larger SUV. This kind of give you guys an opportunity to gain some share, at least for the top end Range Rover. So is this something you are looking at?

[Adrian Mardell:]

We're balancing out the optimized position for profitability and be in compliance. So where we can actually drive more vehicles at the higher end of our range, Charge+ actually has specific work streams around that. So we will certainly be looking to do that. When you look at our higher end, we have – and of course, they have PHEV offerings within them as well of course, right? When you look at our high end vehicles and the performance, Range Rover Sport, even though it's in year seven is actually higher versus the same quarter last year. And Range Rover's a bit lower, and the overwhelm is a result of the issues that the world has in the Middle East.So both of those cars are selling extremely well and we expect them to do so over the course of the next 12 months. Our care point around how many PHEVs actually gets sold. That was as high as 20% over the last few months. So we are hopeful we continue to drive high-valued margin vehicles, which have PHEVs in them as well.

[Yogesh Aggarwal:]

Thank you so much.

[Adrian Mardell:]

Thank you.

[Operator:]

Thank you. The next question is from the line of Pramod Amthe from CGS-CIMB. Please go ahead.

[Pramod Amthe:]

Yes. Hi. This is with regard to your Charge+ program, where you seems to have taken up there as your target. And of which nearly 35%, 40% is front loaded in this quarter. Is it because of the low-hanging fruit? Or you guys started working on it much earlier in the course? And why it gives you so much of confidence?

[Adrian Mardell:]

Yes. There’s two or three things specific to quarter four. Most of them are continuation of programs. So there may be a little bit more investment, not very much, but the material cost, most of our settlements actually happened in the final quarter of the year and which we're now in the final quarter. So I'd expect a bigger proportion of the sales actually being on the material cost program. And you've seen for the last two to three quarters, we've had really strong performance on structural cost reductions as well and we expect that to continue. So we will definitely have a fast start to the $1.1 billion in quarter four, and we would just have been helpful by breaking that out for you.

[Pramod Amthe:]

And the second one is with regard to Defender. You did try to give some indications on the same, but can you give us some color in terms of what type of capacity headroom you’ll have, as you indicated you guys are surprised by the initial response? And what potential it was in your portfolio in terms of proportion of mix it can bring in?

[Adrian Mardell:]

Yes. I won't give you any detailed numbers. I'll simply say, at this point, bearing in mind, we haven't confirmed sales dates. We have more than a three-month order book. And that's pretty neat at this point in time. So let's see how the next three months go. We'll be able to confirm when we next talk formally that the vehicle is now on sale. And I’ll be in a much better position to ask those specific questions. I mean, broadly speaking, the first sales of any vehicle is always very rich. Because most of the people like the new vehicle, specify them very highly. So I wouldn't want to mislead you and give you the data that we have in front of us.

[Pramod Amthe:]

Thanks.

[Adrian Mardell:]

Thank you.

[Operator:]

Thank you. The next question is from the line of Robin Zhu from Bernstein. Please go ahead.

[Robin Zhu:]

Thanks, guys. Two questions please. One in terms of the variable material cost savings that you pointed to as part of Charge +. Just wanted to understand the drivers of this? Is this something that is dependent on – are you guys giving the supplies more volume? Is it something associated with higher MLA volumes and the components of the new platform have lower cost? Is it simply that you've got better pricing like-for-like from the same suppliers. Some color on that would be helpful.Second question, could you quantify what warranty costs were during Q3. And then Balaji, when you and I spoke a few months ago, you had indicated that you weren't confident to guide a range lower than 4% to 6%. So, just wanted to get your latest thoughts on where are we in that process? Are you still thinking to the 4% to 6%? Or are we close it to potentially going lower? Thank you.

