Tata Motors Limited
Q4 2014 Earnings Call Transcript

Published: 29 May 2014

[Operator:]

Good evening, ladies and gentlemen. Thank you for bearing with us with the patience. We have with us Mr. C. Ramakrishnan, the CFO for Tata Motors; Mr. Ralf Speth, who heads the JLR; Mr. Ravi Pisharody, who heads our Commercial Vehicles business and Mr. Ranjit Yadav, who heads our Passenger Vehicle business. But I first invite, Mr. C. Ramakrishnan for his presentation.

[Chandrasekaran Ramakrishnan:]

Good evening, everyone, and welcome to this presentation on the fourth quarter and the annual results announcement of Tata Motors. In terms of the financial highlights, both for the quarter and for the full year at Tata Motors group consolidate level. Net revenue for the quarter stood at INR 65,000 crores, up from INR 56,000 crores last quarter -- last year's fourth quarter, my apologies. EBITDA margin for this quarter ended at 16.5%, up from 14.9% a year ago. Profit after tax stood at INR 3,900 crores, almost the same around INR 3,900 crores last year quarter. For the full year, Tata Motors turnover stands at INR 232,000 crores, up from INR 188,000 crores last year. EBITDA margin for the full year was 16.1%, up from 14.1%. Profit after tax was close to about INR 14,000 crores compared to INR 9,800 crores last year. At a group consolidated level, the automotive debt-to-equity ratio stood at 0.07. At the consolidated level, that means very little net debt on the balance sheet. Going into some level of detail. The performance of the India business Tata Motors continues to remain very challenging with volumes and turnover dropping and cost pressures. Net revenue came in at INR 8,500 crores, down from INR 11,000 crores in the same quarter last year. EBITDA margin was negative at 6.2%. You would have seen it in the previous quarter also Q3, which was positive 3.5% same quarter last year. Profit after tax, after taking some tax credits, profit after tax came in for the quarter at INR 800 crores negative compared to negative of INR 300 crores in the same quarter last year. For the full year, net revenue was INR 34,000 crores, down from INR 44,000 crores in the same period last year. EBITDA margin was negative at 1.4%, down from 4.8% in the previous year. And profit after tax with the full year tax credits available, profit after tax was marginally positive at INR 335 crores, marginally up from INR 302 crores in the previous year. And Tata Motors standalone India business, net debt-to-equity was at 0.77

[Operator:]

Swati?

[Unidentified Analyst:]

Sir, on the margin, you spoke this time it's negative 6.2% versus 3.5%. And in your outlook you've said that things will only start reflecting as far as improvement of sales is concerned from second half of this financial year. What is the margin picture likely to be? Do you think this negative turning positive by second half?

[Chandrasekaran Ramakrishnan:]

Yes, I think the margins will continue to be under pressure. I don't know how to predict a number in terms of margins into the future, this is not normally what we do, but considering the dip in demand that we are seeing for two successive years, eight or 10 quarters, I think the recovery will come, while there is a lot of positive momentum, there is a lot of expectation. I think we would like to be realistic and somewhat conservative. And by the time it impacts on the ground in terms of automotive demand, I think there will be some lag time before it starts resulting in the bottomline performance.

[Unidentified Analyst:]

And on the export markets, you said you are evaluating and constantly looking at entering new market. Can you tell us what markets have you looked at? And apart from the three Nepal, Bangladesh market or Sri Lanka, are there more markets that you've identified and how big are you going on international passenger vehicle for the year?

[Chandrasekaran Ramakrishnan:]

Apart from the neighboring market, we do sport vehicles in other markets, as well passenger vehicles and also commercial vehicles. Yes, we have identified one or two names which I have mentioned in the presentation and we will look at many more. Your question is with specific reference to passenger vehicles?

[Ranjit Yadav:]

Well, just to highlight I think last year we started our operation in Indonesia, so that has come into play from this year as well. So Indonesia is a key market for us and we are in process of entering Algeria as well. So these are some of our key markets and as we look forward, both passenger vehicles and commercial vehicles look closely to work together to enter new markets. Recently, we also entered Philippines as an example. So this is ongoing process.

[Operator:]

Siddharth?

