Tata Motors Limited
Q1 2014 Earnings Call Transcript

Published: 7 Aug 2013

[Operator:]

Ladies and gentlemen, good day, and welcome to Tata Motors Q1 FY '14 Earnings Conference Call, hosted by Standard Chartered Securities. [Operator Instructions] Please note that this conference is being recorded. I would now like to hand the conference over to Mr. [indiscernible] from Standard Chartered Securities. Thank you, and over to you, sir.

[Unknown Executive:]

Thank you, Mosim. 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, the CFO of Tata Motors; and the Investor Relations team. I would now request Mr. Ramakrishnan to begin with his initial remarks on the results and then we can begin the question-and-answer session. Over to you, sir.

[C. Ramakrishnan:]

Thank you, [indiscernible]. Good morning, good afternoon, good evening, whatever, to all of you. Sorry for the delay in starting the call as we were coming for the call from different places, we were stuck in different parts. My apologies for the delay. I'm going to make the opening remarks very, very brief and maybe leave more time for the Q&A to follow. We announced, a short while ago, the first quarter April to June results for financial year '14 -- '13, '14. On a consolidated basis, Tata Motors' net revenue stood at INR 46,785 crores, up from INR 43,000 crores in the same quarter last year. On a consolidated basis EBITDA margin came in at 14.4, same level as last year, and profit after tax of INR 1,700 crores. A good part of the performance and the results at the consolidated level was driven by a very -- one more successful performance and financial performance and results by Jaguar Land Rover. Tata Motors, standalone, the net revenue was down at INR 9,100 crores compared to INR 10,500 crores in the same period last year. EBITDA margin further dipped to 2.3% EBITDA margin, compared to 7.3% a year ago. Profit after tax came in for this quarter at INR 700 crores, but that is after considering dividend from subsidiaries, particularly Jaguar Land Rover, of over INR 1,500 crores. A weak macroeconomic environment in India affecting the overall demand for both CV and PV businesses, competitive pressures and lower net realization affected our margins and performance significantly in this quarter. Jaguar Land Rover, under IFRS accounting, the net revenue was at GBP 4 billion, up from GBP 3.7 billion same quarter last year. EBITDA margin came in strong at 16.5 for this quarter compared to 14.5 1 year ago, and profit after tax was GBP 304 million compared to GBP 236 million last quarter -- last year first quarter. Higher volumes in Jaguar Land Rover, a richer product mix and a favorable exchange rate resulted in very strong both operating performance and financial margins. Overall, at the consolidated level, our net automotive debt to equity stood at 0.31%. Tata Motors was higher at 0.81% and Jaguar Land Rover net debt to equity was -- net debt was negative, offset by strong cash on the balance sheet. We continue to invest in both the businesses and product capital expenditure, and product development, both in the India business. We have given guidance of about INR 3,000 crores on an average, annually, continues to hold, we'll continues continue to invest in our newer products variants, both in commercial vehicles and passenger vehicles. In passenger vehicles, number of actions have been initiated for [indiscernible] the product profile going forward. We launched a Horizonnext [indiscernible] branded program in Tata Motors for improving the product presence in the marketplace, with the customer experience, manufacturing processes and after-sales service. In Jaguar Land Rover, again, we had given indication of GBP 2.75 billion annually in terms of product development CapEx. That will continue. A focus on newer product introduction. The newer products we introduced last year, the new Range Rover, Jaguar XF, [indiscernible], Jaguar F-TYPE are doing well, well received in the market, and Range Rover Sport will be launched shortly. I'll stop here and maybe give more time for question and answers. I'll throw the line open for questions now.

[Operator:]

[Operator Instructions] The first question is from the line of Yashesh Mukhi from Morgan Stanley.

[Binay Singh:]

This is Binay from Morgan Stanley. I had two questions on JLR. Firstly, there's been a lot of news flow on inventory piling up in China. Could you throw some light on that? Continuing with the same, how are you seeing discount trends in Jaguar portfolio, specifically, across regions? How do you see the reception of the new Jaguars now, across regions? And lastly, we do note that FCF profile of Jaguar has slightly slipped on a quarter-on-quarter basis. Could you throw some light as to what drove that?