[Adrian Mardell:]

Let me take the first couple of questions, as you asked, Robin. So variable material cost I would actually point to the difference that the Charge program has brought. Don't forget what we're doing with this program, we're wrapping all of our specialist teams around a host function. So all of our analytics teams, our ability to really analyze and truly have data in front of us, which enables us to what we would suggest to claim an appropriate level of savings from the supplier. And it's broadly over the course of this year versus last year, driven, I think, by the time we're done up to 100 million extra cost savings.Most of those settlements actually will be closed over the next three months, a third of them have been closed in January. Yes, from time to time, there are MLA or any other future products used as leverage, of course, the next one is at from our MLA mid and high volumes, but it isn't really the overwhelming substantive piece of the negotiating settlement, most of them is the forensic analysis that we have actually been able to do.Warranty costs, warranty costs as a percentage of revenue was pretty much smack on what we were saying as underlying anyway, pretty much smack on what we're indicating last time. It was about 4%. However, one of the impacts we had here as a result of the appreciation of sterling is the warranty liabilities actually reduced like-for-like. And therefore, the optical number you'll see in warranty is a little bit lower, I think, 3.4% of revenue. But that the underlying has stood at that 4% level, which was the range I indicated to you about six months ago.

[P B Balaji:]

Robin, can you just repeat your question that you had, I lost you in between.

[Robin Zhu:]

Yes, so I think one of the times we spoke, you had said that you wanted to guide 4% to 6% for warranty costs. And you weren’t – you didn't want to disappoint the market by guiding lower because there were still, I guess, the potential for surprises every now and then. Is that still the case? Are you still – is the potential for surprise still there. How close do you think the company is to saying, okay, 4% to 6% is far too higher a range and we can start to go lower.

[Adrian Mardell:]

I think I mentioned that you may have followed with Balaji, but I think I mentioned that in pretty much the first call I did in July, 4% to 6% was mentioned at that point in time because the first quarter was at the 6% level. And I think I attempted to say there's a band here. Underlying performance, my expectation will be closer to 4%. However, we've also signaled, we will do the right thing. And therefore, recourse come along, we’ll call them as soon we need to. And if there's opportunities to do campaigns customer care campaigns as we did in quarter one, which we feel ultimately will be a payback for the organization. We will take those as well over the course of the last six months, neither of those two items have actually happened.Underlying over that period has been at the 4% level. We obviously are working tremendously hard in several areas, including to improve the efficiency and the capability, the engineering factory. We track all the early data to see that. There are very small signs of improvement, but it's far too early for us to show them in the financial results. We have our rules in the road for warranty, which was set eight years ago, will continue because it enables individual vehicles to mature before we actually show the individual performance. We come off the back of disappointing launches on 2018 and 2019 model years. And we are determined to make sure we get Defender right, which is why we're continuing to work on that product.We're continuing to hold it and give a release date for the spring because we want to make sure it's released to the marketplace when it's ready. So everything we're doing is attempting to approve the immediate quality to performance and accelerate it there to improve it with a new vehicle quality. So I will continue to say 4% to 6%, only because it gives us the capability to do the right thing at the right time. But over the last two to three quarters underlying have been close to 4%.

[Robin Zhu:]

Understood. If I may, it sounded like from what you said on variable material costs. But most of the savings were achieved through your forensic analysis, but essentially getting better like-for-like pricing from same suppliers. Is that – would you say that's correct?

[Adrian Mardell:]

Yes, there is so many things that go into that line item, as I'm sure you know. But what we try and do here, we try and pull out the non-variables like commodities and such. And yes, like-to-like pricing has actually reduced from a number of our suppliers.

[Robin Zhu:]

Understood that is helpful. Thank you.

[Operator:]

Thank you. The next question is from the line of Kapil Singh from Nomura Securities. Please go ahead.

[Kapil Singh:]

Hi sir, thanks for the opportunity. One question, firstly on the financials. We've seen a bit of volatility in the raw material to sales ratio. Last quarter, we saw a big improvement. And then this quarter, there's been a sharp increase. So, what is the key reason for this? And also, if you can explain on the depreciation charge, which has seen a sharp drop.

[P B Balaji:]

The question is referring to consolidated numbers.

[Kapil Singh:]

For Jaguar and Land Rover.