[Unidentified Analyst:]

Dr. Speth, I've got two questions for you. On the XE do you see -- where do you going to build these cars and will you be exporting from China in case you don't have sufficient capacity in Solihull factory at the moment?

[Ralf Speth:]

XE, will be a fantastic product. I've driven the first [ph] model I can tell you it really feels that. And we are going to produce XE in now Solihull, in our aluminum plant because also we want a XE on a very advanced aluminum architecture. And we don't think we are going to support the export out of China. We are going to produce out of our new plant in China, just for the demand in China.

[Unidentified Analyst:]

And any update on the Saudi Arabia factory?

[Ralf Speth:]

No. No update. We are discussing with the parties around the table and we are on track.

[Unidentified Analyst:]

What are capacity utilization levels in the India factory at the moment and when do you expect them to get done?

[Ravindra Pisharody:]

We have had successful running factories across CVs and cars put together to the utilization ranges on there between 45% to 70% depending on the segment, which that factory is working on.

[Operator:]

Ketan?

[Unidentified Analyst:]

Just a clarity, does a dividend of GBP 150 million again from JLR towards Tata Motors that is for the quarter or for the full year? And is it going to be consistent going ahead as well?

[Chandrasekaran Ramakrishnan:]

Last two years JLR have declared annually GBP 150 million dividend. What I mentioned in my presentation since it's a event that happened just two days ago, JLR declared a dividend of GBP 150 million. In Tata Motors financial results, it will be reflected in the first quarter of this year. Last year, the dividend declared by JLR, which was in June or July has been accounted in '13, '14. In terms of continuing to go forward, the board will take a call on that from time to time.

[Unidentified Analyst:]

This must be the sixth straight quarter of a standalone loss. Is there a clarity, I mean is this the bottom for Tata Motors for both its businesses, be it passenger vehicle or commercial vehicle, low commercial business continues to be good at around 50%-odd and above, but is this the bottom? Is this the worst that the company has performed as for this passenger vehicle business? And how is the next 12 to 18 months looking like looking at the optimistic sentiment and the hopes of revival out here?

[Chandrasekaran Ramakrishnan:]

Yes, this maybe the sixth quarters of financial performance such as the one we have reported just now, this also maybe the eighth or tenth quarter of overall external economic performance also going down. So there is a lot at auto industry tends to benefit or get affected by the external environment and the overall economic performance. And definitely the decline in the demand and therefore on our financial performance has been much sharper compared to the past in commercial vehicles. We believe we have a powerful product line and that the upturn as and when it happens at the economy will also equally will reflect on our financial performance into the future. We have talked about some of this just a short while ago, we do expect a turnaround in the external environment and economic performance. As far as passenger vehicle is concerned, we are talking about much greater frequency and depth in terms of our product launches, refreshes. We are already talking about -- we also referred to the Zest and Bolt launches and the new Nano Twist and a whole host of other products. And I also mentioned in my presentation about the holistic efforts we have putting in the passenger vehicle business in terms of product launches, in terms of customer experience, service quality and world-class manufacturing practices, which are the four pillars, which will drive the passenger vehicle business into the future. We do expect things will turnaround in near future.

[Ravindra Pisharody:]

Can I just add to that? I think, Ketan, obviously there is a huge impact of the volumes we are producing and selling, I think you've been in this room for probably all this six or eight quarters and every time there is a question about when do you think the economic will recover. Unfortunately, it hasn't recovered. So till the end of March, we still see the economy declining. So there is a strong link, so know that auto is one of the biggest contributors to the manufacturing economy. So in terms of the environment around those, I think you're part of -- you're reading the same media and following the same news that we do. There seems to be an improvement in overall sentiment, but it has to translate into reforms and action in the ground for us to really have the volumes picking up. But clearly the volumes pick up, we believe we are well placed to reap the benefits of an economic revival.

[Operator:]

Alex.

[Unidentified Analyst:]

I think you've just answered most of the important questions that I want to ask, but then there is a small clarification on the finance cost. There has been a significant rise, both sequentially and on-year, could you please explain that?

[Chandrasekaran Ramakrishnan:]

You're talking at consolidated level or?

[Unidentified Analyst:]

Yes, consolidate level.