[C. Ramakrishnan:]

Okay. The first question was on the inventories and pile-up in China, as you called it. We haven't seen the trend in our business, it's not a correct statement as far as JLR is concerned. Many of our product line continues to be on a pull mode, overall, and in China, without referring, specifically, to the discounts that you mentioned in the second question. Variable marketing expenses, in total, have been going up, but we aren't seeing any alarming or significant increase there, or bloating there, in any other markets. But, generally, the trend has been on the increase, since the low levels we saw maybe about 6 quarters ago. Last, if I got correctly, your last question was on free cash flow, was it?

[Binay Singh:]

Yes, yes.

[C. Ramakrishnan:]

Jaguar Land Rover, as I said earlier, is spending and investing a lot in the product development and capital expenditure. The free cash flow for FY '13 was GBP 41 million [ph], after CapEx and product development spend of about [indiscernible] and negative working capital.

[Binay Singh:]

How has been the working capital trend in Q1? Like, I don't have the data, but how has been the working capital for JLR in Q1?

[C. Ramakrishnan:]

The working capital, it's difficult to comment on a quarter-to-quarter basis. But, in the first quarter, you will generally see an increase in the working capital requirements. That's no different than this year.

[Binay Singh:]

All right. So it's more to do with seasonality rather than anything?

[C. Ramakrishnan:]

That's right, that's right.

[Operator:]

Next question is from the line of Kapil Singh from Nomura Securities.

[Kapil Singh:]

Just wanted to check a couple of things. Firstly, on the raw material cost for Tata Motors standalone. We've seen a decline in raw material cost to sales. So just wanted to understand, is it related to a lower discounting or is it because of a genuine decline in RM costs that you have seen?

[C. Ramakrishnan:]

It's surely not lower discounting. That would be incorrect statement. The discount levels and overall net realizations have been relatively weak and have continued to remain relatively weak compared to earlier periods that we have seen in the past, while we are moderating our variable marketing support, and also making price increases here and there. Overall, the market trend has been quite severe in this regard. The raw material turnover ratio, while it is difficult to give the breakup on a each quarter basis. In general, I think it's contributed more by a combination of model mix, as well as richer model mix can result in, overall, lower percentage. And, also, the second factor that you mentioned, we have seen relative steadiness in the commodity prices and we have also been undertaking significant cost reduction programs within the business. I would see a fairly steady commodity price or softer commodity prices, material cost reduction and value engineering efforts and model mix.

[Kapil Singh:]

Sir, does the weakness in rupee put a pressure on costs going forward or you see raw material costs holding at these levels?

[C. Ramakrishnan:]

I think we should be okay on the rupee front on our business. Our exports tend to be, generally, higher than our imports. The import content per vehicle, per se, is relatively low. But there may be some consequential impact that we may see, particularly if the material prices show [indiscernible] that we'll have to see, but we've not seen this phenomenon in this quarter.

[Kapil Singh:]

Okay. And just secondly, just on the inventory levels, especially for heavy trucks for both Tata Motors and the industry. If you have any thoughts there. Have we done any further inventory reduction even in the first quarter or the retails and wholesales are largely in line?

[C. Ramakrishnan:]

Generally, partly on account of seasonality, et cetera, towards 31st March, the inventory levels in the pipeline, as well as the company, tends to be at a low point and starts building up in the first quarter and second quarter for the busier period in the later part of the year. Since you asked specifically about commercial vehicles, our inventories are very much under control, whether it is with the company or with the dealers, the inventories will be, I would say, on the low end of the range that we normally operate, between 20 and 30 days. I think it will be more towards the lower end.

[Kapil Singh:]

And this is for the company and dealers put together?

[C. Ramakrishnan:]

Yes. I'm talking about inventories being in control in the total chain.

[Kapil Singh:]

That's about 30 days for the dealers or for the company and dealers put together?

[C. Ramakrishnan:]

I would think it's about 3 to 4 weeks. Between 3 to -- it can vary from product line to product line. It'll be between 3 to 4 weeks for the dealers, but at the company it'll be much smaller.