[Adrian Mardell:]

Well, okay. So raw materials to sales. It encompasses pieces that I've just mentioned, but there are several other elements in there. There were increases in commodity costs in the quarter. I think [PGMs] increased by about 9% clearly determent on the mix of vehicles we sell, the derivatives of vehicles we sell and where we actually sell them within. We did have a rich sales mix profile in the quarter, which generally means the material cost pieces increase also and as well. So there are numerous factors that are involved here. What we attempt to do within the analysis is work. And of course, exchange rates is a huge factor, particularly movements on the euro as well because we buy a lot of our parts from Europe. What we intend to do with the analysis for you is draw out all the things and then consolidate it down to what we would consider to be the performance driven items, which is really back to the distributor [Foreign Language]So, what I tend to do is make sure we point to the actual underlying pieces, which I think are the ones that will determine performance going forward. Hence, the previous discussion about our efforts to reduce like-for-like material costs with suppliers, which we just had with Robert.

[Kapil Singh:]

Okay. And the depreciation charge is also seeing a drop? Any color there? How it will shape up with the Defender launch?

[Adrian Mardell:]

Yes. Well, the Defender launch, obviously, from job 1, which was on the 8th of January, we start to increase the depreciation charges. They will increase in this quarter you are in. And going forward, that product, we are convinced is going to be successful. So the overall product will return to the bottom line even after increases in investment costs.

[Kapil Singh:]

Okay. And just one more. I wanted to check on the product launch side, how many new products are we looking at over the next two to three years on both the Jaguar and Land Rover brand. Whether it's a full model changeover or are a completely new brand?

[Adrian Mardell:]

I won't give you numbers of models. But our cadence still continues to be that seven or eight year replacement cycle. And there are likely to be two all new products on top of that, one of each.

[Guenter Butschek:]

With a mid-cycle refresh in-between.

[Adrian Mardell:]

Yes. So there is a lot of activity, when you go into the presentation.

[Kapil Singh:]

Is it Jaguar or Land Rover?

[Adrian Mardell:]

Both, when you go into the presentation, you'll see the immediate one there, even the F type, which I could have excluded from that discussion. We've done a super new launch on the Jaguar F type it goes on sale later this quarter. And of course, we’ve talked about the Defender already.

[Kapil Singh:]

Thank you, and I wish you all the best.

[Adrian Mardell:]

Thank you so much. Thank you.

[Operator:]

Thank you. The next question is from the line of Sonal Gupta from UBS Securities. Please go ahead.

[Sonal Gupta:]

Good evening. Thanks for taking my question. Two questions from my side, one on – starting off with the Jaguar Land Rover question. I mean, like on the – basically, as you've overachieved on these targets in charge, but you've sort of underachieved on the cost and profits, the operating costs, why I'm stressing on that basically from the cost structure side, I mean, the improvement is probably still not that high. So I just want to understand, like, I mean, like, are there – I mean, I know you're continuing with that and sort of going to improve further, but still – I mean, like, are we seeing any room for – I mean, like – I mean, the focus of charge levels seems to be more variable. I mean, on the fixed cost side, do we see room to cut costs more. I mean, we've seen, again, the employee cost has sequentially increased. So I just want to understand how much of fixed cost reduction do we expect going forward?

[Adrian Mardell:]

Well, let me correct it for the first point you made, if you don't mind. Let me correct the first point, if you don't mind. We haven’t yet missed any of the targets on the Charge or the Charge + program. We did say we would deliver GBP 1 billion profit improvement through to March 2020, where it's $700 million after the first four quarters of that. You can see for the last two quarters, at least, we delivered GBP 200 million a quarter. That gets you very close to that number to material cost already.So we haven't yet given up on the GBP 1 billion target we set, although we have rolled the targets for another 12 months beyond that. As far as structural costs are concerned, they are GBP 200 million a quarter lower than the same quarter last year. That's pretty neat, we think. And yes, we continue to ensure that we don't add cost where we don't need to. And we continue to take actions where we still have inefficiencies within our operations.And you will start to hear some more of those going forward when we're at point two. So I think we're doing a pretty neat job. There's always more you can do. We're trying to balance the cost structure and our ability to ensure that we can take revenue growth opportunities also. And that's what we package really uniquely within the Charge + program. And I think when we talk in May time, you'll get a much better sense of follow-up to your first question. And how much we expect the proportion to that new program to start showing value in 2021 fiscal year.