[Chandrasekaran Ramakrishnan:]

As I mentioned in Jaguar Land Rover in particular, we did a transaction in terms of buyback of some of the earlier bonds. So the buyback cost and the one-time fee and the price you have to pay for the purchase that charge has been added into this quarter, which is a one-time write-off. And in Tata Motors, the interest cost have somewhat increased due to the continuing increase in borrowings.

[Unidentified Analyst:]

Ravi sir, what you're going to answer this, but is it really early to ask that, obviously we were talking about a stable government from a very long time and a decisive government. Now, we have a more than a decisive government at this point in time. Now, just getting a mood change, obviously this will take some time to get into number, but post then we have the government formation and everything, has the enquiries been increase or say some mood change there has been some upliftment in the enquires and all?

[Chandrasekaran Ramakrishnan:]

It is difficult to give day-to-day running commentary.

[Ravindra Pisharody:]

I think more to do there so much. It's just been a week, since the results were announced of the election. So portfolio allocation has just happened. So we'll have to wait, but we have said that in the last two, three months and this is very specific to M&HCV, because the LCV and HCV are still struggling under financing performance and NPVs. The M&HCV, you've seen the numbers, we put out our monthly numbers, the decline rates have come down. Some of that maybe to do with the excise duty reduction, freight rates have firmed up. There have been some announcement, but announcements around mining, but the underutilized capacity was somewhere in the region of 30% to 50%. But in terms of new vehicle purchases, we've seen that sort of declines come down to very small levels. I think this quarter will tell us where we stand, but otherwise we'll have to really wait and see. It's too early to talk about impact of the new government and mood change.

[Unidentified Analyst:]

Sir, has the board worked on or short-listed a new or is in the process of short-listing the new CEO for the company? When do we expect some announcement on that front? I mean where does it stand as of now?

[Chandrasekaran Ramakrishnan:]

Frankly, there is no comment to make on this at this point of time. As and when the board takes a call on this, we'll make the necessary announcement.

[Unidentified Analyst:]

Sir, on the environment improving, we are talking of economy reviving, et cetera. Is there any possibility that Land Rover and Jaguar were look at an IPO for the Indian market?

[Ralf Speth:]

Sorry, I can't comment about it. That's really a decision the Tata Board has to think about. I'm very happy with the situation as it is at the very moment. It's not only a question to do an IPO, so that the question what happens after an IPO, and Jaguar Land Rover has the very best shareholder [indiscernible].

[Unidentified Analyst:]

Kartikey from Zee Business. So what kind of government support does industry need to see good days ahead? Mr. Pisharody and Mr. Yadav can reply.

[Ravindra Pisharody:]

Well, see as part of the automotive industry, we have put together quite a few things, which we thought -- this is not a first time, we've had situations in the past also where there has been downturn and there has been some response from time-to-time. So I think there is a whole lot of things, which will help the situation, something there are things like excise duty deduction we saw something very recently. We obviously, believe that could continue. There are other things that on fleet replacement accelerated depreciation, but these are all short-term stimulus, the real stimulus or the real thing is something to do much more long-term, which I think any good government to do, which is about reviving the economic climates in the country.

[Unidentified Analyst:]

Would you share three, four points that which we have discussed from industry platform?

[Ravindra Pisharody:]

These are other ones, which I just talked about.

[Unidentified Analyst:]

Mr. Yadav, you are going to launch a few more refresh or new model of Nano Twist. So do you see that price difference between the up-most model of Nano and the few like of Hyundai Eon and Maruti Alto's price, we are going to witness a thin line of price difference between Nano and the other models. So how do you see, how would you market your product?

[Ranjit Yadav:]

You're predicting what we're going to launch. We haven't announced anything as yet. With the Nano Twist, we have obviously as you're aware we've hit the different price point and level. And clearly this is what we said in the past as well that consumers look for value and they're willing to pay for value. The Nano Twist has been very well accepted, and it's being different, kind of clientele is coming and buying this vehicle as well. And we have in this environment a very heavy discount. We hardly have anything on discount on the Twist. So I think it's progressing well. As time goes by we will position the Twist as a smart city car and we'll build in everything, which is needed to make that happen.