[Kapil Singh:]

[indiscernible], that's helpful. And for the industry as a whole, do we see higher levels or they would be around similar levels?

[C. Ramakrishnan:]

I think they will be operating, relatively, at the low end in terms of an industry phenomenon.

[Operator:]

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

[Sonal Gupta:]

Just to start with, one, I just wanted to get a sense of -- I mean, on the India passenger vehicle side, given that we continue to see a very sharp decline on a year-on-year basis, in terms of volumes. So, I mean, in terms of your action plan, do you -- I just want to get a sense, in qualitative terms, if you see the losses in this business sort of continuing to widen or do you think of your action plans -- I mean, your losses in this business have peaked and you shouldn't really see an acceleration in losses from here? I mean, any sort of qualitative sense that you can give on this business?

[C. Ramakrishnan:]

I think we have discussed about it in the past, in different occasions, both in calls and interactions like this [indiscernible] many of the interactions with the business leadership. We are launching a number of actions within the passenger vehicle business. Number one, there's, of course, a factor of the market being very competitive, the overall volumes being down for everybody and the pressure on pricing that's a general phenomenon. But, more than a general phenomenon, I think, in many areas, I think we also need to [indiscernible] what we are focusing on. I talked about a number of model launches recently, was it in June?

[Sonal Gupta:]

Yes.

[C. Ramakrishnan:]

In June. Almost 8 variants and newer models across the product range. Something which one has not seen in this country before. We need to work much better on our manufacturing process. We are also focusing on the sales effectiveness and the customer experience while buying a vehicle, as well as the post-sales experience. A number of initiatives have been launched, [indiscernible], while it has taken off well and there is momentum and there is commitment to make it work and emerge successfully. It's early days. I do not have the statistics to share with you at this stage. I think it'll take a couple of quarters for results to show. As far as the financial performance is concerned, it's a very competitive market, and in terms of our overall volumes, we are operating at relatively lower levels of capacity utilization. But we hope, with the actions that we are launching, not only in terms of sales and commercial area, but also in terms of cost control and cost rationalization. I think on other calls, I mentioned earlier, within the company, the focus on material cost and managing our supply chain and materials has become much, much more sharper. The constitution of integrated centralized project [ph] function between our commercial vehicles and passenger businesses. Hope to drive a lot of synergy there. A number of other actions. So I think we need to focus both on the cost side, on the product side, on our manufacturing processes, as well as the commercial area.

[Sonal Gupta:]

Okay. And, sir, my second question is on the JLR side. We have seen an improvement in terms of the average selling price on a quarter-on-quarter basis. So would it be possible for you to segregate this into currency effect versus product mix effect? And the other thing was -- if you could just give us, like you gave for the MHCVs inventory number, would you have a similar number for inventories in China for JLR?

[C. Ramakrishnan:]

No. Both the questions my -- first of all, this is not your second question, this is the 10th or 12th question. But, on the inventories, number of days in China, I don't think I'll be able to give a specific comment in terms of market inventories at different regions. So I would tend to think -- but there's no different in China compared to other markets. In general, the inventories, overall, would be between 30 to 40 days or 45 days and tailored for different markets. Some of the outer markets, or markets away from the home base, will be slightly longer, in terms of lead time and reaching out. So I would tend to think we'll be operating within this time. May vary from product line to product line, but are generally in that range.

[Sonal Gupta:]

All right. And, sir, on the ASP. If you could, is it possible to give?

[C. Ramakrishnan:]

It's difficult to segregate it exactly the way [indiscernible], because it's a function of exchange, number one, it's a function of model mix, it's a function of regional mix. After all JLR sales in 100-plus countries with, roundabout, 20% coming from each of the regions, China, Europe, U.K., U.S., et cetera. So it would be difficult to segregate that. But, yes, the effect is a combination of all of that.

[Operator:]

The next question is from the line of Jamshed Dadabhoy from Citigroup.

[Jamshed Rustom Dadabhoy:]

A couple of -- just one question actually. We've been noticing that Evoque volumes have been flatlining while Freelander volumes are up about 7% on a year-over-year basis.