[P B Balaji:]

Sonal, just give me a minute, just to add to that, to put in perspective the way you've gone about doing Charge, we went after cash first and then we went after the fixed cost structures. And now we realize it's an area where there's always the opportunities to improve. I'm not debating that. But I think there's a bigger price to be had with respect to variable cost, end of period we had to decide where to focus our people and efforts on. So we are now moving on those areas where variable costs can be – should be focused and taken out.And that will then give you an overall breakeven that will start coming down. You need to work on both the numerator and the denominator, if you were to get the breakevens down. So that's how the sequencing has been done in line with the kind of issues we had a year back on cash and operating leverage. Now we are saying, that is not the main issue now. We only need to start looking at other side of it. It's just a calibration as such.

[Sonal Gupta:]

Just a follow-up on that, I mean the recent news flow around 500 reduction in Hayward. That's part of the existing employee reduction, right? That's not a fresh thing.

[Adrian Mardell:]

I mean, individual programs we announced when they are ready. So the 500 people who will be leaving our Hayward facilities in April. It's an efficiency program. We're going to speed up the line. Therefore, we need fewer people. We're going to invest up to GBP 5 million to break bottlenecks on the line as a super payback. It's a similar – as I've just said, it's a great illustration available to continue to take the opportunities as they arise to become more efficient.

[Sonal Gupta:]

And my second question is on India. Basically, what I'm confused about a little bit is that the realization per unit is trough like 12% quarter on quarter, even though I don’t really see a mix change being that sharp, right? So MSC, I understand is slightly lower. And exports is the main one, which has gone lower. So I just want to understand if there's something getting knocked out of the top line itself, which is sort of pushing the ASPs lower elaborate.

[P B Balaji:]

I think the main one that we have called out is the increase in DME that you see in the quarter-on-quarter number that is there. You will notice that there is a pricing that has got impacted because of the higher VME as a clear out the BS4 inventory and its entirety. The earlier we do it the low the cost, and the later we do higher it is. And that's the reason your realization are down. And hence, you will see the challenge there.

[Sonal Gupta:]

And sorry, the 340 crores, the sales tax, where is that sort of getting?

[P B Balaji:]

That’s in that's in the other cost items. So, other expenses.

[Sonal Gupta:]

Thanks a lot.

[P B Balaji:]

Yes, thanks.

[Operator:]

Thank you. The next question is from the line of Ashwani Kumar from Nippon India Mutual Funds. Please go ahead.

[Ashwani Kumar:]

Good evening, Mr. Adrian, my questions was what is the progress in China if you could spare few minutes describing how you are doing in China? And how is the strategy playing in China on cost improvement, quality improvements and the reach?

[Adrian Mardell:]