[Unidentified Analyst:]

Would you share number of Nano's that you've sold in last two months?

[Ranjit Yadav:]

Well, we can get you the data [Multiple Speakers].

[Unidentified Analyst:]

Ranjit, two questions, one is about the new models that are coming in. Carl had mentioned a year ago that Tata Motors had too many models in there lineup and with the new models coming in will some old models be phased out or will you continue to sell them as well?

[Ranjit Yadav:]

See with the Zest and Bolt, we address category in a segment, which we've not been addressing so far. We've not been particularly strong in petrol with the REVOTRON engine coming in, we start addressing that segment very strongly, and that is 50% et cetera of the market today.

[Unidentified Analyst:]

Are you talking about the premium?

[Ranjit Yadav:]

I am talking about the entry compact sedan segment and the step-up compact sedan that segment, and as well in the mid-to-high end hatch segment, yes. So we see quite some opportunity with our petrol engines. We see quite some opportunity with these vehicles. So there is no immediate plan to reduce the number of models. Yes, what Carl had mentioned is correct. Over a period of time, we would look at our portfolio and make the appropriate changes when the right time is there.

[Unidentified Analyst:]

And also any sort of, there was talk about Sanand being repurposed for other models, is that being done or is it only going to be Nano for now?

[Ranjit Yadav:]

For now is the Nano. And as time goes by, if we were to do something like that, we would come out with the guidance.

[Unidentified Analyst:]

And Dr. Speth, what is your outlook on Jaguar Land Rover, especially China, given that austerity measures are taking place and there is a little less conspicuous spending and other car makers are talking about the slight slowdown and people shifting to low models. Are you seeing a similar sort of situation?

[Ralf Speth:]

Overall, China is a very, very strong market, the biggest automotive market in the world as you know anyhow going probably according to the forecast from 18 million to 20 million cars, we only deliver a fraction, for us there is room for further improvement and further development. And yes, I understand that everybody is nervous, because all of sudden China is only growing by a GDP of 7.9% and 7.8%. But you also have to in this kind of calculation consider that the overall base is for meanwhile applicable. And therefore, the growth of 7.9% in comparison to growth maybe happened two or three year years ago, compares the two-digit growth. And the overall growth in the market will give us really optimism that we with our very special cars, capable this product substance really can deliver the right product offer for China in the future.

[Operator:]

Aradhana?

[Unidentified Analyst:]

Mr. Yadav, I was just wondering if you can share some more specific timeline on the Bolt and Zest launches?

[Ranjit Yadav:]

We'll do it in another press conference.

[Unidentified Analyst:]

And Dr. Speth, just wondering if you can give us a timeline on when the first car will be rolled out of the China plant? And do you expect sales to accelerate?

[Ralf Speth:]

Yes. We have produced the very first car yesterday, but not in a serious production condition, but as a test. And we really will take time and take our time to train, to educate, to deliver the quality, because wherever the Jaguar Land Rover batches on the car that needs a very special quality. And we are really determined to deliver that quality.

[Unidentified Analyst:]

So when then will the actual manufacturing starts?

[Ralf Speth:]

Whenever we achieve the right quality.

[Operator:]

Utkarsh, you had a question.

[Unidentified Analyst:]

Ravi sir, what's the update on the soft roader you have been talking about from a very long time. I haven't heard about it.

[Ravindra Pisharody:]

We talk quite actively about it in the Auto Expo. Actually we showed the concept car, the Nexon. And when it was discussed, I also mentioned that we will be having it in the market within 24 months.

[Operator:]

Rajat?

[Unidentified Analyst:]

Dr. Speth, my question is when could we see the four cylinder plant being ready and what could be the output from that new plant?

[Ralf Speth:]

We are really working very, very hard and according plan to really produce our new Ingenium engine family out of the new plant. You can see it already. It's a fantastic building by the way with the biggest solar panels on a roof-mounted in the U.K. We have 21,000 solar panels over there, that we really make also an environmental statement. The plant is on track. We are going to more or less celebrate probably in autumns timeframe. And similar to the question about XE, we also have to make sure that everything, every process every detail is really trained, processed experienced, so that we can be sure that every engine really delivers state-of-the-art output.