[C. Ramakrishnan:]

Sorry, can you please repeat your question?

[Jamshed Rustom Dadabhoy:]

Yes, sure. Evoque volumes are flat Y-o-Y, but Freelander volumes are up about 7% on a Y-o-Y basis. Can you explain the difference in the market dynamics in these 2 product lines?

[C. Ramakrishnan:]

It's partly the capacity management also, as they share many of the common production lines. It may vary from quarter-to-quarter, but it's not an effect of -- it's partly an effect of rationalizing capacities in different quarters between different product lines.

[Jamshed Rustom Dadabhoy:]

Okay. Second question. Has the new Range Rover been rolled out across all markets?

[C. Ramakrishnan:]

Yes. You're not talking about the Range Rover Sport, you're talking about the new Range Rover?

[Jamshed Rustom Dadabhoy:]

The Range Rover. Yes, yes.

[C. Ramakrishnan:]

Yes.

[Operator:]

Next question is from the line of Govin Chellappa from Jefferies.

[Govindarajan Chellappa:]

I have three questions. One, we noticed that in the domestic business your EBITDA is barely able to cover the interest cost. In fact, it's lower than the interest outgo every quarter, and this has been the case for the last 4 quarters. Now, given that you are continuing to invest in CapEx, of INR 3,000 crores a year that you have spoken about, and the gross debt is about INR 18,000 crores, at what point do you take a call on whether you need to do an equity issuance or not? That's number one. Second, the Ace segment, which is holding up very well till last quarter, that also seems to have slowed down now. Now, what's your view on the segment? That's a segment that we've been quite positive on for a while, and this is probably the first time we are seeing a slowdown in that segment. If you could just talk about what's happening in that market. And, lastly, would it be possible to quantify the indirect import content, like other companies, like Model T and Hino have spoken about 9% to 12%, 13% of indirect imports that is coming through their vendors. Do you have a number similar to that for yourself?

[C. Ramakrishnan:]

Okay, maybe I'll respond to the questions in the reverse order. I don't have a ready number in terms of the indirect import percentage content. I would tend to think it'll be in single digits, between 5% and 10%, but I need to [indiscernible] indirect import content. This does not include some of the consequential impact you may see on exchange front. What I mean is, with rupee dollar parity, sometimes you also get some, over time, some impact on the steel prices which are normally linked to the international prices. Excluding that, in terms of indirect import content, import by our vendors, I would tend to think it'll be in the single digits between 5% and 10%. The second question you had was on Ace segment. Yes, it is true. That segment had softened this quarter, which is a phenomenon we had not seen in the earlier period. It's also partly to do with some tentativeness on the part of the financing lending agencies, banks and NBFCs, that we have seen, in terms of willingness to lend to first-time users in this particular category of borrowers. It may be a reflection of the overall sentiment of the market, perhaps. One hopes it'll get corrected over time. I think the underlying potential for the product continues to have positive momentum, and people do want to buy it, but I think this will undergo some adjustment as we go along. But it is true that we have seen some softness in the overall segment, mainly contributed by some tentativeness on the financing side. Your first question, which was on what point of time would you decide on the equity. Obviously not been a position to answer that one way or the other. Our, overall, even in the India business, while you talk about overall debt numbers and interest, our debt equity ratio -- net debt-to-equity ratio continues to be relatively okay, while it is higher than the range which I had mentioned, between 0.5 to 0.75. We are, right now, at 0.81. It's also a reflection of the current market dynamics that we have seen, hopefully with the improved -- the financial performance, some of this will get corrected. But beyond that, I would not be able to give a specific answer to that question.

[Govindarajan Chellappa:]

So that's the difficultly that we are facing, I mean you have a very good consolidated balance sheet, even the standalone balance sheet is not very stretched. But, just from a cash flow perspective, that, for the last 3, 4 quarters, that the cash flows aren't really great. So I was just trying to figure out, what would the decision be based on? I'm not asking for a timing or anything. What would the decision be based on? If you take a call today that for the next 1 year the market remains weak, would you then start thinking about an equity issuance or are there other alternatives that you have in terms of sale of any asset that you have? I mean, there are constant speculations about listing JLR so are all these under consideration?