Let me reference the JV, as I answer this initially, we can talk about the import business, if you wish. So we're still afterwards as well. So just a reminder to everybody, four out of our five nameplates within the JV are being refreshed between August last year and June this year. You start to see within this quarter's results, the first full quarter of the new Evoque. And you know our marketing support on Evoque dropped by a third in the quarter, so that's encouraging. By far, the biggest impact in the JV over that period of time will be the new Discovery Sport, Discovery Sport due to go on sale on the 20th of February. It's half volume for the CJLR business goes on sale on the 20th of February. Of course, with the sad events in China at the moment, that launch will be impacted. We're thinking about doing as a virtual online launch rather than a physical presentation which we normally do, but that decision has yet not been finally made. The virus will certainly impact Q4 results to what extent we'll know over the coming weeks.So the base business is getting stronger as fresh product comes in place, you would expect that. We're targeting the operation to improve again in the quarter we're in. Of course, the virus may impact but if not, in the following quarter, so I'm expecting the CJLR performance to be stronger, particularly as that Discovery Sport product hits the marketplace later in the year. You know we talked last time about agreeing with the dealers that we would support the older product until that flushed through. Discovery Sport has been selling really well actually in CJLR but it has an expensive discounting around it. Our strategy is to clear the old product while we get the new one. And that strategy was working perfectly well through to the third week in January.In fact, our sales in China for the first week in January, both CJLR import were a little bit stronger than we were expecting, of course, as mentioned, two or three times already, that improve put on hold.My recommendation will be to judge the first quarter of our fiscal year next year, when you will see – we all hope the improvements that we're expecting through the Discovery Sport, how momentum is built on the Evoque and then also, we have the excess loan coming XF coming along at the end of that quarter, that will be a smaller product launch for us.So getting better, not where we wanted to be. We're very aligned with our partners about what success looks like. And we'll be measuring that success on a quarter-by-quarter basis with an improving profile.Import business was stronger, as you would have seen from the data, the big metal was stronger in quarter three. So the Range Rovers SUV 5s, so we had a nice quarter for our China import business and the comments regarding this quarter would continue for China import as well.

[Ashwani Kumar:]

And sir what is the single most factor, which is required for you to close the gap with the leaders in China. Finally, also in light of Tesla's, let's say, opening factory there and starting to produce electric vehicles.

[Adrian Mardell:]

Well, you know with different models to Tesla in China. We don't have electric vehicle produced locally and their electric profile is very, very different to our electric profile, as you would know, also, of course. So our model is still overwhelmingly an import business, which has most of its product to be PHEVs, mild hybrid, and ICE engines at the minute, it's a lower volume, higher-margin business model, as you would also know. And we're not too worried about what Tesla does, actually, we're worried about being very, very focused on the fundamentals of our business. We've talked to you about those fundamentals on several occasions.Making sure that the dealers are meeting their sales profiles locally, they did even stronger than that in quarter three, but we didn't tell you because we've already beaten those targets we set, making sure the dealers return to profitability. So they were profitable in quarter three. Again, we didn't show you that because we told you that previous quarter. Making sure inventory was lighter and they’ve already achieved in a bit stronger on our inventory targets. So again, we didn't show you that because this is just a continuation of what we did in Q2 continue going forward. Let us get through Q4 and see what happens in China. And then if you wish for more information, we can start to show you more.

[Sonal Gupta:]

Thank you very much.

[Adrian Mardell:]

Thank you.

[Operator:]

Thank you. The next question is from the line of Chirag Shah from Edelweiss. Please go ahead.

[Chirag Shah:]

Thanks for the opportunity. So my first question is on India business. Two things, one what is the normalized margin for the business? And related point that I observe is to improve the cash flow, we are compromising on profitability. Is it the right analysis? So if you can just help us understand what is the normalized business because there was inventory clearance and there were certain one-offs. So going ahead, how do we look at the margins in the India business?

[P B Balaji:]

We have talked about, we have put out a margin plan out there, and we also stated that we are quite confident in the medium to long-term situation there. And as far as the current situation is concerned, yes, there is an inventory correction, which you've called out and quantified it as well. And at the same time, we are also seeing a lot of operating leverage because of the volumes, particularly in the medium and heavy commercial vehicles. We see margins starting to normalize. The day eminent series starts lifting back to its normative level. And we would love to see that come sooner rather than later. As far as I'm not able to understand your question on working capital versus profitability. If you -- the question is you're asking me that have we extended creditors and accordingly paying more -- I mean, paying cost for it. The answer is a categorical, no. And you would notice that every line item of the working capital is being worked, be it inventory, be it receivables, be it payables, all three. And that's how we would want to tighten the game plan there.

[Chirag Shah:]

So what I was referring to is your balance sheet and cash flow improvement seems to be far superior than your profitability performance in this quarter across businesses. So how should we look at the fine balance between the two going ahead?