[Unidentified Analyst:]

And what about the production, what would be the output from that annually?

[Ralf Speth:]

We are growing ahead in stages and really are climbing up very, very slowly. The rate of the ramp up curve is really depending also on quality, on these kind of things we are flexible, so therefore we have time to go really to the maximum installed capacity.

[Operator:]

The last question, Ketan?

[Unidentified Analyst:]

What else are you looking at to? Why the significant increase in the interest cost for the JLR, almost like GBP 116 million is one-off, for what's for that? And second, can you elaborate more on how the capacity utilization on JLR is going on, because last time we spoke, you said something like a capacity constrain on that particular front, though the demand is significantly higher. So can you elaborate on that?

[Ralf Speth:]

So I don't know really whether I really understood it correctly, but first question principally do we have capacity constrains? Yes, we have certain constrains or had certain constrains. We are opening up, every and each bottleneck step by step by step and we have invested a lot in the complete product creation process and capacity expansion in the controlled way.

[Unidentified Analyst:]

What about the interest cost increasing?

[Chandrasekaran Ramakrishnan:]

I think there is also any question on the interest cost in the fourth quarter?

[Unidentified Analyst:]

Yes.

[Chandrasekaran Ramakrishnan:]

As I mentioned earlier there is one-off increase in fourth quarter. If you recall I think we've mentioned it in the last quarter also. JLR had some bonds, which they had issued about three, four years ago. Based on the waiting and the performance in JLR, the bonds were priced much higher at that time. They were seven-year bonds. And after three years, we have the ability to call them back. We issued fresh bonds more recently and bought back the old bonds. The fresh bonds are issued at about 3% roughly, at a lower cost than what the earlier bonds were bought three years ago. So when you do this, the expenses relating to the new bond issue that will be charged off. And the old bonds, you normally pay a premium to get the bonds back, the benefit of that will come by way of reduced interest in the future, but you will see a one-time charge in this year when the transaction actually happen.

[Operator:]

Ketan, final question.

[Unidentified Analyst:]

Question for Ravi sir, there was some issues with regards to the Lucknow plant and the benefits that you were getting from the state government. Has that -- I mean you had move some production out of Lucknow plant to some of the other plants, is there any clarity on that? And since you said, you have so many different plants, is there a thought of rationalizing, shutting down any of the plants?

[Ravindra Pisharody:]

First of all, there has been no [indiscernible] of Lucknow production elsewhere. I know there have been some media reports about Lucknow products moving out, it's not moved out. Whatever we were producing in Lucknow, which is really a supplementary M&HCV capacity to our Jamshedpur capacity stays as it is. I think our discussions with many state governments are ongoing on incentives, incentives, which have been announced at various stages in the history of the evolution of the factories, those discussions are ongoing. I don't think I can tell you anything more than that. What was the last one?

[Unidentified Analyst:]

Whether there is a need to rationalize production?

[Ravindra Pisharody:]

See, that's something we are as a company which has six to seven in factories, I think we have reached the level of maturity in terms of the total capacity we have. So that's something we are going to continuously looking on an ongoing business in terms of what are the footprint of each plant, what will they manufacture, that's something we are going on doing, but as a result of that there has been no major dramatic change from what we've been doing in the past.

[Unidentified Analyst:]

So no shutdowns of any other plant?

[Ravindra Pisharody:]

No, no. Not at all.

[Unidentified Analyst:]

And if I can ask Mr. Speth about the China plant, you said the first product will rollout this year. Is that the China specific product? And would that result into a significant incremental volume from what you do right now?

[Ralf Speth:]

Overall, it's a product for the Chinese market, for the Chinese market only. We will not export out of China. But as I mentioned earlier, we will really take our time to produce the vehicle on quality and it does not matter whether we come at the end of this year or early next year. It's more important that we come with the right quality. We are doing this the very first time and therefore we want to be absolutely sure that every process is really delivered up to the highest standards.

[Unidentified Analyst:]

Is there a potential that you can share with us in terms of the incremental numbers the China-specific models could bring out in the future?

[Ralf Speth:]

No, not at the moment. It really depends how we can manage and organize a ramp up growth.

[Operator:]

Thank you, ladies and gentlemen for joining with us. Thank you.