[C. Ramakrishnan:]

Whatever is under consideration, obviously, you would not expect me to give you an outline of our fundraising plans at this point of time. We will definitely take into account the market situation, the trade cycle and the current trend one is witnessing in the marketplace. It'll be a balanced decision taken by the board at the appropriate time. I can't give an advanced indication on this at this point of time.

[Operator:]

The next question is from the line of Sanjay Doshi from Reliance Mutual Fund.

[Sanjay Doshi:]

Sir, just one question from my side. We have made a charge on the results side for the pension liabilities in this quarter. Can you please update us on what is a gap and what contributions are required annually for that, cash contributions?

[C. Ramakrishnan:]

The accounting of the results for this quarter is mostly IFRS accounting treatment in terms of the actual assumptions for the pension fund. Yes, I think your question is more on the overall budget pension deficit as agreed to the trustees and by the cash contribution [indiscernible] annually. I would think the cash contribution ranges between GBP 50 million or GBP 75 million to GBP 100 million over a 7- or 8-year period, but in that range.

[Sanjay Doshi:]

8 Okay. So we're just closer to that GBP 75 million a year?

[C. Ramakrishnan:]

Yes.

[Sanjay Doshi:]

So the gap has not widened from our last analysis that we would have done, is that the case?

[C. Ramakrishnan:]

No, it has widened for -- I don't know what you mean by last analysis. I think the last agreement of the trustees was almost 3 years ago. It has widened since then. All the underlying actuarial assumptions have caused the widening. It has widened. As I recall the numbers, I think it has widened from 300 to about 400 to about 600 [indiscernible] the overall deficit.

[Sanjay Doshi:]

Okay. And when is the next to do [ph], sir, with the labor unions? I mean the talks for any further changes in contribution.

[C. Ramakrishnan:]

No. It's not at the labor union, it's with the pension trustees. You're talking about the pension, right?

[Sanjay Doshi:]

Yes, yes, yes. Sorry.

[C. Ramakrishnan:]

It is the pension trustees, another 3 years from now.

[Operator:]

Next question is from the line of Yogesh Aggarwal from HSBC Securities.

[Yogesh Aggarwal:]

Just one question, if I may, just going back to the cash flows for the quarter. You said it's seasonal increase, but can you just provide a little more color on that? Because, in the past few years, it's been increased, but this time it's quite severe. And secondly, even the retail sales have been better versus wholesale this quarter. What are the seasonal factors there? And then just related to that. From a full-year basis, do you still expect the operating cash flows to fund the entire CapEx?

[C. Ramakrishnan:]

Our objective has been to see, in 1 year, the operating cash flow generation is able to meet with the product development and capital expenditure. Since we have stepped up the CapEx this year, significantly, from a range of around GBP 2 billion to about GBP 2.75 billion. We have also built up assumption cash resources in the company. As I said earlier, JLR today has a balance sheet with cash in the balance sheet, cash in liquid investments are well over GBP 2 billion. In addition, we have also increased the committed lines of credit, 3 to 5 years. Mostly in 5 years, between 3 and 5 years which was -- earlier at about GBP 800 million, we increased it about GBP 1.2 billion. This facility is completely undrawn as of today. Really, speaking in terms of access to funds, owned funds and cash of about GBP 2.2 billion plus drawable credit lines of about GBP 1.2 billion. That is the liquidity that JLR is sitting on right now. So if there is a marginal shortfall between operating cash flow generation and CapEx, I'm sure the company will be able to comfortably meet with that certain issue.

[Yogesh Aggarwal:]

Okay. And anything on the quarterly phenomena?

[C. Ramakrishnan:]

Yes. As I said earlier, when you -- how do I put it? Let me come at it differently. The fourth and second quarters, the second and fourth quarters of a year for JLR tend to be relatively stronger, and you would see inventory bottoming out at the end of the quarter, let's say, 31st March or 30th September and there'll be a ramp-up. In the second quarter you also ramp up to make up for the shutdown in August, in terms of production. And for product, new product launches where you start building inventory, particularly in the Range Rover Sport in this particular year. So you would see all this phenomenon happening in that quarter. It's nothing unseasonal or exceptional. It's as per plan.