[P B Balaji:]

Yes. If I draw your attention to Slide 13, which basically has the free cash flows for the quarter. You would recollect that this shows the working capital as one line that actually went out of back in the first quarter. As we said that we did earn in saying that we couldn't anticipate the size of the market drop that happened. We just couldn't take it and therefore, we were slow. And we started correcting it from July onwards. And you see an improvement that happened in July last quarter and it is now got secured.So I would not, on a full year basis, the working capital number should normalized to zero, I’m not expecting dramatic shifts either increase or decrease don’t hold me to the last one digit, but broadly, it needs to be stable, because you’re quite all right on the working capital side. It is a error in judging the market in the first quarter is where the working capital went out of control.So if you keep the working capital line of sight and because cash profit after tax and then compare that to the investment. Our challenge has been on the cash profit after tax because of loss of operating, everything that we talked about earlier. So as we go forward, I think I'm expecting the inventory corrections to more or less player bottom-up in Q4. And thereafter, the buildup of inventory in the dealer end will have to start and that then means you will have situations when our wholesale will be higher than retail, which is perfectly fine, building back the stock levels there. But that can't go way out of whack and it needs to be normatively done.And then you’ll see the business starting to build that momentum. But all this depends on how strong the retail growth is, and that is where the expectation that with the investment in infrastructure with the government has talked about. And of course, the GDP is starting to pick up, we should start seeing it. And the day that starts moving, when you'll start the whole thing coming back to what it was. We have around two years, this business has run in terms of getting back, it's probably take the senior business, an EBITDA of 11.5%, it was stable EBITDA that was there for many, many quarters.And therefore, that seems like a sensible number for this particular business. And PV, we are on our journey of building back the EBITDA to breakeven, which we've delivered for a year. And we're now starting to come back again and get closer to that, and I've said explicitly that we would want get ahead of that and get to an EBIT breakeven and PBT breakeven. That is the journey that we are on to and we should get back to that journey, we've already seen that sequentially improving this quarter, and we intend to keep it that way as we go forward.

[Chirag Shah:]

And my second question is on the charge last part. So why only $700 million of improvement targeted because of where you have indicated on various aspects that you are looking at, there seems to be a much bigger opportunity on the charge plus for 2021. So can you just highlight how and why only a particular number rather than a guidance of 700-plus million kind of a number?

[Adrian Mardell:]

Yes, sure. Well, we're working on the basis that in almost all of that number next year would actually come from EBIT improvement. So we don't expect to significantly outperform investment and our inventory. We think we're at the levels where we need to be on those areas at this point in time. We will continue with them to ensure that the disciplines are enforced within the organization. Because all turnaround programs have to be sustainable, and they become sustainable by making sure that the people doing the day jobs do it for a living, and that's why they're mostly in the program, the rules that we have in place for those who will stay but the level and scale of opportunity on those areas is much, much lower in FY 2021.So it's overwhelming, we've been targeted towards EBIT value generation, material cost reduction. And again, within three months' time, we're now a little bit more. And then three months after that a little bit more than that. I can assure you if there's more value in those hills, we will go get it.

[Chirag Shah:]

Yes. And one last housekeeping question, if I can just ask. Is it that JLR has reported a negative tax for this quarter, because the PAT number seems to be higher than PBT number? So if you can just explain on how should we look at going ahead? As a…

[Adrian Mardell:]

Okay. So we did actually get a catch-up in the quarter for the recognition of the deferred tax asset, which hadn't been in place for the previous two quarters. So I think it's probably better for you to look at the year-to-date data, in terms of the normalized level of tax we should expect going forward. There's a one-off catch up for the previous humans. Of course, that's a good sign. Right? That really is a good sign in terms of the growing confidence of the underlying physicals and the performance of the organization. But it's binaries one-off, it's catch-up for the first six months of the year as well as the quarter. Let me encourage you to look at the nine months rather than the quarter result in tax.

[Chirag Shah:]

And normalized is around 25% as the tax rate is the right number to look at around that reach or it's a lower number.

[Adrian Mardell:]

It's a little bit lower than I would suggest. When you go through the detail of it, there's actually – there's more considerations and you’d imagine, but broadly speaking, lower than 25%, probably closer to 20% is a normalized – and if it's not at that level, something else it'd likely happened. It really depends where we make our profits within a given quarter, of course.