[Operator:]

The next question is from the line of Akshay Saxena from Crédit Suisse.

[Akshay Saxena:]

My question is on your JLR margin guidance, you've been guiding for a margin of between 14% to 15%. But in what is traditionally been a weak quarter, 1Q, we have margins of more than 16%, and from here on we would see the new Range Rover Sport come in, as well as volumes pick up. So are you thinking about the raising of margin guidance?

[C. Ramakrishnan:]

For this year, can I revise it at the end of the year?

[Akshay Saxena:]

Generally, because this is [indiscernible].

[C. Ramakrishnan:]

It has been a good quarter, there have been earlier quarters where we have achieved margins over 15%. But, as you said, they have been not in the first quarter but in different parts of the year. Yes, it has been a very good and satisfying and good performance. It's exactly a 200% improvement in margin compared to the same Q1 of last year, partly contributed by the growing China volumes, a superior product mix, as well as the currency has been in our favor. I don't want to comment about the guidance.

[Akshay Saxena:]

And in your business review, we see that the inventory in JLR at year end has increased. Is that a function of you having produced some Range Rover Sport and hence that is getting receptive there?

[C. Ramakrishnan:]

You are quite right.

[Operator:]

The next question is from the line of Martin Moorman from PIMCO.

[Martin Moorman:]

I have 2 questions. One, just going back to the pension deficit number. I didn't catch what the latest deficit number was. I think you mentioned it was 390 million previously, and it increased to a new level.

[C. Ramakrishnan:]

Round it off, it was around 400 million earlier; it has gone up to 600 million now.

[Martin Moorman:]

Okay. And what annual contribution will that involve?

[C. Ramakrishnan:]

In terms of annual contribution for the deficit, it'll be between GBP 50 million to GBP 75 million for the next 7 or 8 years.

[Martin Moorman:]

Okay. And my second question was -- you capitalize a large percentage of your product development cost at JLR. I think it's around 80%, which is sort of far higher than the norm for the industry. Can you just explain why you use that accounting treatment and whether that will continue at that level going forward?

[C. Ramakrishnan:]

There's no intention to change the accounting treatment, which is in line with the IFRS guidance and principles and accounting GAAP. I think I tried to explain this in many of the earlier interactions. JLR is practically a new business, starting from 2008 when we acquired the company. All the product development and whatever technologies, and whatever they had, had been paid for as part of the acquisition, and the business started spending on fresh product development and expenditure from 2008 onwards, our group. As it happens, JLR also has substantially increased its investment, it's much more focused on -- I would tend to think the JLR investments in newer products, variants, et cetera, is much more accelerated now than ever before. I think that's another phenomenon that's happening here. There's no intention or plan to change this accounting treatment. But, over a period of time, over the next 3, 4, 5 years, I think this percentage will tend to gradually fall.

[Operator:]

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

[Pramod Kumar:]

My first question pertains to the depreciation number in JLR. I think, even with new products coming onstream, we have seen the depreciation number coming down in absolute terms. On a sequential basis, of course. So just wanted to understand how should one read or look at depreciation for the rest of the year? Is it like fair to assume that it should see a sharp improvement going forward or is it the kind of levels one should expect?

[C. Ramakrishnan:]

Yes. In general, I would say over the next -- again, in the same time period, next 3, 4, 5 years, as the products get introduced and the amortization, depreciation meter starts on the newer interactions. The depreciation, amortization line will tend to increase sharply in JLR. For the particular quarter in question, if you want I can send some clarifications and the calculation separately to you. Directionally, yes, it'll tend to increase rather sharply.

[Pramod Kumar:]

Okay. And, sir, how should one look at the consolidated free cash flow? Because, as you said, JLR, you aim have a operating cash flow which can match CapEx and then there is a dividend payout as well, to the parent entity. And standalone, I think you are not changing your CapEx guidance of INR 3,000 crores for the next 2, 3 years. So how should one look at the consolidated cash flow for the company and whether it will be more -- the shortfall will be more funded through debt in the near term or is there equity issuance in the near term possible?

[C. Ramakrishnan:]

I think the free cash flow, even at the consolidated level, will tend to have some gap over the next couple of years. A lot will depend on the turnaround of the India business, and how the business here starts generating positive cash flow. Without trying to make a prediction on this, we will look at opportunities for funding this gap. It can be known -- in response to one of the earlier calls we had some comments about selling some of the investments or raising debt or -- I think it's a combination one has to look at from time to time, depending on the prolonged nature of the current cycle that we are going through. But no specific plan at this time.

[Pramod Kumar:]

And a final question on capitalization. As in capitalization has seen some sharp improvement, as in, I think, which you are guiding for. But how should the trend continue going forward? Because you have already F-TYPE coming into the market, probably Range Rover Sport will be going to sales this quarter. Is it like end of first half? Is that more like a stable level for capitalization or it will continue to be going up in line with the CapEx guidance?

[C. Ramakrishnan:]

I presume capitalization, you mean capitalization part of the product development in there?

[Pramod Kumar:]

Yes, which product goes through the other expenditure line, as in the EBITDA level?

[C. Ramakrishnan:]

You need to remember, JLR also has been on a significantly upward curve in terms of the annual spend. Three years ago the annual spend was about GBP 11.5 billion. Two years ago the spend was about GBP 2 billion or maybe 3, 4 years ago, it was even lower than that. As you go through this type of steep increase in product development outlay, the total spend started increasing much sharply, GBP 1 billion to GBP 1.50 billion, GBP 1.50 billion to GBP 2 billion, GBP 1.5 billion to GBP 2 billion, GBP 2.2 billion to GBP 2.75 billion. As the new investment is increasing at such a sharp rate, the percentage will always look very odd because the new expenditure, which is on product development, tends to get capitalized. We don't see much of an impact of the -- because the base is increasing quite sharply. As the annual development stabilizes, let's say, around GBP 2.5 billion or GBP 3 billion, as the stability reaches, in terms of what we are spending, the percentage will look slightly different.

[Pramod Kumar:]

Is it fair to look at the margin x of capitalization so that's going to be much more stable, vis-à-vis, because the capitalization rate will, as a percentage of revenue, will be much more higher on a quarter like this? Is it fair to look at margins or track margins on x of capitalization basis?

[C. Ramakrishnan:]

I wouldn't know what to say is fair for you to look at. One of the questions earlier was, compared to benchmarks in the industry your capitalization is much higher. It is a phenomenon of the growth curve that we are going through. In 3 years' time we have almost doubled our capital expenditure spend from GBP 1.5 billion to GBP 3 billion, close to GBP 3 billion. So, hopefully, the one way is to look at it as an expenditure, the other way is to look at it as the investment of the product, and hopefully, it will result in better top line and bottom line going forward, better volumes, on what you're looking at it.

[Pramod Kumar:]

No, sir. My question pertained to most on the [indiscernible] margin were they reported x of capitalizations. So, for example, capitalization this quarter is 5.9% of revenue versus 3.9% in March quarter. So that's a [indiscernible]. So we're trying to move from that perspective, because that affects the margin in a big way.

[C. Ramakrishnan:]

Yes, it does. Yes, it does. I have no dispute with that. But I can't tell you -- because it depends on the purpose for which you are looking at. If you are doing a comparison with industry, you could look at general levels of capitalization, which tend to range around 40%, 50% for the industry. You could do it that way, also, instead of removing the entire thing.

[Operator:]

Thank you. Ladies and gentlemen, due to time constraints, no further questions can be taken. I would now like to hand the floor over back to Mr. [indiscernible]. Over to you.

[Unknown Executive:]

Thank you, Mosim. On behalf of Standard Chartered Securities, I would like to thank the management team of Tata Motors for giving us an opportunity to hold the call. Thank you very much, sir. Thank you to all the participants for being there on the call. Thank you and have a nice day.

[C. Ramakrishnan:]

Thank you.

[Operator:]

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