[Chirag Shah:]

Yes. Thank you and all the best.

[Guenter Butschek:]

Thank you.

[Operator:]

Thank you. The next question is from the line of Nilanjan Gupta from [indiscernible]. Please go ahead.

[Unidentified Analyst:]

Hello. I have just two questions. What is the view of the company in the Indian luxury car market, as it still largely dominated by the Mercedes and the Audi?

[P B Balaji:]

Sir can you repeat, there is a lot of noise on the line.

[Unidentified Analyst:]

Yes. I just wanted to know, what is the view of the company on the Indian luxury car market, as it still largely dominated by Mercedes and Audi?

[P B Balaji:]

Adrian, would you want to pick it up, or would you want me to pick it up? Happy to do that.

[Adrian Mardell:]

Welcome.

[P B Balaji:]

Yes. Right now we are number three in the market and we sell 5,000 odd cars in this market on Gravitas side. And it is a business that has been doing well. Just for your information, we just launched the EVoK today in India. And therefore it’s a business that we continue to invest and we have our own manufacturing setup here, we also have our own engine manufacturing setup here. So it’s an exciting market that we have out here.Having said that, this market has well struggled in the last one year in terms of growth rate similar to the rest of the passenger vehicle market. And overall market size is about 40 odd thousand vehicles and there it is. And has not been a dramatically growing unlike what you would like to see in China for instance. So that is a disappoint in terms of the potential of this market. But I think all OEMs, premium OEMs have a play here and consciously focusing on this particular market. And we believe that we have done a pretty decent job in terms of almost being shared with what we have, we operate under and intend to continue to work our way and keep improving that way.

[Unidentified Analyst:]

Okay. Thank you. And my second question is, as the shift is happening towards the electronic vehicles front what is the – and Tata just launched the Nexon EV. What is the number the company is targeting?

[P B Balaji:]

We don’t give numbers in terms of the target for the line items that needed to be given it in the wall, but it is more brokerage broader, the higher the market is what we want to do. But the potential of the market and how we are seeing it, let me probably hand it over to Shailesh.

[Shailesh Chandra:]

Yes. If you really see Nexon EV, there are a lot of profit kinds. Personal segment EV product, which is the first time broadened at very close to what an IC counter part is. So far the references that we had in the past was product Ertiga EV or Mahindra eVerito, which was absolutely directed to a different segment, which is a key segment. Then you have cars, which were launched by a few other players, which were mainly CKD operations and were priced very high at Rs. 25 lakh. And we know the demand references here, but absolutely, we have no clue in terms of what can be the potential of demand as far as this racial is concerned, although we have taken some reference of course.But this is first – next two month is going to be a demand discovery phase for us. And then it will be clear what should be the potential of this product. But if I have to take any reference, for example, we would take the reference in the CV segment, which is Compact SUV segment. All those automatic transmission cars, which are being sold will be a volume reference, and we would like to certain share of that. That's how we are approaching this demand estimation, I would say.But I think in the next two months, we'll be clear in terms of what will be the response. But so far, the bookings have been pretty strong, much more than what we had expected. And we'll be rather focusing on how to ensure that we are able to meet the demand, both on the supply side. Of course, we have one challenge definitely in front of us is the China situation. So that's the response to your question.

[Unidentified Analyst:]

Okay. Thanks a lot. All the best.

[Operator:]

Thank you. Ladies and gentlemen, we take the last question from the line of Prateek Poddar from Nippon India Mutual Fund. Please go ahead.

[Prateek Poddar:]

Hi. Sir, just a couple of questions on the CV side. One is, could you just talk about these inquiries, which you are seeing, are they in the [indiscernible]segment or the tipper segment? That's question number one. Second is in terms of conversion. Are we also seeing similar conversion in the sense, increase in conversion rate or that is not happening? If not, why? And third would be, any thoughts on the scrappage?

[P B Balaji:]

Girish, do you want to take that?

[Girish Wagh:]

So I think the inquiries that we are seeing are in both cargo as well as tipper and both are for different reasons. I think [indiscernible], because there are a few projects which have started on the payments have also started happening to some of the existing projects, and the tipper demand has come back. But it is also an annual phenomenon that post monsoon, and last year monsoons actually got delayed. And I think once the monsoons were over, the tipper inquiry started and that's what we saw as an upside. In terms of cargo, essentially, the inquiries are coming from the fleet owners, the large fleet owners, medium fleet owners and essentially for replacement of their old of BSIII vehicles, which we will give them better economic, it makes a lot of economic sense for them because the BSIV vehicles have better TCO as compared to BSIII. So that's where we are getting demand from – in the cargo segment. I think there is not much demand, which is coming from the retail segment. And in retail segment is not as point as one – as you see in the large fleet owner segment, which is essentially for replacement.In terms of convergence, I think – as I said, during our last call also that customer, they are waiting for – trying to see, if they can get better deals, but with the demand/supply imbalance having changed now, essentially because of the reduction in the stock, I think the realizations are also firming up and they’re realizing. And we’re also seeing the convergence happening during the month and not essentially during the latter half of the, or last week of the month.So this is what is the status, but I think overall volumes in the sense, I think what we've seen in the last quarter is, November was a growth over October, and December was further growth over November, so there was a sequential month-over-month growth in M&HCV. I think it will be key to see, if this particular month, but of course, this quarter is going to be a very unique one in the sense that towards the end of the quarter, we will see tapering or in fact reduction of retail, essentially, because the main reason is the run out of the stock. So that's what we are in terms of the commercial vehicle.

[Prateek Poddar:]

Okay. And sir, sorry, just if I may squeeze in one more question, and correct me, if I'm wrong, when we launched Harrier, Harrier did not have an automatic option and we saw substantial bookings. I mean, fasten the bookings, I mean the bookings were withdrawn. This time also Altroz is launched without the automatic version, any specific reason for that? I'm sorry. It’s a very specific question. But you choose to it answer.

[P B Balaji:]

Let it be specific and the answer is also going to be specific. As long as, the Harrier is concerned, I don't like to make any pre-announcement to what is going to be the presented next week in the Auto Expo. But pleased to see, with us and we will actually see that, we’ll deliver on our commitment that enhancement of the product is going to be part of an active lifecycle management of the products. So therefore, there will be a Harrier and we will actually see, that is Harrier actually takes all of the boxes in terms of the capital refresh raised at the point of the launch.Second one, we needed, to Altroz, same commitment. There's an active lifecycle management, because of the concentration that we actually had to convert the entire range of product from previously BSIV. Now, as of the first of April, so we have actively launched on the 22nd of Jan, to BSVI. We had to actually strike a balance between our capacities for all of the required calibration activities to be performed, and what to launch in the first instance, as one of these balances to be taken. Altroz will actually seen its manual transmission at the launch, it follows shortly after by an automatic transmission in order to complete the product family and meeting the customers’ expectations.Why is it that we have taken this call, for the reason, we mentioned. But also for the reason, that in the segment, the Altroz is completing the current equipment of the option of an automatic transmission maybe CVT or DCT, as that the tendency of 12% to 16%, where we said that's a reason that the percentage of option taken, which allows us to actually stretch the launch of the different variant over a couple of month.

[Prateek Poddar:]

Sure. Got it. Thanks.

[Operator:]

Ladies and gentlemen, that was the last question. I’ll now hand the conference over to the management for closing comments.

[P B Balaji:]

Yes. Thanks a lot all of you for your patience and listening to the call. Look forward to catching up in person or at the Auto Expo, which I would really love to see you there, and of course, the Investor Day that's coming up on June 12 and June 18, and of course, catch you in the next quarter call as well. Thank you.

[Operator:]

Thank you very much, sir. Ladies and gentleman, on behalf of Emkay Global Financial Services, that concludes this conference. Thank you for joining us. And you may now disconnect your lines.